Emerging Issues in Management (Mgmt 440) Regulation: Law, Economics and Politics (Chapter 10) Professor Charles H. Smith Fall 2011

Introduction to Government Regulation Government regulation is an often despised yet often necessary part of American business. Government regulation is an often despised yet often necessary part of American business. On one hand, we see abuses by politicians all the time; on the other hand, a nation without strong leadership leads to chaos, anarchy, violence and a general lack of order. On one hand, we see abuses by politicians all the time; on the other hand, a nation without strong leadership leads to chaos, anarchy, violence and a general lack of order.

Introduction to Government Regulation cont. Federal government regulation draws its authority from Federal government regulation draws its authority from U.S. Constitution; e.g., Article I sets forth the powers of Congress such as the power to regulate interstate commerce and intellectual property or “lay and collect Taxes.” U.S. Constitution; e.g., Article I sets forth the powers of Congress such as the power to regulate interstate commerce and intellectual property or “lay and collect Taxes.” Statutes; e.g., securities laws confer power on Securities Exchange Commission to regulate securities trading and enforce securities laws. Statutes; e.g., securities laws confer power on Securities Exchange Commission to regulate securities trading and enforce securities laws. “The people” vote for our government representatives we hope will work toward our benefit; e.g., President and Congress who, in turn, control who sits on federal bench. “The people” vote for our government representatives we hope will work toward our benefit; e.g., President and Congress who, in turn, control who sits on federal bench.

Regulatory Powers Under the U.S. Constitution – Commerce Clause Commerce Clause (Article I, Section 8) gives Congress the power to “regulate Commerce... among the several states.” Commerce Clause (Article I, Section 8) gives Congress the power to “regulate Commerce... among the several states.” This power has been broadly interpreted This power has been broadly interpreted Congress empowered to regulate activities that “substantially affect interstate commerce.” Congress empowered to regulate activities that “substantially affect interstate commerce.” This power not necessarily limited to commerce that crosses state lines; what may seem to be purely interstate commerce may also potentially be regulated. This power not necessarily limited to commerce that crosses state lines; what may seem to be purely interstate commerce may also potentially be regulated.

Commerce Clause cont. Direct impact – the Commerce Clause has been used to justify federal legislation as to the New Deal in the 1930’s and civil rights laws in the 1960’s. Direct impact – the Commerce Clause has been used to justify federal legislation as to the New Deal in the 1930’s and civil rights laws in the 1960’s. Indirect impact – there is also substantial “dormant” Commerce Clause jurisprudence which comes into play when state regulation impinges on interstate commerce. Indirect impact – there is also substantial “dormant” Commerce Clause jurisprudence which comes into play when state regulation impinges on interstate commerce.

Commerce Clause cont. Case studies Case studies Heart of Atlanta Motel v. United States, 379 U.S. 241 (1964) – broad scope of Commerce Clause. Heart of Atlanta Motel v. United States, 379 U.S. 241 (1964) – broad scope of Commerce Clause. Gonzales v. Raich, 545 U.S. 1 (2005) – medical marijuana case. Gonzales v. Raich, 545 U.S. 1 (2005) – medical marijuana case. Granholm v. Heald, 544 U.S. 460 (2005) – state regulation of direct sales by out-of-state winemakers. Granholm v. Heald, 544 U.S. 460 (2005) – state regulation of direct sales by out-of-state winemakers.

Regulatory Powers Under the U.S. Constitution – Taxing Power Congress has the power to levy taxes under Article I, Section 8; that power extends to income taxes per the 16 th Amendment. Congress has the power to levy taxes under Article I, Section 8; that power extends to income taxes per the 16 th Amendment. Some assert that imposition of income tax is unconstitutional but this has been completely debunked in the courts; arguments include Some assert that imposition of income tax is unconstitutional but this has been completely debunked in the courts; arguments include 16 th Amendment improperly enacted. 16 th Amendment improperly enacted. Only residents of “sovereign” states (D.C., Puerto Rico) required to pay income tax. Only residents of “sovereign” states (D.C., Puerto Rico) required to pay income tax. Alas, litigants routinely lose these cases resulting in imprisonment, fines or both. Alas, litigants routinely lose these cases resulting in imprisonment, fines or both.

Regulatory Powers Under the U.S. Constitution – Intellectual Property Intellectual property is commonly regarded as a recent development but it is not. Intellectual property is commonly regarded as a recent development but it is not. In fact, it is provided for in Article I, Section 8 – “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries” (1787). In fact, it is provided for in Article I, Section 8 – “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries” (1787).