1 Business, Government, and Regulation Business and Society: Ethics and Stakeholder Management, 7e Carroll & Buchholtz Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved Prepared by Deborah Baker Texas Christian University Chapter 11

2 Chapter 11 Learning Outcomes 1. Articulate a brief history of government’s role in its relationship with business. 2. Appreciate the complex interactions among business, government, and the public. 3. Identify and describe government’s nonregulatory influences. 4. Explain government regulation and identify the major reasons for regulation, the types of regulation, and issues arising out of it. 5. Provide a perspective on privatization versus federalization, along with accompanying trends.

3 Chapter 11 Outline  A Brief History of Government’s Role  The Roles of Government and Business  Interaction of Business, Government, and the Public  Government’s Nonregulatory Influence on Business  Government’s Regulatory Influences on Business  Deregulation  Summary  Key Terms  Discussion Questions

4 Introduction to Chapter 11 The chapter examines the relationship between business and government, and in particular, the government’s role in influencing business.

5 Government’s Role in Influencing Business 1.Prescribes the rules of the game for business. 2.Purchases business’ products and services. 3.Uses its contracting power to get business to do things it wants. 4.Is a major promoter and subsidizer of business. 5.Is the owner of vast quantities of productive equipment and wealth. 6.Is an architect of economic growth. 7.Is a financier. 8.Is the protector of various interests in society against business exploitation. 9.Directly manages large areas of private business. 10.Is the repository of the social conscience and redistributes resources to meet social objectives.

6  What should be the respective roles of business and government in our socioeconomic system?  Given all of the tasks that must be accomplished to make our society work, which of these tasks should be handled by the government and which should be handled by business?  How much autonomy are we willing to allow business? Roles of Government and Business

7 Business BeliefsGovernment Beliefs  Individualistic ethic  Maximizes concession to self-interest  Minimizes the load of obligations society imposes on the individual (personal freedom)  Emphasizes inequalities of individuals  Collectivistic ethic  Subordinates individual goals and self-interest to group goals and group interests  Maximizes obligations assumed by the individual and discouraging self-interest  Emphasizes equality of individuals Clash of Ethical Systems Figure 11-1

8 Social, Technological, and Value Changes Major Changes National society Communal society Entitlements Quality of life Societal Value Changes Youth movement Consumer protection movement Ecology movement Civil rights movement Women’s movement Egalitarian movement

9 Interaction Among Business, Government, and the Public Lobbying Regulations and Other Forms of Persuasion Advertising Public Relations Political Process Voting Interest Groups Contributions Public Business Government Interest groups Not buying products Protests Politicking Political influence Figure 11-2

10  Government / Business Relationship Lobbying  Public / Government Relationship Voting Electing officials  Business / Public Relationship Advertising Public Relations Other forms of communication Interaction Among Business, Government, and the Public

11 Government’s Nonregulatory Influence on Business Two Major Nonregulatory Issues Industrial Policy Privatization

12 Industrial Policy Any selective government measurethat prevents or promotes changesin the structure of an economy.

13 Industrial Policy Adjusters Targeters Central planners Accelerationists Bankers Schools of Thought

14  Decline of U.S. competitiveness  Use by other world governments  Ad hoc industrial policy  Reduces market efficiency  Promotes political decisions  Foreign success variable  Various interventions create an industrial policy by default Industrial Policy Arguments ForArguments Against

15 Privatization The process of “turning over to”the private sector some functionthat was previously handledby government.

16  Major employer  Standard setter  Largest purchaser  Use of Subsidies  Transfer payments  Major competitor  Loans and loan guarantees  Taxation  Monetary policy  Moral suasion Other Nonregulatory Government Influences

17 Government’s Regulatory Influence on Business Factors to Consider Regarding Government Regulation  Fair treatment  Protection  Scope  Cost  Burden

18 1. Has decision-making authority 2. Establishes standards or guidelines conferring benefits and imposing restrictions on business conduct 3. Operates principally in the sphere of domestic business activity 4. Has its head and / or members appointed by the president (generally subject to Senate confirmation) 5. Has its legal procedures generally governed by the Administrative Procedures Act A Federal Regulatory Agency…

19 Reasons for Regulation Controls negative externalities Achieves social goals Controls excess profits Controls natural monopolies Controls excessive competition

20 Types of Regulation Civil Aeronautics Board Federal Communications Commission Interstate Commerce Commission Economic Regulation Major costs of economic regulation are for: 1. Finance and banking 2. Industry-specific regulation 3. General business

21 Types of Regulation Occupational Safety and Health Administration Equal Employment Opportunity Commission Environmental Protection Agency Social Regulation

22 Economic RegulationsSocial Regulations FocusMarket conditions; economic variables People in roles as employees, consumers and citizens Affected Industries Selected (railroads, aeronautics, communications) Virtually all industries ExamplesCAB FCC EEOC, OSHA, CPSC, EPA Current Trend From regulation to deregulation Stable Comparison of Economic and Social Regulation Figure 11-3

23 Benefits of Regulation  Fair treatment of employees  Safer working conditions  Safer products  Cleaner air and water

24  Direct costs  Indirect costs  Induced costs Effects 1.Innovation may be affected. 2.New investments in plant and equipment may be affected. 3.Small business may be adversely affected. Costs of Regulation

25 Regulatory Spending in the U.S. Figure 11-5

26 Deregulation Purpose Intended to increase competition with the expected benefits of greater efficiency, lower prices, and enhanced innovation. Dilemma Many competitors are unable to compete with the dominant firms. Must enhance competition without sacrificing applicable social regulations (e.g., health and safety requirements).

27 Industries Affected by Deregulation  Trucking  Telecommunications  Financial Services  Electric Utilities

28  Individualistic ethic of business  Collectivistic ethic of government  Industrial policy  Accelerationists  Adjusters  Targeters  Central planners  Bankers  Privatization  Federalization  Regulation  Market failure  Natural monopoly  Negative externalities  Social costs  Social goals  Excess profits  Excessive competition  Economic regulation  Social regulation  Direct costs  Indirect costs  Induced costs  Deregulation Key Terms