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

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

Chapter 11 Outline A Brief History of Government’s Role Business, Government, and Regulation 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 A Brief History of Government’s Role The Roles of Government and Business A Clash of Ethical Belief Systems Social, Technological, and Value Changes Interaction of Business, Government, and the Public Government/Business Relationship Public/Government Relationship Business/Public Relationship Government’s Nonregulatory Influence on Business Industrial Policy Privatization Other Nonregulatory Governmental Influences on Business Government’s Regulatory Influences on Business Regulation: What Does It Mean? Reasons for Regulation Types of Regulation Issues Related to Regulation Deregulation Purpose of Deregulation Trend Toward Deregulation Dilemma with Deregulation Deregulatory Reform Approaches to Regulatory Reform Regulatory Trends: A Decade of Experience Summary

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

Government’s Role in Influencing Business Chapter 11 Business, Government, and Regulation Government’s Role in Influencing Business Prescribes the rules of the game for business. Purchases business’ products and services. Uses its contracting power to get business to do things it wants. Is a major promoter and subsidizer of business. Is the owner of vast quantities of productive equipment and wealth.  Is an architect of economic growth. Is a financier. Is the protector of various interests in society against business exploitation. Directly manages large areas of private business. Is the repository of the social conscience and redistributes resources to meet social objectives.

Roles of Government and Business Chapter 11 Business, Government, and Regulation Roles of Government and Business 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?

Clash of Ethical Systems Chapter 11 Business, Government, and Regulation Clash of Ethical Systems Business Beliefs Government Beliefs 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 Individualistic ethic Maximizes concession to self-interest Minimizes the load of obligations society imposes on the individual (personal freedom) Emphasizes inequalities of individuals Figure 11-1

Social, Technological, and Value Changes Chapter 11 Business, Government, and Regulation 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

Interaction Among Business, Government, and the Public Chapter 11 Business, Government, and Regulation 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

Interaction Among Business, Government, and the Public Chapter 11 Business, Government, and Regulation Interaction Among Business, Government, and the Public Government / Business Relationship Lobbying Public / Government Relationship Voting Electing officials Business / Public Relationship Advertising Public Relations Other forms of communication

Government’s Nonregulatory Influence on Business Chapter 11 Business, Government, and Regulation Government’s Nonregulatory Influence on Business Two Major Nonregulatory Issues Industrial Policy Privatization http://www.USA.gov @

Industrial Policy Industrial Policy Chapter 11 Business, Government, and Regulation Industrial Policy Industrial Policy Any selective government measure that prevents or promotes changes in the structure of an economy.

Industrial Policy Schools of Thought Accelerationists Adjusters Chapter 11 Business, Government, and Regulation Industrial Policy Adjusters Targeters Central planners Accelerationists Bankers Schools of Thought

Industrial Policy Arguments For Arguments Against Chapter 11 Business, Government, and Regulation Industrial Policy Arguments For Arguments Against 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

Privatization @ Privatization Chapter 11 Business, Government, and Regulation Privatization Privatization The process of “turning over to” the private sector some function that was previously handled by government. http://www.privatization.org @

Other Nonregulatory Government Influences Chapter 11 Business, Government, and Regulation Other Nonregulatory Government Influences Major employer Standard setter Largest purchaser Use of Subsidies Transfer payments Major competitor Loans and loan guarantees Taxation Monetary policy Moral suasion

Government’s Regulatory Influence on Business Chapter 11 Business, Government, and Regulation Government’s Regulatory Influence on Business Factors to Consider Regarding Government Regulation Fair treatment Protection Scope Cost Burden

A Federal Regulatory Agency… Chapter 11 Business, Government, and Regulation A Federal Regulatory Agency… Has decision-making authority Establishes standards or guidelines conferring benefits and imposing restrictions on business conduct Operates principally in the sphere of domestic business activity Has its head and / or members appointed by the president (generally subject to Senate confirmation) Has its legal procedures generally governed by the Administrative Procedures Act

Reasons for Regulation Chapter 11 Business, Government, and Regulation Reasons for Regulation Controls negative externalities Achieves social goals Controls excess profits Controls natural monopolies Controls excessive competition

Types of Regulation Economic Regulation Chapter 11 Business, Government, and Regulation Types of Regulation Civil Aeronautics Board Federal Communications Commission Interstate Commerce Commission Economic Regulation Major costs of economic regulation are for: Finance and banking Industry-specific regulation General business

Types of Regulation Social Regulation Environmental Protection Agency Chapter 11 Business, Government, and Regulation Types of Regulation Occupational Safety and Health Administration Equal Employment Opportunity Commission Environmental Protection Agency Social Regulation

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

Benefits of Regulation Chapter 11 Business, Government, and Regulation Benefits of Regulation Fair treatment of employees Safer working conditions Safer products Cleaner air and water

Costs of Regulation Direct costs Indirect costs Induced costs Effects Chapter 11 Business, Government, and Regulation Costs of Regulation Direct costs Indirect costs Induced costs Effects Innovation may be affected. New investments in plant and equipment may be affected. Small business may be adversely affected.

Regulatory Spending in the U.S. Chapter 11 Business, Government, and Regulation Regulatory Spending in the U.S. Figure 11-5

Deregulation Purpose Dilemma Chapter 11 Business, Government, and Regulation 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).

Industries Affected by Deregulation Chapter 11 Business, Government, and Regulation Industries Affected by Deregulation Trucking Telecommunications Financial Services Electric Utilities

Key Terms Regulation Individualistic ethic of business Market failure Chapter 11 Business, Government, and Regulation Key Terms 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 Individualistic ethic of business Collectivistic ethic of government Industrial policy Accelerationists Adjusters Targeters Central planners Bankers Privatization Federalization