Business & Society Business & Society Ethics, Sustainability, and Stakeholder Management Eighth Edition Archie B. Carroll Ann K. Buchholtz © 2012 South-Western, a part of Cengage Learning 1

Chapter 11 Business, Government, and Regulation © 2012 South-Western, a part of Cengage Learning 2

Learning Outcomes © 2012 South-Western, a part of Cengage Learning 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, especially the concepts of industrial policy and privatization. 4.Explain government regulation and identify the major reasons for regulation, the types of regulation, and issues arising out of deregulation. 5.Provide a perspective on privatization versus federalization, along with accompanying trends. 3

Chapter Outline The Pendulum of Government’s Role in Business 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 © 2012 South-Western, a part of Cengage Learning

Government’s Role in Influencing Business A regulator of business that can determine the rules of the game. A major purchaser with buying power that can affect a business’ or industry’s survival. Can elevate some industries while devaluing others through government policy. Can create new businesses and industries through subsidies and privatization. © 2012 South-Western, a part of Cengage Learning 5

Interaction of Business, Government, and the Public Government/Business relationship Lobbying Public/Government relationship The Public Voting and electing officials Special interest groups The Government Politicking and public policy formation Business/Public relationship Business Advertising, public relations, and other forms of communication Public Special interest and protest groups 6 © 2012 South-Western, a part of Cengage Learning

Government’s Nonregulatory Influence on Business Two major nonregulatory issues  Industrial policy Concerned with the role of government in a national economy.  Privatization Should currently public functions be turned over to the private (business) sector? 7 © 2012 South-Western, a part of Cengage Learning

Industrial Policy Industrial policy Every form of state intervention that affects industry as a distinct part of the economy. Trend toward stronger industrial policy. Current industrial policy supports new winning industries and fosters growth. 8 © 2012 South-Western, a part of Cengage Learning

Privatization The process of turning over to the private sector some function that was previously handled by a government body.  An integral part of the 21 st century strategies of most nations. 9 © 2012 South-Western, a part of Cengage Learning

Producing versus Providing a Service Producing or providing a government service? Providing Has a program for and pays for a service. Producing Has its own employees who do the service. 10 © 2012 South-Western, a part of Cengage Learning

The Privatization Debate Pro-Privatization Government has no comparative advantage in many functions. Government is less efficient and less flexible. Anti-Privatization Some activities cannot be effectively handled by the private sector (such as airlines or the postal system).  Privatization produces uneven results in efficiency gains and cost savings. 11 © 2012 South-Western, a part of Cengage Learning

What Does Regulation Mean? Regulation The act of governing, directing according to rule, or bringing under the control of law or constituted authority. 12 © 2012 South-Western, a part of Cengage Learning

Characteristics of a Federal Regulatory Agency 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. 13 © 2012 South-Western, a part of Cengage Learning

Reasons for Regulation 14 © 2012 South-Western, a part of Cengage Learning Most regulation arises out of a market failure.

Types of Regulation 15 © 2012 South-Western, a part of Cengage Learning

Types of Regulation (continued) 16 © 2012 South-Western, a part of Cengage Learning

Costs of Regulation Direct costs Number of new agencies created, expenditures, and growth patterns of the budgets of federal regulatory agencies. Indirect costs Forms, reports, and questionnaires that businesses must complete. Induced costs Innovation New investments in plant and equipment Small business 17 © 2012 South-Western, a part of Cengage Learning

Deregulation What are the purposes of deregulation? What are benefits and problems associated with it? What are major industries affected by deregulation? 18 © 2012 South-Western, a part of Cengage Learning

Key Terms Collectivistic ethic of government Deregulation Direct costs Economic regulation Excess profits Excessive competition Federalization Indirect costs Individualistic ethic of business Induced costs Industrial policy Market failure Natural monopoly Negative externalities Privatization Regulation Social costs Social goals Social regulation © 2012 South-Western, a part of Cengage Learning 19