Chapter 8 Business-Government Relations Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Ch. 8 Key Learning Objectives  Understanding why sometimes governments and business collaborate and other times work at arm’s length from each other  Defining public policy and the elements of the public policy process  Explaining the reasons for regulation  Knowing the major types of government regulation of business  Identifying the purpose of antitrust laws and the remedies that may be imposed  Comparing the costs and benefits of regulation for business and society  Examining the conditions that affect business in a global context 8-2

How Business and Government Relate  Government cooperates with business for mutually beneficial goals through collaborative partnerships  Influenced by nation’s values and customs, therefore differs by county  Government’s goals and business’s objectives are in conflict  Adversarial relationship where business and government works at arm’s length  Companies operating globally may find governments whose legitimacy or right to be in power is questioned  May be faced with dilemma of continuing to do business when could be supporting the illegitimate power  May choose to become politically active or refuse to conduct business until legitimate government is in place 8-3

Government’s Public Policy Role  Public policy – A plan of action undertaken by government officials to achieve some broad purpose affecting a substantial segment of a nation’s citizens  Public policy inputs shape a government’s policy decisions and strategies to address problems  Public policy goals can be broad and high-minded or narrow and self-serving  Governments use public policy tools involving combinations of incentives and penalties to prompt citizens to act in ways that achieve policy goals  Public policy effects are the outcomes arising from government regulation 8-4

Types of Public Policies  Economic policies  Policies that concern the economy such as fiscal and monetary policy  Social assistance policies  Policies that concern social services for citizens such as health care and education 8-5

Types of Economic Public Policies  Fiscal policy  Refers to patterns of government taxing and spending that are intended to stimulate or support the economy  Monetary policy  Refers to policies that affect the supply, demand, and value of a nation’s currency 8-6

Types of Economic Public Policies  Taxation policy  Raising or lowering taxes on business or individuals  Industrial policy  Directing economic resources toward the development of specific industries  Trade policy  Encouraging or discouraging trade with other countries 8-7

Types of Social Public Policies  Advanced industrial nations have developed elaborate systems of social services for their citizens  Developing economies have improved key areas of social assistance (health care, education)  Social assistance policies that effect specific stakeholder groups are discussed in subsequent chapters 8-8

Government Regulation of Business  Regulation  The action of government to establish rules of conduct for citizens and organizations  It is a primary way of accomplishing public policy  Reasons for regulation  Market failure  Negative externalities  Natural monopolies  Ethical arguments 8-9

Types of Regulation: Economic  Economic regulations  Aim to modify the normal operation of the free market and the forces of supply and demand  Includes regulations that  Control prices or wages  Allocate public resources  Establish service territories  Set the number of participants  Ration resources 8-10

Antitrust: A Special Kind of Economic Regulation  Antitrust laws prohibit unfair, anticompetitive practices by business  If a group of companies agreed among themselves to set prices at a particular level, this would generally be an antitrust violation.  Predatory pricing  The practice of selling below cost to drive rivals out of business  Two main antitrust enforcement agencies  Antitrust Division of the U.S. Department of Justice  Federal 8-11

Types of Regulation: Social  Social regulations  Aimed at such important social goals as protecting consumers and the environment and providing workers with safe and healthy working conditions  Includes regulations which apply to all businesses  Pollution laws  Safety and health laws  Job discrimination laws  And others that only apply to certain businesses  Consumer protection laws for businesses producing and selling consumer goods 8-12

Types of Regulation & Regulatory Agencies Figure

Spending on U.S. Regulatory Activities Figure

Staffing of U.S. Regulatory Activities Figure

Continuous Regulatory Reform  Levels of regulatory activity tend to be cyclical and dependent on politics  Deregulation refers to the scaling down of regulatory authority  Reregulation is the return to increased regulatory activity  Areas where deregulation has occurred in recent years  Commercial airlines  Interstate trucking companies  Railroads  Financial institutions 8-16

Regulation in a Global Context  As patterns of international commerce grow more complicated, governments recognize the need to establish rules that protect the interests of their own citizens  International regulation in general occurs when there is a growth of exiting, yet often conflicting, national regulations of a product, or the product itself is global in nature, thus requiring international oversight and control  Sometimes national leaders resist the notion of international regulation; yet at other times, international regulation is welcomed or at least accepted as necessary 8-17