1. 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

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

3. 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

4. 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 4 © 2012 South-Western, a part of Cengage Learning

5. The Pendulum Swing of Government and Business The level of government involvement in business varies over time. Business never likes activist government involvement. Public opinion varies, depending on the economy, whether there have been ethical scandals, and other factors. 5 © 2012 South-Western, a part of Cengage Learning

6. 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 6

7. 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? 7 © 2012 South-Western, a part of Cengage Learning

8. Clash of Ethical Systems 8 © 2012 South-Western, a part of Cengage Learning

9. Interaction Among Business, Government, and the Public 9 © 2012 South-Western, a part of Cengage Learning 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

10. 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 10 © 2012 South-Western, a part of Cengage Learning

11. 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? 11 © 2012 South-Western, a part of Cengage Learning

12. 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. 12 © 2012 South-Western, a part of Cengage Learning

13. Industrial Policy (continued) 13 © 2012 South-Western, a part of Cengage Learning

14. 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. 14 © 2012 South-Western, a part of Cengage Learning

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

16. 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. 16 © 2012 South-Western, a part of Cengage Learning

17. 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 17 © 2012 South-Western, a part of Cengage Learning

18. Government’s Regulatory Influence on Business Factors to consider regarding government regulation Fair treatment Protection Scope Cost Burden  Analysts believe that business interference in government policy making is at an all- time high. 18 © 2012 South-Western, a part of Cengage Learning

19. What Does Regulation Mean? Regulation The act of governing, directing according to rule, or bringing under the control of law or constituted authority. 19 © 2012 South-Western, a part of Cengage Learning

20. 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. 20 © 2012 South-Western, a part of Cengage Learning

21. Reasons for Regulation 21 © 2012 South-Western, a part of Cengage Learning Most regulation arises out of a market failure.

22. Types of Regulation 22 © 2012 South-Western, a part of Cengage Learning

23. Costs of Regulation Major costs of economic regulation are for 1.Finance and banking 2.Industry-specific regulation 3.General business 23 © 2012 South-Western, a part of Cengage Learning

24. Types of Regulation (continued) 24 © 2012 South-Western, a part of Cengage Learning

25. Comparison of Economic and Social Regulation 25 © 2012 South-Western, a part of Cengage Learning

26. Reasons for Regulation Most regulation currently represents responses to two major events 1.The World Trade Center and other terrorist attacks 2.The recent financial scandals beginning with Enron 26 © 2012 South-Western, a part of Cengage Learning

27. Benefits of Regulation Fair treatment of employees Safer working conditions Safer products Cleaner air and water  It is difficult to measure the magnitude of benefits. 27 © 2012 South-Western, a part of Cengage Learning

28. 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 28 © 2012 South-Western, a part of Cengage Learning

29. Deregulation Purpose A counterforce aimed at keeping the economy in balance. Intended to increase competition with hopes for greater efficiency, lower prices, and enhanced innovation. Problems Many competitors are unable to compete with the dominant firms– concentration of power within a few dominant firms. Must enhance competition without sacrificing applicable social regulations (e.g., health and safety requirements). 29 © 2012 South-Western, a part of Cengage Learning

30. Industries Affected by Deregulation Trucking Financial Services 30 © 2012 South-Western, a part of Cengage Learning

31. 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 31