Business & Society
Ethics, Sustainability, and Stakeholder
Management
Eighth Edition
Archie B. Carroll
Ann K. Buchholtz
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Chapter 11
Business,
Government,
and Regulation
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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,
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.
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Chapter Outline
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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
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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.
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Interaction of Business,
Government, and the Public
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Government/Business relationship
• Lobbying
Public/Government relationship
• The Public
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•
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The Government
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Voting and electing officials
Special interest groups
Politicking and public policy formation
Business/Public relationship
• Business
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Advertising, public relations, and other forms
of communication
Public
•
Special interest and protest groups
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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?
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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.
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Privatization
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 21st century
strategies of most nations.
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Producing versus Providing a
Service
Producing or providing a government
service?
• Providing
•
Has a program for and pays for a service.
• Producing
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Has its own employees who do the service.
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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.
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What Does Regulation Mean?
Regulation
• The act of governing, directing according
to rule, or bringing under the control of law
or constituted authority.
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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.
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Reasons for Regulation
Most regulation arises out of a market failure.
Controlling natural monopolies
Controlling negative externalities
Achieving social goals
Controlling excess profits
Controlling excessive competition
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Types of Regulation
Interstate Commerce Commission
Economic
Regulation
Civil Aeronautics Board
Federal Communications Commission
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Types of Regulation (continued)
Environmental Protection Agency
Social
Regulation
Occupational Safety and
Health Administration
Equal Employment
Opportunity Commission
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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
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Deregulation
• What are the purposes of deregulation?
• What are benefits and problems associated
with it?
• What are major industries affected by
deregulation?
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Key Terms
• Collectivistic ethic of
government
• Deregulation
• Direct costs
• Economic regulation
• Excess profits
• Excessive competition
• Federalization
• Indirect costs
• Individualistic ethic of
business
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Induced costs
Industrial policy
Market failure
Natural monopoly
Negative externalities
Privatization
Regulation
Social costs
Social goals
Social regulation
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