Government Regulation of
Business
I. Background
Regulations: Rules imposed by government on
business to achieve some desired goal.
Economic: Government can control the
behavior of business in the marketplace.
Social: Government tries to correct the ill
side effects of capitalism.
History of government regulation of business:
1. Industrial era of late-19th/early-2Oth
century had produced a number of “ill side
effects of capitalism:”
- Growth of abusive monopolies and
oligopolies that unfairly drove out
competition.
- Atrocious working conditions. (Outlined
by Upton Sinclair in The Jungle).
- Unsafe and unhealthy products: Silent
Spring (1962: unsafe pesticides), Unsafe at any
Speed (1965: unsafe automobiles).
- Business bribery of politicians.
2. Growth of such abusive practices by
monopolies led to an antitrust policy:
Such policy did not necessarily mean that
all monopolies were bad. The policy was
merely to regulate or break up the abusive
ones and restore competition.
Examples of such antitrust policy:
1. Sherman Antitrust Act, 1890.
2. Clayton Antitrust Act, 1914.
3. Federal Trade Commission Act, 1914:
4. Development of other regulatory
commissions.
Examples- FCC, SEC
II. Developments in recent years:
1.FTC and Antitrust Division (Bureau of Competition) were
intentionally understaffed by Reagan and Bush to
discourage excessive antitrust activity.
2. Corporate mergers have exploded in recent years with
little response from the federal government.
3. Business states that with such strong foreign competition,
it needs to consolidate in order to be competitive.
4. Energy crisis in early 00's led to pressure for George W.
Bush to tighten regulation of the energy markets. Bush
claimed that California’s problems were the result of its own
deregulation policy, and was therefore reluctant to have the
Federal Energy Regulatory Commission impose price caps.
5. TARP (Temporary Assets Relief Program)- Under Obama,
the federal government has purchased "troubled assets"
(bad loans) from financial institutions. In exchange, the
government has received shares of stock from the financial
institutions.
III. The Debate Over Regulation
Arguments in favor of regulation:
1. Prevents unhealthy monopolies and oligopolies
as existed during Industrial Revolution.
2. Protects consumers from unsafe and unhealthy
products.
3. Protects consumers from unsafe practices.
4. Protects working people from unsafe working
conditions.
5. Protects those who lack a strong voice in
government- “Levels out the playing field” with
giant corporations.
6. Protects consumers against excessively high
energy prices.
Arguments against regulation:
1. Not needed -- Market forces will compel businesses to
work for the benefit of consumers. If businesses don’t,
consumers will simply buy elsewhere.
2. Regulation is inefficient. Businesses have to hire hordes
of people to comply with the endless regulations
imposed by Washington. This makes U.S. business less
competitive with the rest of the world, which is not
overburdened by such regulations.
3. Regulation kills jobs. Because it lessens our
competitiveness with the rest of the world, we lose
business (and the jobs that come with it) to other
nations.
4. Regulation increases prices. Complying with
regulations costs money; these costs are then passed
on to the consumers in the form of higher prices.
5. Regulations have become increasingly unreasonable.