Business,
Government,
and Regulations
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© 2005 by Nelson, a division of Thomson Canada Limited.
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Chapter Ten Objectives
• Discuss the government’s role with business
• Explore government and business
interactions
• Examine government’s nonregulatory
influences
• List major reasons for regulations
• Consider regulation versus deregulation
© 2005 by Nelson, a division of Thomson Canada Limited.
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Chapter Ten Outline
• A Brief History of
Government’s Role
• The Roles of
Government and
Business
• Interaction of
Business, Government,
and the Public
• Government’s
Nonregulatory
Influence on Business
• Government’s
Regulatory Influence
on Business
• Deregulation
• Summary
© 2005 by Nelson, a division of Thomson Canada Limited.
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Introduction to Chapter Ten
The chapter examines the
relationship between business and
government and the government’s
role in influencing business decision
making.
© 2005 by Nelson, a division of Thomson Canada Limited.
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Government’s Role in
Influencing Business
1. Prescribes the rules for business
2. Purchases business’ products and services
3. Contracts power to get business to do things
it wants
4. Is a major promoter and subsidizer of
business
5. Is the owner of vast quantities of productive
equipment and wealth
© 2005 by Nelson, a division of Thomson Canada Limited.
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Government’s Role in
Influencing Business
6. Is an architect of economic growth
7. Is a financier
8. Protects society against business
exploitation
9. Directly manages large areas of private
business
10. Acts as a social conscious and redistributes
resources to meet social objectives
© 2005 by Nelson, a division of Thomson Canada Limited.
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Roles of Government and
Business
• What should be the respective roles of
business and government in our
socioeconomic system?
• Which tasks should be handled by
government and which by business?
• How much autonomy are we willing to allow
business?
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Roles of Government and
Business
Clash of Ethical Systems
Business Beliefs
Government Beliefs
• Maximizes concession to
self-interest
• Minimizes obligations
society imposes on the
individual (personal
freedom)
• Emphasizes inequalities of
individuals
• Subordinate individual goals
and self-interest to group goals
and group interests
• Maximized obligations
assumed by the individual and
discouraging self-interest
• Emphasize equality of
individuals
© 2005 by Nelson, a division of Thomson Canada Limited.
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Roles of Government and
Business
Social, Technological, and Value
Change
•
•
•
•
National society
Communal society
Entitlements
Quality of life
© 2005 by Nelson, a division of Thomson Canada Limited.
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Interaction of Business,
Government, and the Public
Lobbying
Business
Regulations
and
Other Forms
of
Persuasion
Advertising
Public Relations
Government
Political Process
Voting
Interest Groups
Contributions
Public
© 2005 by Nelson, a division of Thomson Canada Limited.
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Interaction of Business,
Government, and the Public
• Government/business relationship
• Public/government relationship
• Business/public relationship
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Government’s Nonregulatory
Influence on Business
Two Major Nonregulatory Issues
• Industrial policy
• Privatization
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Government’s Nonregulatory
Influence on Business
Industrial Policy:
Schools of Thought
•
•
•
•
•
Accelerationists
Adjusters
Targeters
Central planners
Bankers
© 2005 by Nelson, a division of Thomson Canada Limited.
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Government’s Nonregulatory
Influence on Business
Industrial Policy
Pros
Cons
• Decline of U.S.
competitiveness
• Use by other nations
• Ad hoc system
• Reduces market efficiency
• Promotes political
decisions
• Foreign success variable
• National attempts
uncoordinated and
irrational
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Government’s Nonregulatory
Influence on Business
Privatization
• Producing versus providing a service
• Privatization debate
– Federalization of certain functions
• Airport security
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Government’s Nonregulatory
Influence on Business
Other Nonregulatory Influences
•
•
•
•
Major employer
Large purchaser
Major influencer
Major competitor
•
•
•
•
© 2005 by Nelson, a division of Thomson Canada Limited.
Major lender
Taxation
Monetary policy
Moral suasion
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Government’s Regulatory
Influence on Business
Factors to Consider Regarding
Government Regulation
• Protection
• Scope
• Cost
© 2005 by Nelson, a division of Thomson Canada Limited.
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Government’s Regulatory
Influence on Business
1. Has decision-making authority
2. Establishes guidelines on business conduct
3. Operates principally in the sphere of domestic
business
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
© 2005 by Nelson, a division of Thomson Canada Limited.
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Government’s Regulatory
Influence on Business
Reasons for Regulation
•
•
•
•
Controls natural monopolies
Controls negative externalities
Achieves social goals
Other reasons
– Controls excess profits
– Controls excessive competition
© 2005 by Nelson, a division of Thomson Canada Limited.
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Government’s Regulatory Influence
on Business
Types of Regulation
• Economic regulation
– Transport Canada
– CRTC
• Social regulation
– Employment Equity
– Occupational Safety and Health
– Human Rights Commission
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Government’s Regulatory Influence on
Business
Comparison of Economic and Social Regulation
Economic Regulations
Focus
Market conditions;
economic variables
Social Regulations
People as employees,
consumers and citizens
Affected
Industries
Selected (railroads,
aeronautics,
communications)
Virtually all industries
Examples
CAB; FCC
EEOC, OSHA, CPSC,
EPA
Current
Trend
From regulation to
deregulation
Stable
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Government’s Regulatory
Influence on Business
Benefits of Regulation
•
•
•
•
Fair treatment of employees
Safer working conditions
Safer products
Cleaner air and water
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Government’s Regulatory
Influence on Business
Costs of Regulation
• Direct costs
• Indirect costs
• Induced costs
– Effects
• Reduced innovation
• Reduced investment in plant and equipment
• Increased pressure on small business
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Deregulation
• Purpose
Purpose & Dilemma
– Intended to increase competition with
expected increased efficiency, lower prices,
and innovation
• Dilemma
– Must enhance competition without sacrificing
applicable social regulations (e.g., health and
safety requirements).
© 2005 by Nelson, a division of Thomson Canada Limited.
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Selected Key Terms
•
•
•
•
•
•
•
•
•
•
Accelerationists
Adjusters
Bankers
Central planners
Deregulation
Direct costs of regulation
Economic regulation
Excess profits
Excessive competition
Federalization
•
•
•
•
•
•
•
•
•
•
•
© 2005 by Nelson, a division of Thomson Canada Limited.
Individualistic ethic
Induced costs
Industrial policy
Market failure
Natural monopoly
Negative externalities
Privatization
Regulation
Social Costs
Social regulation
Targeters
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