Chapter 8

Chapter 8
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Ch. 8 Key Learning Objectives
 Understanding why sometimes governments and business
collaborate and other times work at arm’s length from each
 Defining public policy and the elements of the public policy
 Explaining the reasons for regulation
 Knowing the major types of government regulation of
 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
How Business and Government Interact
 Government cooperates with business for mutually
beneficial goals
 Influenced by nation’s values and customs, therefore differs by
 Government’s goals and business’s objectives are in
 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
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
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
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
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
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 externalalities
 Natural monopolies
 Ethical arguments
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
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
Figure 8.1
Types of Regulation and
Regulatory Agencies
Figure 8.2
Spending on U.S. Regulatory Activities
Figure 8.3
Staffing of U.S. Regulatory Activities
Continuous Regulatory Reform
 Levels of regulatory activity tend to be cyclical and
dependent on politics
 Deregulation refers to the scaling down of regulatory
 Reregulation is the return to increased regulatory activity
 Areas where deregulation has occurred in recent
Commercial airlines
Interstate trucking companies
Financial institutions
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
 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