Business & Society
Ethics, Sustainability, and Stakeholder
Management
Eighth Edition
Archie B. Carroll
Ann K. Buchholtz
© 2012 South-Western, a part of Cengage Learning
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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
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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.
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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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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?
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Clash of Ethical Systems
Business Beliefs
Government Beliefs
Individualistic ethic
Collectivistic ethic
Maximizes concession to Subordinates individual
self-interest
goals and self-interest to
group goals and group
interests
Minimizing the load of
obligations society
imposes on the
individual (personal
freedom)
Maximizing obligations
assumed by the
individual and
discourages self-interest
Emphasizes inequalities
of individuals
Emphasizes equality of
individuals
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Interaction Among Business,
Government, and the Public
Lobbying
Business
• Interest
groups
• Not buying
products
• Protests
Regulations and Other
Forms of Persuasion
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•
•
•
• Advertising
• Public Relations
Government
Political Process
Voting
Interest Groups
Contributions
• Politicking
• Political
influence
Public
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Interaction of Business,
Government, and the Public
•
•
Government/Business relationship
• Lobbying
Public/Government relationship
• The Public
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•
•
The Government
•
•
Voting and electing officials
Special interest groups
Politicking and public policy formation
Business/Public relationship
• Business
•
•
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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Industrial Policy (continued)
Arguments For
Is needed after the
2008 economic
meltdown
Used by other world
governments
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Arguments Against
Reduces market
efficiency and stifles
innovation
Difficult to keep
politics out of
economic decisions
We should not focus
on rescuing dying
industries
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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
•
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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Other Nonregulatory Government
Influences
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Major employer
Standard setter
Largest purchaser
Use of Subsidies
Transfer payments
Major competitor
Loans and loan guarantees
Taxation
Monetary policy
Moral suasion
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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 alltime high.
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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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Costs of Regulation
Major costs of economic regulation
are for
1. Finance and banking
2. Industry-specific regulation
3. General business
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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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Comparison of Economic and Social
Regulation
Economic Regulations
Social Regulations
Focus
Market conditions;
economic variables
People in roles as
employees, consumers and
citizens
Affected
Industries
Selected (railroads, aeronautics,
communications)
Virtually all industries
Examples
CAB
FCC
EEOC, OSHA,
CPSC, EPA
Current
Trend
Had been moving from
regulation to deregulation, but
fallout from the economic crisis
reversed the trend
Efforts underway to create
an independent consumer
financial protection agency
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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
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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.
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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
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).
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Industries Affected by Deregulation
 Trucking
 Financial Services
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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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•
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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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