LECTURE 5Chapter 8

Business-Government Relations

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Ch. 8 Key Learning Objectives Understanding why sometimes governments and business

collaborate and other times work at arm’s length from each other

Defining public policy and the elements of the public policy process

Explaining the reasons for regulation Knowing the major types of government regulation of

business 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

context

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How Business and Government Relate Government cooperates with business for mutually

beneficial goals through collaborative partnerships Influenced by nation’s values and customs, therefore differs by

county Government’s goals and business’s objectives are in

conflict Adversarial relationship where business and government works at

arm’s length 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

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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 regulation

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Types of Public Policies

Economic policies Policies that concern the economy such as fiscal and

monetary policy

Social assistance policies Policies that concern social services for citizens such as

health care and education

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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

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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

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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 chapters

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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 externalities Natural monopolies Ethical arguments

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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

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Antitrust: A Special Kind of Economic Regulation

Antitrust laws prohibit unfair, anticompetitive practices by business If a group of companies agreed among themselves to set

prices at a particular level, this would generally be an antitrust violation.

Predatory pricing The practice of selling below cost to drive rivals out of

business

Two main antitrust enforcement agencies Antitrust Division of the U.S. Department of Justice Federal

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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

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Types of Regulation & Regulatory AgenciesFigure 8.1

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Spending on U.S. Regulatory Activities

Figure 8.2

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Staffing of U.S. Regulatory Activities

Figure 8.3

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Continuous Regulatory Reform Levels of regulatory activity tend to be cyclical and

dependent on politics Deregulation refers to the scaling down of regulatory

authority Reregulation is the return to increased regulatory activity

Areas where deregulation has occurred in recent years Commercial airlines Interstate trucking companies Railroads Financial institutions

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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 citizens

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 necessary

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