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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
8-2
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
8-3
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
8-4
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
8-5
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
8-6
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
8-7
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
8-8
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
8-9
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
8-10
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
8-11
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
8-12
Types of Regulation & Regulatory AgenciesFigure 8.1
8-13
Spending on U.S. Regulatory Activities
Figure 8.2
8-14
Staffing of U.S. Regulatory Activities
Figure 8.3
8-15
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
8-16
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
8-17