1 / 28

Business, Government, and Regulation

0. Business, Government, and Regulation . Chapter 11. Professor Craig Diamond BA 385 November 4, 2009. 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

eron
Download Presentation

Business, Government, and Regulation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 0 Business, Government, and Regulation Chapter11 Professor Craig Diamond BA 385 November 4, 2009

  2. 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 Influences on Business Benefits and costs of regulation Deregulation 0 Outline of Topics

  3. 0 Evolving Government Role in Business • The role of govt, and the relationship between govt and business, has evolved over time • First federal regulatory agency: Interstate Commerce Commission (1887) • Regulate railroad monopolies • Sherman Antitrust Act (1890) • New Deal regulations (1930s) • Social regulation (1960s – 70s) • Civil Rights Act (1964) • Clean Air Act (1970) • Consumer Product Safety Act (1972)

  4. 0 Government’s Role in Influencing Business • Prescribes the rules of the game for business. • Purchases business’ products and services. • Uses its contracting power to get business to do things it wants. • Is a major promoter and subsidizer of business. • Is the owner of vast quantities of productive equipment and wealth.  • Is an architect of economic growth. • Is a financier. • Is the protector of various interests in society against business exploitation. • Directly manages large areas of private business. • Is the repository of the social conscience and redistributes resources to meet social objectives.

  5. 0 Roles of Government and Business • What should be the respective roles of business and government in our society? • 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?

  6. Individualistic ethic Maximizes concession to self-interest Minimizes the load of obligations society imposes on the individual (personal freedom) Emphasizes inequalities of individuals Collectivistic ethic Subordinates individual goals and self-interest to group goals and group interests Maximizes obligations assumed by the individual and discouraging self-interest Emphasizes equality of individuals 0 Clash of Ethical Systems Business Beliefs Government Beliefs Figure 11-1

  7. Major Changes Societal Value Changes Youth movement National society Consumer protection movement Communal society Ecology movement Entitlements Civil rights movement Quality of life Women’s movement Egalitarian movement 0 Social, Technological, and Value Changes

  8. Lobbying Regulatory and non-regulatory influences Business Government • Political Process • Voting • Interest Groups • Contributions • Advertising • Public Relations • Interest groups • Not buying products • Protests • Politicking • Politicalinfluence Public 0 Interaction Among Business, Government, and the Public Figure 11-2

  9. 0 Government’s Nonregulatory Influence on Business Two Major Nonregulatory Issues Industrial Policy Privatization

  10. Any selective government measurethat puts an advantage or disadvantage on one sector/part of the economy. Industrial Policy 0 Industrial Policy Example: Research funding and tax-breaks for green technologies

  11. Examples of Industrial Policies • Farmer subsidies • Mortgage tax deduction • Airline bailout after 9/11 • Financial industry bailout in 2009 • Auto industry bailouts • Protectionism • Steel • Agricultural products • Many others

  12. Accelerationists Schools ofThought Adjusters Targeters Central planners Bankers 0 Industrial Policy

  13. Decline of U.S. competitiveness Use by other world governments Already have ad hoc industrial policy Reduces market efficiency Promotes political decisions Foreign success variable Various interventions create an industrial policy by default 0 Industrial Policy Arguments For Arguments Against

  14. The process of “turning over to” the private sector some function that was previously handled by government. Privatization 0 Privatization Example: debate over whether to privatize social security

  15. Major employer Standard setter Largest purchaser Use of Subsidies Transfer payments Major competitor Loans and loan guarantees Taxation Monetary policy Moral suasion 0 Other Nonregulatory Government Influences

  16. Government as Major Employer

  17. 0 Government’s Regulatory Influence on Business • Growth of regulation • Federal Register pages in one year: • 1936: 2,355 • 2005: 77,752 • Number of agencies: • Prior to 1930: 14 • By 1980s: 57

  18. 0 A Federal Regulatory Agency… • Has decision-making authority • Establishes standards or guidelines conferring benefits and imposing restrictions on business conduct • Has its head and / or members appointed by the president (generally subject to Senate confirmation) Commerce Clause of the U.S. Constitution gives authority to government to regulate.

  19. Federal Regulatory Agencies • Examples: • Environmental Protection Agency (EPA) • Federal Aviation Administration (FAA) • Securities and Exchange Commission (SEC) • Nuclear Regulatory Commission (NRC) • Federal Energy Regulatory Commission (FERC) • Federal Communications Commission (FCC) • Occupational Safety & Health Administration (OSHA)

  20. Controls natural monopolies Controls negative externalities Achieves social goals Controls excess profits Controls excessive competition 0 Reasons for Regulation Correct Market Failure

  21. Interstate Commerce Commission (1887) EconomicRegulation Securities and Exchange Commission (1934) Federal Communications Commission (1934) 0 Types of Regulation • Regulate business behavior by controlling pricing, products, and entry into market.

  22. Environmental Protection Agency (1970) SocialRegulation Occupational Safety and Health Administration (1970) Equal EmploymentOpportunity Commission (1964) 0 Types of Regulation Regulate business behavior by controlling treatment of people, groups, and natural environment.

  23. 0 Comparison of Economic and Social Regulation Figure 11-3

  24. 0 Benefits of Regulation • Fair treatment of employees • Safer working conditions • Safer products • Cleaner air and water • Fairer markets • More effective markets

  25. 0 Costs of Regulation • Direct costs • Indirect costs • Induced costs • Effects • Could hinder (or promote) innovation. • Could hinder new investments in plant and equipment. • Small business may be adversely affected due to lower economies of scale.

  26. 0 Regulatory Spending in the U.S. In millions Figure 11-5

  27. 0 Deregulation Purpose Intended to increase competition with the expected benefits of greater efficiency, lower prices, and enhanced innovation. Dilemma Many competitors are unable to compete with the dominant firms. Barriers to entry underestimated. Must enhance competition without sacrificing applicable social regulations (e.g., health and safety requirements).

  28. 0 Industries Affected by Deregulation • Mixed Results • Benefits: lower prices, better service, innovation • Problems: market domination by fewer firms • Airlines • Trucking • Telecommunications • Financial Services • Electric Utilities

More Related