Unit 5 Lecture 5 Government Regulation of Business

Types of regulations

1. Economic 2. Social

Developments in recent years

1. FTC and Antitrust Division intentionally understaffed by Reagan and Bush to discourage excessive antitrust activity. 2. Corporate mergers have exploded in recent years e.g GE and RCA, Warner Communications and Time, RJ Reynolds and Nabisco, Direct TV and AT&T.

Economic Regulations

1. Govt. controls on behavior of business in the marketplace. 2. Among the first laws: interstate commerce act (1887) regulates railroads and Sherman Antitrust Act (1890) to break up monopolistic trusts that are harmful to competition.

History of government regulation of business: Industrial era of late 19th/early 20th century had produced a number of ill side effects of capitalism

1. Growth of abusive monopolies and oligopolies that unfairly drove out competition 2. Atrocious working conditions 3. Unsafe and unhealthy products: The Jungle 4. Business bribery of politicians

Arguments Against Regulation

1. Not needed: Market forces will compel businesses to work for the benefit of consumers. If businesses don't consumers will simply buy elsewhere.

Arguments in favor of regulation

1. Prevents unhealthy monopolies and oligopolies as existed in IR 2. Protects consumers from unsafe and unhealthy products. 3. Protects consumers from unsafe practices e.g. airline regulations that prevent pilots from flying excessive hours, federal airline inspections, etc.

Examples of Anti-trust policy

1. Sherman antitrust Act, 1890 2. Clayton Act 1914: strengthened Sherman antitrust with key provisions like once company could not buy stock of another if it results in a monopoly

Arguments Against Regulation (2)

2. Regulation is inefficient. Businesses have to hire hordes of people to comply with the endless regulations imposed by Washington. This makes US business less competitive with the rest of the world., which is not overburdened by such regulations.

Developments in recent years (2)

3. Business claims that with such strong foreign competition, it needs to consolidate in order to be competitive. 4. Microsoft and Bush 5. Media Conglomerates 6. Privatization or Privateering i.e. healthcare, defense, schools, FDA

Examples of Anti-trust policy (2)

3. Federal trade commission act, 1914: FTC to be traffic cop to ensure competition. Issues cease and desist orders and negotiates consent decrees with business to end unfair practices.

Arguments Against Regulation (3)

3. Regulation kills jobs. Because it lessens our competitiveness with the rest of the world, we lose business to other nations. 4. Regulation increases prices. Complying with regulations costs money; these costs are then passed on to the consumers in the form of higher prices.

Arguments in favor of regulation (2)

4. Protects working people from unsafe working conditions 5. Protects those, e.g. the poor, consumers, who lack a strong voice in govt. Levels the playing field with giant corporations.

Arguments Against Regulation (4)

5. Regulations have become increasingly unreasonable. e.g. farmers denied use of their lands because a rodent on the endangered species list lives there or loggers lose their jobs because the spotted owl nests in the forests that would otherwise be open to logging, property owners are prevented from developing property because it includes federally protected wetlands.

Developments in recent years (3)

Advantages: more efficient service product at lower costs to taxpayers Disadvantages: little public accountability, in the end pay or go without the services, prices increase, motive of profit may interfere with moral mission of govt. to protect and empower the people.

History of government regulation of business

Development of other regulatory commissions e.g. FCC and SEC

Social Regulations

Government controls to correct ill side effects of capitalism.

Regulations

Rules imposed by government on business to achieve some desired goal. e.g. Clean air regulations on factories, protection of wetlands and fragile environments, safety regulations in coal mines.

Examples of Economic Regulations

Stock market regulations to prevent fraud, anti-trust guidelines that protect competition, ban on false advertising.

History of government regulation of business: Growth of such abusive practices by monopolies led to an antitrust policy

Such policy did not necessarily mean that all monopolies were bad. The policy was merely to regulate or break up the abusive ones and restore competition.

Examples of Social Regulations

Worker safety regulations, environmental regulations, auto safety regulations, child labor laws.