Ch. 11 Business Government & Regulation

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.

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.

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.)

Pro-Privatization

- Government has no comparative advantage in many functions. - Government is less efficient and less flexible.

Characteristics of a Federal Regulatory Agency

- Has decision-making authority. - Establishes standards or guidelines conferring benefits and imposing restrictions on business conduct. - Operates principally in the sphere of domestic business activity. - Has its head and/or members appointed by the president (generally subject to senate confirmation). - Has its legal procedures generally governed by the Administrative Procedures Act.

Industrial Policy (Arguments For)

- Is needed after the 2008 economic meltdown - Used by other world governments

Deregulation (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).

Industrial Policy (Arguments Against)

- Reduces market efficiency and stiles innovation - Difficult to keep politics out of economic decisions - We should not focus on rescuing dying industries

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.

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.

Government Beliefs (Clash of Ethical Systems)

-Collectivist ethic -Subordinates individual goals and self-interest to group goals and group interests -Maximizing obligations assumed by the individual and discourages self-interest -Emphasizes equality of individuals

Business Beliefs (Clash of Ethical Systems)

-Individualistic ethic -Maximizes concession to self-interest -Minimizing the load of obligations society imposes on the individual (personal freedom) -Emphasizes inequalities of individuals

Major Costs of Economic Regulation are for

1. Finance and Banking 2. Industry-specific regulation 3. General Business

Government's non-regulatory influence on business issues

1. Industrial Policy: concerned with the role of government in a national economy 2. Privatization: should currently public functions be turned over to private (business) sector?

Business / Public Relationship

Business: - Advertising, public relations, and other forms of communication Public: - Special interest and protest groups

Types of regulation

Economic and social regulation

Factors of Government Regulation

Fair treatment Protection Scope Cost Burden

Regulation Benefits

Fair treatment of employees Safer working conditions Safer products Cleaner air and water

Economic Regulation

Focuses on: market conditions and economic variables. Affects: selected industries- Railroads, aeronautics, communications - Interstate Commerce Commission - Civil Aeronautics Board - Federal Communications Commission

Indirect Costs of Regulation

Forms, reports, and questionnaires that businesses must complete.

Induced Costs of Regulation

Innovation, New investments in plant and equipment & Small business

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

Reasons for regulation:

Most regulation currently represents responses to 2 major events: - The World Trade Center and other terrorist attacks - The recent financial scandals beginning with Enron

Direct Costs of Regulation

Number of new agencies created, expenditures, and growth patterns of the budgets of federal regulatory agencies.

Providing or producing a government service?

Providing has a program for and pays for a service . Producing has its own employees who do the service.

Regulation

The act of governing, directing according to rule, or bringing under the control of law or constituted authority.

Public / Government Relationship

The public: - Voting and electing officials - Special Interest Groups The government: - Politicking and public policy formation

Industries Affected by Deregulation

Trucking and Financial Services

Types of regulation costs

direct, indirect and induced costs

Social Regulation

focuses on: People in roles as employees, consumers, and citizens. Affects: Virtually all industries. - Environmental Protection Agency - Occupational Safety and Health Administration - Equal Employment Opportunity Commission