ba 385: business, government and regulation chapter ten: who’s flying that plane?
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BA 385: Business, Government and Regulation
Chapter Ten: Who’s Flying That Plane?
Introduction to Chapter Ten
The chapter examines the relationship between business and government and in particular the government’s role in influencing business decision making.
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
.
Government’s Role in Influencing Business
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
.
Roles of Government and Business
What should be the respective roles of business and government in our socioeconomic system?
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?
Roles of Government and Business
Business Beliefs
Maximizes concession to self-interestMinimizes the load of obligations society imposes on the individual (personal freedom)Emphasizes inequalities of individuals
Government BeliefsSubordinated individual goals and self-interest to group goals and group interestsMaximized obligations assumed by the individual and discouraging self-interestEmphasized equality of individuals
Clash of Ethical Systems
Interaction of Business, Government, and the Public
Business
Public
Government
Lobbying
Regulations
andOther Forms
of Persuasio
n
AdvertisingPublic Relations
Political ProcessVoting
Interest GroupsContributions
Interaction of Business, Government, and the Public
Government/business relationshipPublic/government relationshipBusiness/public relationship
Government’s Nonregulatory Influence on Business
Two Major Nonregulatory Issues
Industrial PolicyPrivatization
Industrial Policy Defined…government policy intended to influence the
structure, pricing, and output levels of private markets.
Comes in form of:targeting certain industries for special tax breaks regulatory favors Why? Policy makers believe that these industries
had high growth potential or were 'strategically' important for military or economic reasons.
Japan's Ministry of International Trade and Industry (MITI) is the best-known example of an industrial policy agency.
Industrial Policy: A CritiqueProblems?Industrial policy is a prime target for special interest
capture, as firms attempt to influence government to favor them.
Also, industrial policy has had the effect of raising prices and restricting output due to overbearing and bureaucratic government management.
Free market advocates assert that the market is the best mechanism for allocating scarce resources because everyone's interests are directly represented in buying decisions, whereas government authorities are subject to special pressures and undue influence because government can be the ultimate monopoly.
Government’s Nonregulatory Influence on Business
ProsDecline of U.S. competitivenessUse by other nationsAd hoc system
ConsReduces market efficiencyPromotes political decisionsForeign success variableNational attempts uncoordinated and irrational
Industrial Policy
Government’s Nonregulatory Influence on Business
PrivatizationProducing versus providing a service
(providing: hire a firm to cater public affair; producing: gov’t. agency prepares food and serves it).
Privatization debateFederalization of certain functions
Airport security – Benefits? Disadvantages?
Government’s Nonregulatory Influence on Business
Major employerLarge purchaserMajor influence
SubsidiesTransfer payments
Major competitor
Major lenderTaxationMonetary policyMoral suasion
Other Nonregulatory Influences
Government’s Regulatory Influence on Business
Factors to Consider Regarding Government Regulation
ProtectionScope Cost
Government’s Regulatory Influence on Business
Federal Regulatory AgencyHas decision-making authorityEstablishes 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
Government’s Regulatory Influence on Business
Controls natural monopolies (economies of scale exist to advantage of one firm, i.e. local telephone service)
Controls negative externalitiesAchieves social goalsOther reasons
Controls excess profits (rise in oil price: unfair luck, affects economic policy)
Controls excessive competition (resulting from excessively low price and leading to monopoly then high priced items)
Reasons for Regulation
Government’s Regulatory Influence on Business
Economic regulationInterstate Commerce
Commission (ICC)Civil Aeronautics Board
(CAB)Federal
Communications Commission (FCC)
Types of RegulationSocial regulation
Environmental Protection Agency (EPA)Occupational Safety and Health Administration (OSHA)Equal Employment Opportunity Commission (EEOC)
Comparison of Economic and Social Regulation
Economic Regulations Social Regulations
Focus Market conditions;economic variables
People in roles as employees, consumers and citizens
Affected Industries
Selected (railroads, aeronautics, communications)
Virtually all industries
Examples CAB; FCC EEOC, OSHA, CPSC, EPA
Current Trend
From regulation to deregulation
Stable
Government’s Regulatory Influence on Business
Fair treatment of employeesSafer working conditionsSafer productsCleaner air and water
Benefits of Regulation
Government’s Regulatory Influence on Business
Costs of RegulationDirect costs (ex. Sheer number of agencies and the costs
involved in supporting those.)
Indirect costs (ex. Forms businesses must fill out to comply.)
Induced costsReduced innovation Reduced investment in plant and equipment Increased pressure on small business
Deregulation
PurposeIntended to increase competition
with the expected benefits of greater efficiency, lower prices, and enhanced innovation.
DilemmaMust enhance competition
without sacrificing applicable social regulations (e.g., health and safety requirements).
Purpose & Dilemma