LECTURE 5

Chapter 8

Business-Government
Relations

McGraw-Hill/Irwin

Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

Ch. 8 Key Learning Objectives

Understanding why sometimes governments and business
collaborate and other times work at arms 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
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How Business and Government Relate

Government cooperates with business for mutually beneficial
goals through collaborative partnerships
Influenced by nations values and customs, therefore differs by
county

Governments goals and businesss objectives are in conflict

Adversarial relationship where business and government works at
arms 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

Governments Public Policy Role

Public policy
A plan of action undertaken by government officials to
achieve some broad purpose affecting a substantial
segment of a nations citizens
Public policy inputs shape a governments 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
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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 nations 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
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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

Figure 8.1

Types of Regulation &

Regulatory Agencies

8-13

Figure 8.2 Spending on U.S.

Regulatory Activities

8-14

Figure 8.3 Staffing of U.S. Regulatory

Activities

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