Chapter 8

Business-Government Relations

Copyright © 2008 The McGraw-Hill Companies, All Rights Reserved.McGraw-Hill/Irwin

Ch. 8 Key Learning Objectives Understanding why governments sometimes seek to

cooperate with business and other times work against business

Defining public policy and the elements of the public policy process

Knowing the major types of government regulation of business

Explaining the reasons for regulation Comparing the costs and benefits of regulation for

business and society Examining how regulation affects business in a global

context

8 - 2

8 - 3

Ways Government and Business Interact

Government cooperates with business for mutually beneficial goals Influenced by nation’s values and customs, therefore differs

by county

Government’s goals and business’s objectives are in conflict Government may need to act in adversarial role to remedy

negative externalities or spill-over effects of the business borne by other stakeholders

8 - 4

Ways Government and Business Interact

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 - 5

Government’s Public Policy Role Public policy

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

8 - 6

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 nation’s currency

8 - 7

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 - 8

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 - 9

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 Ethical rationale

8 - 10

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 - 11

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

Types of Regulation and Regulatory Agencies

Figure 8.1

8 - 13

Spending on U.S. Regulatory ActivitiesFigure 8.2

8 - 14

Staffing of U.S. Regulatory ActivitiesFigure 8.3

8 - 15

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 Financial institutions

8 - 16

Forms of International RegulationFigure 8.4