Government Regulation of Business

I. Background

Regulations: Rules imposed by government on business to achieve some desired goal.

Economic: Government can control the behavior of business in the marketplace. Social: Government tries to correct the ill side effects of capitalism.

History of government regulation of business: 1. Industrial era of late-19th/early-2Oth century had produced a number of “ill side effects of capitalism:”

- Growth of abusive monopolies and oligopolies that unfairly drove out competition.

- Atrocious working conditions. (Outlined by Upton Sinclair in The Jungle).

- Unsafe and unhealthy products: Silent Spring (1962: unsafe pesticides), Unsafe at any Speed (1965: unsafe automobiles).

- Business bribery of politicians.

2. 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 such antitrust policy: 1. Sherman Antitrust Act, 1890. 2. Clayton Antitrust Act, 1914. 3. Federal Trade Commission Act, 1914: 4. Development of other regulatory commissions.

Examples- FCC, SEC

II. Developments in recent years: 1.FTC and Antitrust Division (Bureau of Competition) were intentionally understaffed by Reagan and Bush to discourage excessive antitrust activity. 2. Corporate mergers have exploded in recent years with little response from the federal government. 3. Business states that with such strong foreign competition, it needs to consolidate in order to be competitive. 4. Energy crisis in early 00's led to pressure for George W. Bush to tighten regulation of the energy markets. Bush claimed that California’s problems were the result of its own deregulation policy, and was therefore reluctant to have the Federal Energy Regulatory Commission impose price caps.5. TARP (Temporary Assets Relief Program)- Under Obama, the federal government has purchased "troubled assets" (bad loans) from financial institutions. In exchange, the government has received shares of stock from the financial institutions.

III. The Debate Over RegulationArguments in favor of regulation:

1. Prevents unhealthy monopolies and oligopolies as existed during Industrial Revolution. 2. Protects consumers from unsafe and unhealthy products. 3. Protects consumers from unsafe practices. 4. Protects working people from unsafe working conditions. 5. Protects those who lack a strong voice in government- “Levels out the playing field” with giant corporations. 6. Protects consumers against excessively high energy prices.

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.

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

3. Regulation kills jobs. Because it lessens our competitiveness with the rest of the world, we lose business (and the jobs that come with it) 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.

5. Regulations have become increasingly unreasonable.