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 arm’s 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 nation’s values and customs, therefore differs by
county
 Government’s goals and business’s objectives are in
conflict
 Adversarial relationship where business and government works at
arm’s 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

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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

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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

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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

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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

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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

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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

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

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 Types of Regulation &
Figure 8.1 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

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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