Business Government and Regulation

Chapter 11
Business, Government, and Regulation

LEARNING OUTCOMES

After studying this chapter, you should be able to:

1. Articulate a brief history of government’s role in its relationship with business.
2. Appreciate the complex interactions among business, government, and the public.
3. Identify and describe government’s nonregulatory influences, especially the concepts of industrial policy and privatization.
4. Explain government regulation and identify the major reasons for regulation, the types of regulation, and issues arising out of deregulation.
5. Provide a perspective on privatization versus federalization, along with accompanying trends.

TEACHING SUGGESTIONS

INTRODUCTION – In this chapter the authors examine the relationship between business and government, along with the general public, which also plays an important role.  The central focus here is the government’s role in influencing business, although, as discussed in the next chapter, business also influences government.

KEY TALKING POINTS – Many schools provide an entire course titled Business, Government, and Society, which indicates the centrality of the subject matter in this chapter.  Many students will be quite familiar with the concept that government regulates and influences business (the focus of this chapter), but will be less cognizant of the reciprocal relationship (Chapter 12).  Because the business/government relationship does flow in both directions, the instructor should consider covering Chapters 11 and 12 as a single unit, so that students realize the full extent of the influence each has over the other.

Several recent books have delved into this subject in some depth.  The instructor may want to incorporate some of their content into the classroom discussion or assign students to read sections of different books.  One of the earlier writings was Taking Care of Business, a 32-page pamphlet written by Richard Grossman and Frank Adams.  This item is currently available through the Program on Corporations, Law & Democracy (POCLAD) at http://www.poclad.org/.  Other relevant books include:

Bakan, J. 2004. The Corporation. New York: Free Press.  (A movie of the same name has been produced and is currently available on DVD.)

Kelly, M. 2003. The Divine Right of Capital. San Francisco: Berrett-Koehler Publishers, Inc.

Nace, T. 2003. Gangs of America. San Francisco: Berrett-Koehler Publishers, Inc.
While many students understand the concept of regulation, they don’t understand the process.  At a basic level, students should understand that Congress creates laws, various regulatory agencies create rules/regulations within the parameters of those laws and that the public has an opportunity to comment on the proposed regulations.  The first group project in this chapter is designed to help students understand this concept.

Certain chapter concepts can be illustrated by encouraging students to explore current political issues: Should the U.S. social security system be privatized? On the other hand, should the U.S. federalize healthcare?  Students also may want to explore the concept of deregulation by looking at the impact that this process has had on certain industries.

PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:

Cases:
Sweetener Get Bitter Reaction
Astroturf Lobbying
The Ethics of Earmarks
DTC:  The Pill Pushing Debate
Big Pharma’s Marketing Tactics
Firestone and Ford:  The Tire Tread Separation Tragedy
The Hudson River Cleanup and GE
Little Enough or Too Much?

Ethics in Practice Cases:
Incompatible Goals for the FDA
To Comply or Not to Comply with the Government Regulation

Search the Web:
U.S. Industrial Policy – http://www.USA.gov
Reason Public Policy Institute (RPPI) - http://www.privatization.org
Cato Institute - http://www.cato.org

Video clips:
Halliburton CEO Shipping Out
Sarbanes-Oxley Act
Internet Pharmacies
COX-2 Painkillers: Question of Safety and Effect of Advertising
Bristol-Myers Squibb: Questionable Ethics
Gender Bias Suit Against Wal-Mart

Power Point slides:
Visit http://academic.cengage.com/management/carroll for slides related to this and other chapters.

LECTURE OUTLINE

1. A BRIEF HISTORY OF GOVERNMENT’S ROLE

1. THE ROLES OF GOVERNMENT AND BUSINESS
1. A Clash of Ethical Belief Systems
2. Social, Technological, and Value Changes

1. INTERACTION OF BUSINESS, GOVERNMENT, AND THE PUBLIC
1. Government/Business Relationship
2. Public/Government Relationship
3. Business/Public Relationship

1. GOVERNMENT’S NONREGULATORY INFLUENCE ON BUSINESS
1. Industrial Policy
2. Arguments for Industrial Policy
3. Arguments Against Industrial Policy
4. Privatization
1. Producing Versus Providing a Service
2. The Privatization Debate
5. Other Nonregulatory Governmental Influences on Business

1. GOVERNMENT’S REGULATORY INFLUENCES ON BUSINESS
1. Regulation: What Does It Mean?
2. Reasons for Regulation
1. Controlling Natural Monopolies
2. Controlling Negative Externalities
3. Achieving Social Goals
4. Other Reasons
3. Types of Regulation
1. Economic Regulation
2. Social Regulation
4. Issues Related to Regulation

1. DEREGULATION
1. Purpose of Deregulation
2. Trend Toward Deregulation
3. Dilemma with Deregulation
1. Trucking Industry
2. Telecommunications Industry
3. Electric Utilities

1. SUMMARY

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence.  Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers.

1. As business historians often point out, corporate charters were first issued explicitly to serve a public good.  In that sense, business has changed from a collectivist ethic, in which the good of the group is placed above the rights or good of individuals, to its current individualist ethic.  Individualism seeks to place the rights of individuals above the good of the group, and thus supports the profit motive of current businesses.  Government, especially a representative democracy as practiced in the United States, is formulated to promote the common good.  Students will obviously be split in their preferences for these two ethics, but the prevailing sentiment will most likely be for the individualistic approach.  This is by far the dominant mode of thinking among business people.

1. Ideally, the public is represented by the government.  However, this is an imperfect process.  In addition, the public does not speak with a single voice—there are many minority views that, while important and relevant, may not be sufficiently widespread so they garner a voice in government.  One of the most dangerous realities in the United States is the influence of money on the governing process.  Michael Walzer, in Spheres of Justice, warns of the danger of goods from one sphere (e.g., money from the economic sphere) invading and influencing the goods of another sphere (e.g., power in the political sphere).  Because big business has control of such vast amounts of money and uses a portion of that currency to influence political power, the public’s influence over the political process is severely diminished.  How to return significant influence over government to the public is a topic that is both timely and critical.  Students may appreciate this issue even more if they visit the multitude of websites that disclose the funding sources for various federal and state candidates.

1. Regulation is the act of controlling the activities of others by means of rules, law, or constituted authority.  Typically, government regulates to correct past wrongs, achieve social goals, control natural monopolies, or control negative externalities.  These regulations fall into two general categories—economic regulations that control commerce and social regulations that seek to achieve some type of social objective.  The needs for social regulations are numerous.  Because of the complexity of our interactions, our society has the power to do great harm to people and the environment, to the extreme of ending all life.  The unbridled quest for more, and the individualistic ethic have proven to do great harm to the common good, which is the purview of social regulations.

1. This will be a difficult question for students to answer, simply because the costs and benefits have not been quantified for them (or anyone else).  Without hard data on which they can base their answer, the students will rely on their general feelings about government regulations.  Because the prevailing notion about government regulation is negative (especially among business people), the majority of students will likely answer that it does more harm than good.

1. The privatization/federalization debate centers on the question of efficiency.  Proponents of privatization contend that almost everything can be accomplished more efficiently in the private sector than through government control.  Supporters of federalization contend that there are some functions that cannot be adequately handled by the private sector.  What the two sides often miss is that efficiency may not be the right criterion upon which to make this decision.  Is efficiency the most important factor in making decisions about the education of our young people?  Students may like to debate whether social security should be privatized.  This is a timely issue and one that garners the interest of a majority of students due to the applicability to their personal lives.

GROUP PROJECTS

Group Project 1 – The Regulatory Process

While many students understand the concept of regulation, they do not understand the regulatory process.  At a basic level, students should understand that Congress creates laws, various regulatory agencies create rules/regulations within the parameters of those laws and that the public has an opportunity to comment on the proposed regulations. 

To help students understand this concept, instructors should divide students into groups of three to four students.  Each group should then be assigned a law (preferably one that is studied in this textbook).  The students should research when the law was passed and the regulatory agency responsible for implementing regulations under the law.  They should summarize any regulations created by the appropriate regulatory agency under the law and note any public opposition or support that was generated during the comment period.

Group Project 2 - Deregulation

Divide students into groups of three to four students.  Have students research how Enron lobbied Congress to deregulate the wholesale electricity industry.  Have students research how the deregulation of the electricity industry has impacted consumers and any benefits or problems that have occurred as a result of the deregulation of this industry.  Instructors may want to guide students to the situation that occurred in California as a result of the deregulation of this industry.