Business Ethics Fundamentals

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BA 385 Business, Government and Regulation
Chapter Ten Whos Flying That Plane?
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Introduction to Chapter Ten

• The chapter examines the relationship between
  business and government and in particular the
  governments role in influencing business
  decision making.

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Governments Role in Influencing Business

• Prescribes the rules of the game for business.
• Purchases business products and services.
• Uses its contracting power to get business to do
  things it wants.
• Is a major promoter and subsidizer of business.
• Is the owner of vast quantities of productive
  equipment and wealth. 

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Governments Role in Influencing Business

• Is an architect of economic growth.
• Is a financier.
• Is the protector of various interests in society
  against business exploitation.
• Directly manages large areas of private business.
  
• Is the repository of the social conscience and
  redistributes resources to meet social objectives.

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Roles of Government and Business

• What should be the respective roles of business
  and government in our socioeconomic system?
• Given all of the tasks that must be accomplished
  to make our society work, which of these tasks
  should be handled by the government and which
  should be handled by business?
• How much autonomy are we willing to allow
  business?

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Roles of Government and Business

Clash of Ethical Systems

• Business Beliefs
• Maximizes concession to self-interest
• Minimizes the load of obligations society imposes
  on the individual (personal freedom)
• Emphasizes inequalities of individuals

• Government Beliefs
• Subordinated individual goals and self-interest
  to group goals and group interests
• Maximized obligations assumed by the individual
  and discouraging self-interest
• Emphasized equality of individuals

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Interaction of Business, Government, and the
Public
Lobbying
Regulations and Other Forms of Persuasion
Business
Government
Political Process Voting Interest
Groups Contributions
Advertising Public Relations
Public
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Interaction of Business, Government, and the
Public

• Government/business relationship
• Public/government relationship
• Business/public relationship

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Governments Nonregulatory Influence on Business

• Two Major Nonregulatory Issues
• Industrial Policy
• Privatization

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Industrial Policy Defined

• government policy intended to influence the
  structure, pricing, and output levels of private
  markets.
• Comes in form of
• targeting certain industries for special tax
  breaks
• regulatory favors
• Why? Policy makers believe that these industries
  had high growth potential or were 'strategically'
  important for military or economic reasons.
• Japan's Ministry of International Trade and
  Industry (MITI) is the best-known example of an
  industrial policy agency.

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Industrial Policy A Critique

• Problems?
• Industrial policy is a prime target for special
  interest capture, as firms attempt to influence
  government to favor them.
• Also, industrial policy has had the effect of
  raising prices and restricting output due to
  overbearing and bureaucratic government
  management.
• Free market advocates assert that the market is
  the best mechanism for allocating scarce
  resources because everyone's interests are
  directly represented in buying decisions, whereas
  government authorities are subject to special
  pressures and undue influence because government
  can be the ultimate monopoly.

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Governments Nonregulatory Influence on Business
Industrial Policy

• Pros
• Decline of U.S. competitiveness
• Use by other nations
• Ad hoc system

• Cons
• Reduces market efficiency
• Promotes political decisions
• Foreign success variable
• National attempts uncoordinated and irrational

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Governments Nonregulatory Influence on Business

• Privatization
• Producing versus providing a service (providing
  hire a firm to cater public affair producing
  govt. agency prepares food and serves it).
• Privatization debate
• Federalization of certain functions
• Airport security Benefits? Disadvantages?

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Governments Nonregulatory Influence on Business
Other Nonregulatory Influences

• Major employer
• Large purchaser
• Major influence
• Subsidies
• Transfer payments
• Major competitor

• Major lender
• Taxation
• Monetary policy
• Moral suasion

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Governments Regulatory Influence on Business

• Factors to Consider Regarding Government
  Regulation
• Protection
• Scope
• Cost

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Governments Regulatory Influence on Business

• Federal Regulatory Agency
• Has decision-making authority
• Establishes standards or guidelines conferring
  benefits and imposing restrictions on business
  conduct
• Operates principally in the sphere of domestic
  business activity
• Has its head and/or members appointed by the
  president (generally subject to Senate
  confirmation)
• Has its legal procedures generally governed by
  the Administrative Procedures Act

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Governments Regulatory Influence on Business

Reasons for Regulation

• Controls natural monopolies (economies of scale
  exist to advantage of one firm, i.e. local
  telephone service)
• Controls negative externalities
• Achieves social goals
• Other reasons
• Controls excess profits (rise in oil price
  unfair luck, affects economic policy)
• Controls excessive competition (resulting from
  excessively low price and leading to monopoly
  then high priced items)

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Governments Regulatory Influence on Business

Types of Regulation
Social regulation Environmental Protection Agency
(EPA) Occupational Safety and Health
Administration (OSHA) Equal Employment
Opportunity Commission (EEOC)

• Economic regulation
• Interstate Commerce Commission (ICC)
• Civil Aeronautics Board (CAB)
• Federal Communications Commission (FCC)

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Comparison of Economic and Social Regulation Comparison of Economic and Social Regulation Comparison of Economic and Social Regulation
Economic Regulations Economic Regulations Social Regulations
Focus Market conditions economic variables People in roles as employees, consumers and citizens
Affected Industries Selected (railroads, aeronautics, communications) Virtually all industries
Examples CAB FCC EEOC, OSHA, CPSC, EPA
Current Trend From regulation to deregulation Stable
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Governments Regulatory Influence on Business

Benefits of Regulation

• Fair treatment of employees
• Safer working conditions
• Safer products
• Cleaner air and water

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Governments Regulatory Influence on Business

• Costs of Regulation
• Direct costs (ex. Sheer number of agencies and
  the costs involved in supporting those.)
• Indirect costs (ex. Forms businesses must fill
  out to comply.)
• Induced costs
• Reduced innovation
• Reduced investment in plant and equipment
• Increased pressure on small business

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Deregulation

Purpose Dilemma

• Purpose
• Intended to increase competition with the
  expected benefits of greater efficiency, lower
  prices, and enhanced innovation.
• Dilemma
• Must enhance competition without sacrificing
  applicable social regulations (e.g., health and
  safety requirements).