Business-Government Relations Study Guide

Chapter 7: Business-Government Relations

Introduction to Government-Business Relations

• Governments strive to protect and promote the public good by establishing rules for business operations in society.

• The influence of government on business through public policy and regulation is critical for managers.

• The relationship between government and business can be either cooperative or adversarial.

• Economic or social assistance policies affect the operating environment for businesses, which must navigate these regulations.

• Managers need to understand the objectives and effects of government policy and regulation both domestically and internationally to conduct business ethically and legally.

Key Learning Objectives

• LO 7-1: Understand why governments sometimes collaborate with businesses and other times oppose them.

• LO 7-2: Define public policy and outline the public policy process.

• LO 7-3: Explain the reasons for regulation.

• LO 7-4: Identify major types of government regulation of business.

• LO 7-5: Understand the purpose of antitrust laws and possible remedies.

• LO 7-6: Examine global conditions affecting business regulation.

• LO 7-7: Compare the costs and benefits of regulation for businesses and society.

Case Studies: Government Response to COVID-19

Occupational Safety and Health Administration (OSHA)

• During the coronavirus pandemic, OSHA's role was to protect American workers, but it faced criticism for inadequate responses to worker complaints.

• Example cases included:

  • Kentucky: Warehouse employees reported a lack of masks.

  • Illinois: Meatpacking workers unable to maintain social distancing and lacking protection from outbreaks.

• Over 1,000 worker deaths were linked to COVID-19 and associated workplace transmission, yet many were not investigated due to non-reporting by employers.

Food and Drug Administration (FDA) and E-Cigarettes

• The FDA has faced challenges with the e-cigarette industry, which expanded with minimal regulation, leading to a rise in nicotine addiction among youth.

• E-cigarette sales surpassed $7 billion in 2019, prompting the FDA to ban certain flavors to reduce youth usage, but enforcement remained ambiguous due to loopholes and ongoing product availability in vape shops.

Nature of Government-Business Relationships

Collaborative Partnerships

• Governments and businesses may cooperate to achieve mutual goals.

  • Example: In some Asian cultures, businesses and governments collaborate as part of a collective family approach.

• Recent collaboration: The Information Technology Industry Council (representing major tech firms) shifted to support federal regulation for privacy to prevent a chaotic state-by-state regulatory landscape.

Adversarial Relationships

• Conflicts can arise leading to an adversarial stance, where government and business diverge in goals.

  • Example: Google faced government sanctions from the National Labor Relations Board for suppressing employee free speech regarding workplace issues.

• Businesses often prefer to operate without regulation for lower costs but may see benefits from regulations that create a level playing field.

Dynamics of Government Influence

• Government involvement can either promote or hinder business capabilities; conflicting objectives lead to varying managerial strategies.

• Managers must stay attentive to shifts in the government-business relationship due to political or societal changes.

Legitimacy Issues in Global Business

• Businesses may face dilemmas operating in countries where governments lack legitimacy, such as through a military dictatorship or rigged elections.

• Withdrawal of business operations can be used as a tool against illegitimate governments (e.g., U.S. firms during apartheid in South Africa).

• Governments can also impose economic sanctions to restrict businesses from engaging in certain international markets.

Government's Role in Public Policy

• Governments provide essential services and protect rights through public methods such as legislation.

• Public Policy: A government action plan aimed at achieving broad purposes affecting citizens.

Elements of Public Policy

1. Inputs: External pressures shaping policy decisions (e.g., public concerns).

2. Goals: Broad or narrow public interests aimed at serving societal needs.

3. Tools: Instruments governments use, including regulations and incentives.

4. Effects: Outcomes from policies, both intended and unintended.

Public Policy Tools and Examples

• Governments regulate behaviors for safety and public welfare in areas like distracted driving:

  • Distracted driving leads to 1.6 million crashes annually; regulations are enacted based on overwhelming data on dangers.

  • Government adjustments include bans on phone usage while driving; however, unintended consequences persist as drivers find alternative distractions.

Types of Public Policy

Economic Policies

• Fiscal Policy: Patterns of government spending and tax collection aimed at stimulating the economy.

  • Example: China implemented a fiscal stimulus during an economic downturn in 2015.

• Trade Policy: Rules governing imports/exports (e.g., tariffs).

• Monetary Policy: Defines currency supply and interest rates to manage economic stability.

  • Example: Federal Reserve controls U.S. monetary policy aiming to encourage borrowing during recessions.

Social Assistance Policies

• Developed to enhance citizens' welfare in healthcare, housing, and social services (e.g., Brazil’s housing initiative).

• Social assistance can take forms that provide immediate relief or long-term support to vulnerable populations.

Government Regulation of Business

• Regulation: Rules established to govern business conduct, necessary for addressing societal challenges.

Reasons for Regulation

• Market Failure: Economic concepts leading to unsafe products or pollution due to unregulated markets.

• Negative Externalities: Unintended adverse effects from business actions impacting third parties.

  • Example: Black lung disease regulations initiated to address coal dust hazards in mining.

• Natural Monopolies: Situations where competition isn't viable (e.g., utilities); government steps in to regulate pricing and access.

Ethical Arguments for Regulation

• Regulations seek to ensure fairness, public safety, and ethical operations in businesses.

• Notable examples include the Modern Slavery Act in the UK regulating labor practices.

Types of Regulation

1. Economic Regulations: Modify market operations (e.g., price controls, antitrust laws).

2. Social Regulations: Aim for public welfare (e.g., consumer protection, workplace safety).

Antitrust Laws

• Designed to preserve competition; violations can lead to significant penalties or enforced changes in practices.

  • Agencies involved include the Dept. of Justice and the Federal Trade Commission (FTC).

Case Example: AT&T-Time Warner Merger

• Court ruling favored the merger, emphasizing market dynamics against governmental obstruction.

Summary and Implications

• Understanding the fluid relationship between government and business is crucial for managers navigating potential disruptions or benefits.

• Remaining attentive to public policy processes, costs, and benefits enables businesses to prepare strategically for regulatory landscapes.

Key Terms to Study

• Antitrust laws, cost-benefit analysis, deregulation, economic regulation, fiscal policy, market failure, monetary policy, natural monopoly, negative externalities, predatory pricing, public policy, regulation, reregulation, social assistance policies, social regulation, trade policy.

Discussion Case: Government Response to COVID-19 Pandemic

• Government responses to the pandemic included substantial economic relief packages in both the U.S. and EU, demonstrating the roles of fiscal policy and social assistance.

• Responses included direct payments to citizens and support for industries heavily impacted by the pandemic, highlighting the dynamics of government intervention during crises.

Discussion Questions

1. Identify the components of public policy in the COVID-19 response.

2. Differentiate types of public policy seen in economic relief efforts.

3. Evaluate the importance of economic vs. social assistance policies during the pandemic.

4. Suggest additional government actions for comprehensive protection of citizens and businesses.

5. Compare the efficacy of U.S. and EU responses to the pandemic.