CHAPTER SEVEN Business–Government Relations Governments seek to protect and promote the public good and in these roles establish rules under which business operates in society. Therefore, a government’s influence on business through public policy and regulation is a vital concern for managers. Government’s relationship with business can be either cooperative or adversarial. Various economic or social assistance policies significantly affect society, in which businesses must operate. Many government regulations also impact business directly. Managers must understand the objectives and effects of government policy and regulation, both at home and abroad, in order to conduct business in an ethical and legal manner. This Chapter Focuses on These Key Learning Objectives: LO 7-1 Understanding why sometimes governments and business collaborate and other times work in opposition to each other. LO 7-2 Defining public policy and the elements of the public policy process. LO 7-3 Explaining the reasons for regulation. LO 7-4 Knowing the major types of government regulation of business. LO 7-5 Identifying the purpose of antitrust laws and the remedies that may be imposed. LO 7-6 Comparing the costs and benefits of regulation for business and society. LO 7-7 Examining the conditions that affect the regulation of business in a global context. page 141 As the coronavirus spread across American factories and workplaces in 2020, the Occupational Safety and Health Administration (OSHA) had a huge job to protect American workers. Its critics argued that the government agency failed miserably, leaving workers more vulnerable to workplace outbreaks of the virus. In Kentucky, warehouse employees complained that masks were unavailable at their work site. In Illinois, meat packaging workers complained that they were unable to socially distance, and poultry workers said management was not protecting them from a disease outbreak. But, according to interviews, government documents, and health department records, OSHA took little action on these and other complaints. Some argued that the agency was more accustomed to dealing with workplace hazards such as exposure to chemicals and injuries from falls and electric shock. By contrast, the coronavirus presented a starkly different challenge, with risks to workers originating both in the workplace and in the outside world, and considerable uncertainty about appropriate protocols. The Wall Street Journal identified more than 1,000 worker deaths from COVID-19 that circumstances suggest were linked to workplace transmission of the virus but were never investigated by OSHA, some because many of these deaths were not reported by employers.1 Dr. Margaret Hamburg, commissioner of the Food and Drug Administration (FDA), first saw an e-cigarette when she received one in the mail from an anti-smoking activist in 2009. During the next decade, the federal government allowed the rise of a largely unregulated industry that some claimed was addicting a new generation to nicotine. With sales of e-cigarettes and vaping devices of more than $7 billion by 2019, tobacco-less smoking had become part of daily life for millions of Americans, many with flavors targeting youths, such as Bazooka Joe Bubble Gum and Zombie Blood. Nearly 1,300 people were sickened by a mysterious vaping-related lung injury in 2019. In January 2020, the FDA banned the use of fruit and mint flavors in cartridge e-cigarettes to curb youth vaping, yet these flavors were still sold via tank vaping systems found in vape shops. Officials described the measure as a compromise between the goal of minimizing youths’ e-cigarette use and the government’s desire to protect the industry and small business owners.2 What prevented OSHA from becoming more involved in helping workers exposed to the coronavirus? What prompted, yet limited, the FDA’s regulation of flavored e-cigarettes? How do these government’s actions affect businesses and what they are permitted to do? How did these actions affect employee safety or consumer purchases? Did government’s involvement promote or harm companies or allow other firms to maintain their competitive advantage? Were these efforts by the governments necessary and effective, or can this only be answered in time? Governments create the conditions that make it possible for businesses to compete in the modern economy. As shown in the opening examples, governments can act in dramatic ways to provide or limit opportunities for businesses and control business activities to better ensure workers’ and the public’s health. In good times and bad, government’s role is to create and enforce the laws that balance the relationship between business and society. Governments also hold the power to grant or refuse permission for many types of business activity. Even the largest multinational companies, which operate in dozens of countries, must obey the laws and public policies of national governments. This chapter considers the ways in which government actions impact business through the powerful twin mechanisms of public policy and regulation. The next chapter addresses the related question of actions business may take to influence the political process. page 142 How Business and Government Relate The relationship between business and government is dynamic and complex. Understanding the government’s authority and its relationship with business is essential for managers in developing their strategies and achieving their organization’s goals. Seeking a Collaborative Partnership In some situations, government may work closely with business to build a collaborative partnership and seek mutually beneficial goals. They see each other as key partners in the relationship and work openly to achieve common objectives. The basis for this cooperation may be at the core of the nation’s societal values and customs. In some Asian countries, society is viewed as a collective family that includes both government and business. Thus, working together as a family leads these two powers to seek results that benefit both society and business. In Europe, the relationship between government and business often has been collaborative. The European culture includes a sense of teamwork and mutual aid. Unions, for example, are often included on administrative boards with managers to lead the organization toward mutual goals through interactive strategies. One example of government–business collaboration is shown next. After years of resisting U.S. government efforts to monitor and regulate technology companies over issues of consumer privacy, the Information Technology Industry Council—representing Internet giants such as Facebook, Amazon, Google’s Alphabet, and Salesforce—signaled its cooperation to work with government agencies. “There’s been a shift” in industry views “that I really think the time is now,” said Karen Zacharia, Verizon Communications’ chief privacy officer. Among numerous topics, the new conversations between companies and the U.S. Commerce Department sought to pre-empt state regulations of online privacy, since tech companies worried that state-by-state regulation could create a burdensome patchwork of rules.3 In this instance, both government regulators at the federal level and major technology companies agreed on the need for federal regulation, leading to collaboration between government and business. Working in Opposition to Government In other situations, government’s and business’s objectives are at odds, and these conflicts result in an adversarial relationship where business and government tend to work in opposition to each other.4 In 2019, the National Labor Relations Board ordered Google to assure employees that they were allowed to speak out on political and workplace issues. The order was part of a settlement of formal complaints that Google had punished vocal opposition from their employees. Google executives had long bragged about a workplace culture designed to encourage open debate, but when employees raised concerns about equality and freedom of speech at the company, executives created new workplace page 143rules limiting or banning workplace conversations. Some outspoken employees complained that they had been retaliated against for raising controversial issues, and others said were offered pay packages to leave the company.5 In this instance, a business was sanctioned by a government agency in opposition to the company’s practices. Why do businesses sometimes welcome government regulation and involvement in the private sector, and other times oppose it? Companies often prefer to operate without government constraints, which can be costly or restrict innovation. But regulations can also help business, by setting minimum standards that all firms must meet, building public confidence in the safety of a product, creating a fair playing field for competition, or creating barriers to entry to maintain a business’s competitive advantage. How a specific company reacts to a specific government policy often depends on their assessment of whether they would be helped or hurt by that rule. In short, the relationship between government and business can range from one of cooperation to one of conflict, with various stages in between. Moreover, this relationship is constantly changing. A cooperative relationship on one issue does not guarantee cooperation on another issue. The stability of a particular form of government in some countries may be quite shaky, while in other countries the form of government is static but those in power can change unexpectedly or government leaders can change on a regular basis. The business–government relationship is one that requires managers to keep a careful eye trained toward significant forces that might alter this relationship or to promote forces that may encourage a positive business–government relationship.6 Legitimacy Issues When dealing with a global economy, business may encounter governments whose authority or right to be in power is questioned. Political leaders may illegally assume lawmaking or legislative power, which can become economic power over business. Elections can be rigged, or military force can be used to acquire governmental control. Business managers may face the dilemma of whether to do business in such a country, where their involvement would indirectly support this illegitimate power. Sometimes, they may choose to become politically active, or refuse to do business in this country until a legitimate government is installed. Businesses can also influence the ability of a government leader or group of leaders to maintain political power. For example, companies can decide to withdraw operations from a country, as many U.S. firms did from South Africa in the 1970s to protest the practice of apartheid (institutionalized racial segregation). Some believe that the economic isolation of South Africa contributed to the eventual collapse of the apartheid regime. Governments may also order companies not to conduct business in another country because of a war, human rights violations, or lack of a legitimate government. These orders are called economic sanctions. As of 2021, the Treasury Department, the Department of Commerce, and the State Department levied embargoes against 30 countries or territories. Most notably, restrictions were imposed on Iran, North Korea, Syria, Cuba, Venezuela, and Turkey.7 A case at the end of this book, “Banning American Parts in Chinese Mobile Phones,” page 144focuses on the U.S. government’s decision to prohibit the Chinese company ZTE from buying American-made parts, after ZTE was found to have violated U.S. sanctions by selling telecommunications equipment to Iran and North Korea. Government’s Public Policy Role Government performs a vital and important role in modern society. Although vigorous debates occur about the proper size of programs government should undertake, most people agree that a society cannot function properly without some government activities. Citizens look to government to meet important basic needs. Foremost among these are safety and protection provided by the military, homeland security, police, and fire departments. These are collective or public goods, which are most efficiently provided by government for everyone in a community. In today’s world, governments are also expected to provide economic security and essential social services, and to deal with the most pressing social problems that require collective action, or public policy. Public policy is a plan of action undertaken by government officials to achieve some broad purpose affecting a substantial segment of a nation’s citizens. Public policy, while differing in each nation, is the basic set of goals, plans, and actions that each national government follows in achieving its purposes. Governments generally do not choose to act unless a substantial segment of the public is affected and some public purpose is to be achieved. This is the essence of the concept of governments acting in the public interest. The basic power to make public policy comes from a nation’s political system. In democratic societies, citizens elect political leaders who can appoint others to fulfill defined public functions ranging from municipal services (e.g., water supplies, fire protection) to national services, such as public education or homeland security. Democratic nations typically spell out the powers of government in the country’s constitution. Another source of authority is common law, or past decisions of the courts, the original basis of the U.S. legal system. In nondemocratic societies, the power of government may derive from a monarchy (e.g., Saudi Arabia), a military dictatorship (e.g., Myanmar), or religious authority (e.g., the mullahs in Iran). These sources of power may interact, creating a mixture of civilian and military authority. The political systems in Russia, Libya, Tunisia, and other nations have undergone profound changes in recent times. And democratic nations can also face the pressures of regions that seek to become independent nations exercising the powers of a sovereign state, as has Canada with the province of Quebec. Elements of Public Policy The actions of government in any nation can be understood in terms of several basic elements of public policy. These are inputs, goals, tools, and effects. They will be illustrated using the example of distracted driving. Public policy inputs are external pressures that shape a government’s policy decisions and strategies to address problems. Economic and foreign policy concerns, domestic political pressure from constituents and interest groups, technical information, and media attention all play a role in shaping national political decisions. For example, a growing recognition of the dangers of distracted driving has pressured many state and local governments to ban or regulate the use of various electronic devices by drivers. Distracted driving may occur when a driver’s attention is diverted by personal grooming tasks, adjusting music or navigation settings, eating, reading, and assorted other activities. It has become an even greater threat to driver and passenger safety as technologies have advanced. page 145More and more drivers are now able to make or receive calls, send text messages, and even browse the Internet—all while driving a car at high speeds, in heavy traffic, or during bad weather conditions.8 According to an annual National Safety Council study, cell phone use while driving leads to 1.6 million crashes each year. Nearly 390,000 injuries occur each year from accidents caused by texting while driving. One out of every four car accidents in the United States is caused by texting while driving. In the United States, about nine people are killed every day due to car crashes that involved a distracted driver. According to a national Consumer Reports survey of 622 licensed drivers, 52 percent admitted to engaging in distracting activities while driving, even though they knew it was wrong. Of those drivers surveyed, 41 percent admitted using their hands to send a text, 37 percent to playing music on a smartphone, and 8 percent to watching videos on their phone while driving. Teens were particularly vulnerable. According to data from the Insurance Institute for Highway Safety, drivers between 16 and 19 years old are three times more likely to have a fatal car crash and 60 percent of teen drivers involved in fatal crashes were distracted immediately before the accident. A global survey of 3 million drivers conducted by Zendrive Research found that drivers used their phones during 88 percent of their trips. An Erie Insurance study found that fifteen percent of drivers admitted they had engaged in “romantic encounters” while behind the wheel and 9 percent said they had changed clothes while driving.9 In response to this growing problem, government bodies—legislatures, town councils, regulatory agencies—need to consider all relevant inputs in deciding whether to act, and if so, how. Public policy goals can be broad (e.g., full employment) and high-minded (equal opportunity for all) or narrow and self-serving. National values, such as freedom, democracy, and a fair chance for all citizens to share in economic prosperity, have led to the adoption of civil rights laws and economic assistance programs for those in need. Narrow goals that serve special interests are more apparent when nations decide how legislation will allocate the burden of taxes among various interests and income groups, or when public resources, such as oil exploration rights or timber cutting privileges, are given to one group or another. Whether the goals are broad or narrow, for the benefit of some or the benefit of all, most governments should ask, “What public goals are being served by this action?” For example, the rationale for a government policy to regulate distracted driving must be based on some definition of public interest, such as preventing harm to others, including innocent drivers, passengers, and pedestrians. The goal of distracted driving regulation is to prevent deaths and serious injuries resulting from drivers being distracted while driving. The factual data appears to be overwhelming. However, some members of the public have insisted on their right to use their phones for texting and other activities in their vehicles. Traveling salespersons, for example, depend on their phones as an important tool of the job. page 146Some regulations have addressed this by permitting drivers to use hands-free devices that permit them to keep their hands on the wheel. But some government safety experts have disagreed, saying, “When you are on a call, even if both hands are on the wheel, your head is in the call, and not your driving.” The issue of banning the use of cell phones, hand-held or hands-free, for the sake of making our roads a little safer for all, remains at the forefront, but new technology has created even greater distractions. Devices can project information and data streamed from a smartphone onto the car’s windshield. Maps, speed, incoming texts, caller identification, and even social media notifications can be projected just above the dashboard of a car for the driver to read. The game Pokémon Go prompts drivers to search for virtual creatures on the highways or country roads. So, the goals of saving lives, reducing injuries, and eliminating health care costs are increasingly more urgent and the demand for regulation even more critical. Governments use different public policy tools to achieve policy goals. The tools of public policy involve combinations of incentives and penalties that government uses to prompt citizens, including businesses, to act in ways that achieve policy goals. Governmental regulatory powers are broad and constitute one of the most formidable instruments for accomplishing public purposes. Federal action limiting cell phone use in the United States stalled, so state and local governments stepped in to ban the use of cell phones by drivers while operating their vehicles. By 2021, 25 states had banned the use of cell phones while driving unless using a hands-free device, 36 had banned cell phone use by novice drivers, and 48 had banned text messaging for all drivers. And this was not just a public policy issue for Americans. More than 45 nations, including Australia, China, France, Germany, India, Israel, Japan, Russia, Spain, Taiwan, and the United Kingdom, have banned calling while driving.10 Public policy effects are the outcomes arising from government regulation. Some are intended; others are unintended. Because public policies affect many people, organizations, and other interests, it is almost inevitable that such actions will please some and displease others. Regulations may cause businesses to improve the way toxic substances are used in the workplace, thus reducing health risks to employees. Yet other goals may be obstructed as an unintended effect of compliance with such regulations. For example, when health risks to pregnant women were associated with exposure to lead in the workplace, some companies removed women from those jobs. This action was seen as a form of discrimination against women that conflicted with the goal of equal employment opportunity. The unintended effect (discrimination) of one policy action (protecting employees) conflicted head-on with the public policy goal of equal opportunity. Different groups disagreed over the possible effects of distracted driving laws. Proponents obviously argued that the ban on cell phone use reduced accidents and saved lives. In fact, in just one year, from 2012 to 2013, the number of deaths attributed to distracted driving nationwide declined nearly 7 percent, possibly due to the bans enacted by many states around that time. Yet, these gains were short-lived, as estimated deaths attributed to distracted driving have continued to rise in most years, page 147possibly due to increases in cell phone use while driving. Opponents pointed to numerous other distractions that were not banned, such as drivers reading the newspaper, eating, putting on makeup, or shaving. “People have been driving distracted since cars were invented. Focusing on mobile phones isn’t the same as focusing on distracted driving. Distraction is what has always caused car crashes and mobile phones don’t appear to be adding to that,” said a spokesperson for the Insurance Institute for Highway Safety.11 As the distracted driving examples illustrate, managers must try to be aware of the public policy inputs, goals, tools, and effects relevant to regulation affecting their business. As public issues emerge with significant negative consequences, such as death and injuries due to distracted driving, businesses should look for solutions. The automobile industry has increasingly done so, by introducing technologies that enable drivers to converse by phone or receive GPS directions and other notifications without removing their hands from the steering wheel or taking their eyes off the road. Types of Public Policy Public policies created by governments are of two major types: economic and social. Sometimes these types of regulation are distinct from each other and at other times they are intertwined. Economic Policies One important kind of public policy directly concerns the economy. The term fiscal policy refers to patterns of government collecting and spending funds that are intended to stimulate or support the economy. Governments spend money on many different activities. Local governments employ teachers, trash collectors, police, and firefighters. State governments typically spend large amounts of money on roads, social services, and parkland. National governments spend large sums on military defense, international relationships, and hundreds of public works projects such as road building. During the Great Depression of the 1930s, public works projects employed large numbers of people, put money in their hands, and stimulated consumption of goods and services. Today, fiscal policy remains a basic tool to achieve prosperity, as the following example illustrates. In 2015, Chinese government leaders and economists were surprised by the country’s sharp economic decline and were increasingly worried about the potential risk of job losses throughout the country. The leaders turned to fiscal stimulus to revive the growth of the country. China’s top planning agency infused large amounts of funding in an attempt to speed up investment projects in several key sectors, including water conservation, environmental protection, power grids, and health care. Six years later, this trend continued, as the central government set aside more than 8.3 trillion yen ($1.28 trillion) to transfer to local governments. In explaining this government spending, the chairman of China’s National Development and Reform Commission said, “China was on track to achieve its economic growth, employment, inflation, fiscal revenue as well as imports and exports targets, but the country was falling behind in its goals for investment and wooing foreign investors.”12 page 148 Another important kind of economic policy is trade policy, the rules that govern imports from and exports to foreign countries. Governments sometimes favor free-trade policies, allowing the relatively unrestricted flow of goods and services across national borders, and at other times erect various barriers to this flow, such as tariffs and duties. India’s Union Ministry of Commerce and Industry announced that the country’s new Foreign Trade Policy 2021–2026 would strive to make the country a leader in international commerce, with $5 trillion in trade by 2026. To reach this goal, India would have to significantly boost its exports of both merchandise and services. One specific objective was the promotion of India’s jewelry repair industry. One official said that India had all the infrastructure necessary to become a global hub in the restoration of old and damaged jewelry.13 By contrast, the term monetary policy refers to policies that affect the supply, demand, and value of a nation’s currency. The worth, or worthlessness, of a nation’s currency has serious effects on business and society. It affects the buying power of money, the stability and value of savings, and the confidence of citizens and investors about the nation’s future. This, in turn, affects the country’s ability to borrow money from other nations and to attract private capital. In the United States, the Federal Reserve Bank—known as the Fed—plays the role of other nations’ central banks. By raising and lowering the interest rates at which private banks borrow money from the government, the Fed influences the size of the nation’s money supply and the value of the dollar. During the Great Recession, the Fed’s action to lower interest rates nearly to zero—an example of a monetary policy—was intended to stimulate borrowing and help the economy get moving again. Other forms of economic policy include taxation policy (raising or lowering taxes on business or individuals), industrial policy (directing economic resources toward the development of specific industries), and trade policy (encouraging or discouraging trade with other countries). In 2017, Congress passed a $1.5 trillion tax cut, the most sweeping U.S. tax bill since 1986. This measure cut the corporate tax rate from 35 to 21 percent, with the intent of stimulating the economy. In the first quarter of 2018, 108 of the nation’s largest companies reported saving almost $13 billion in taxes, with nearly a third of the savings going to financial firms. AT&T and Comcast applauded the tax relief and promised to share the windfall by paying $1,000 bonuses to their more than 300,000 workers. Wells Fargo and Fifth Third Bancorp said they would raise their employees’ minimum wage to $15 an hour. However, Michael Dell, CEO of Dell Technologies, discovered that the new tax bill would prevent his company from deducting nearly $2 million it pays annually in interest on the company’s debt.14 Some thought that the tax reform would stimulate the economy, create jobs, and raise wages, but others cautioned that it would increase the national deficit and that companies would be more likely to use their windfalls to increase executive pay and shareholder page 149dividends than to create jobs or pay workers more. When comparing actual revenues in 2018 with predicted revenues in 2018 assuming Congress had not passed the legislation, the actual amount of revenue collected in 2018 was significantly lower than the government projections. The shortfall was $275 billion, or 7.6 percent of revenues that were expected before the tax cuts took place. The data indicate that the tax cut of 2017 substantially reduced revenues.15 A later effort to boost the economy in the United States and Europe during the global coronavirus pandemic is described in the Discussion Case at the end of this chapter. Social Assistance Policies The last century produced many advances in the well-being of people across the globe. The advanced industrial nations have developed elaborate systems of social services for their citizens. Developing economies have improved key areas of social assistance (such as health care and education) and will continue to do so as their economies grow. International standards and best practices have supported these trends. Many of the social assistance policies that affect specific stakeholders are discussed in subsequent chapters of this book. One area often addressed by social assistance policies is housing. Many governments have programs that subsidize rent payments, guarantee home loans, or provide housing directly for low-income citizens or military veterans. For example, Brazil’s Minha Casa, Minha Vida (“My House, My Life”) program has invested more than R$400 billion ($107 billion U.S.) in mortgages, provided by a government-affiliated bank, resulting in more than 4.5 million housing units authorized for construction and 2.9 million units delivered to low-income families since the program began in 2009. Many of the first units built by the program were intended to house families displaced by development for the World Cup and Olympic Games in Rio de Janeiro. The program’s critics argued that the housing was often located outside of major cities, such as Rio de Janeiro, limiting the economic opportunities available for its residents.16 One particularly important social assistance policy—health care—has been the focus for concern on the international front and for national and state lawmakers. As discussed later in this chapter, the U.S. government has wrestled with the need for better health care for its citizens and the challenge of how to pay for this care. Government Regulation of Business Societies rely on government to establish rules of conduct for citizens and organizations called regulations. Regulation is a primary way of accomplishing public policy, as described in the previous section. Because government operates at so many levels (federal, state, local), modern businesses face complex webs of regulations. Companies often require lawyers, public affairs specialists, and experts to monitor and manage the interaction with government. Why do societies turn to more regulation as a way to solve problems? Why not just let the free market allocate resources, set prices, and constrain socially irresponsible behavior by companies? There are a variety of reasons. page 150 Market Failure One reason is what economists call market failure, that is, the marketplace fails to adjust prices for the true costs of a firm’s behavior. For example, a company normally has no incentive to spend money on product safety or pollution control equipment if customers do not demand it. The market fails to incorporate the cost of product safety or environmental harm into the business’s economic equation, because the costs are borne by someone else. In this situation, government can use regulation to force all competitors in the industry to adopt a minimum safety or pollution standards. Companies that want to act responsibly often welcome carefully crafted regulations, because they force competitors to bear the same costs. This behavior is seen in the following example. The European Union set regulatory standards for certain contaminants in foods, including maximum levels for lead, cadmium, and mercury. The EU explained, “in order to protect public health, to keep contaminants at levels which do not cause health concerns, maximum levels for lead, cadmium and mercury must be safe and as low as reasonably achievable based upon good manufacturing and agricultural /fishery practices.” These new regulatory standards affected food companies around the world that have business with or in Europe. Nestlé Purina Petcare, a pet food subsidiary of Nestlé, the Swiss-based and world’s largest food and beverage company, welcomed these new standards, believing it provided them with a competitive advantage. The company released the following statement: “We use science to make quality and safe pet foods … We test for well over 150 substances, including arsenic, pesticides, lead, mercury and cadmium…. We do make an effort to source ingredients that contain lower levels of heavy metals … We are committed to providing our consumers with accurate and transparent nutrition labelling based on sound science, regulation and law in a format that best helps them make informed, balanced and mindful product choice.”17 Negative Externalities Governments also may act to regulate business to prevent unintended adverse effects on others. Negative externalities, or spillover effects, result when the manufacture or distribution of a product gives rise to unplanned or unintended costs (economic, physical, or psychological) borne by workers, consumers, competitors, neighboring communities, or other business stakeholders. To control or reverse these costs, government may step in to regulate business action. In 2014, U.S. government regulators announced rules to fight an increase in black lung disease, caused by breathing coal dust. These new regulations were the first major efforts since the 1969 Coal Mine Health and Safety Act, which established modern health and safety requirements in mines nationwide. Government health officials attributed increasing rates of the disease to new machinery that generated more dust, longer shifts for younger workers, and an increase in silica dust churned up when thinner coal seams were tapped after many years of mining at the same location.18 page 151 Natural Monopolies In some industries, natural monopolies occur. The electric utility industry provides an example. Once one company has built a system of poles and wires or laid miles of underground cable to supply local customers with electricity, it would be inefficient for a second company to build another system alongside the first. But once the first company has established its natural monopoly, it can then raise prices as much as it wishes because there is no competition. In such a situation, government often comes in and regulates prices and access. Other industries that sometimes develop natural monopolies include cable TV, broadband Internet service, software, and railroads. Ethical Arguments There is often an ethical rationale for regulation as well. As discussed in Chapter 5, for example, there is a utilitarian ethical argument in support of safe working conditions: It is costly to train and educate employees only to lose their services because of preventable accidents. There are also fairness and justice arguments for government to set standards and develop regulations to protect employees, consumers, and other stakeholders. In debates about regulation, advocates for and against regulatory proposals often use both economic and ethical arguments to support their views. Some issues have consequences that are so devastating that the government needs to step in and impose controls, as shown in the following example. In 2015, the U.K. government passed the Modern Slavery Act, the first piece of U.K. legislation focusing on the prevention and prosecution of modern slavery and the protection of victims. According to the International Labour Organisation (ILO), 25 million people around the world were trapped in some form of forced labor, including trafficking, debt bondage and child labor. The new law made businesses accountable for slavery and labor abuses occurring along their supply chain of operations. In 2020, the U.K. government published guidance for companies on how to approach their Modern Slavery Act statements during the COVID-19 pandemic. The government stressed that businesses should continue to identify and address risks of modern slavery in their operations and supply chains; however, businesses could delay publishing their statements by up to six months without penalty, if necessary, because of the pandemic. The goal was to ensure that there were no instances of slavery linked to any British products or services.19 Whether the actions are self-imposed by a company or forced on businesses by the government, the protection of the public is often the motivation for regulatory action. Types of Regulation Government regulations come in different forms. Some are directly imposed; others are more indirect. Some are aimed at a specific industry (e.g., banking); others, such as those dealing with job discrimination or pollution, apply to all industries. Some have been in existence for a long time—for example, the Food and Drug Act was passed in 1906—whereas others, such as the Wall Street Reform and Consumer Protection (or Dodd-Frank) Act of 2010, are of much more recent vintage. Just as public policy can be classified as either economic or social, so regulations can be classified in the same fashion. page 152 Economic Regulations The oldest form of regulation is primarily economic in nature. Economic regulations aim to modify the normal operation of the free market and the forces of supply and demand. Such modification may come about because the free market is distorted by the size or monopoly power of companies, or because the consequences of actions in the marketplace are thought to be undesirable. Economic regulations include those that control prices or wages, allocate public resources, establish service territories, set the number of participants, and ration resources. The decisions by the Federal Trade Commission (FTC) to prevent anticompetitive business practices illustrate one kind of economic regulation. The U.S. Congress responded to the Great Recession of 2008, in part, by passing the Dodd-Frank Act in 2010. This legislation was heralded as the most comprehensive financial regulatory reform measure since the Great Depression and was intended to revolutionize many business activities. Among other things, the Dodd-Frank Act affected the oversight and supervision of financial institutions, created a new agency responsible for implementing and enforcing compliance with consumer financial laws (The Consumer Financial Protection Bureau [CFPB]), introduced more stringent regulatory capital requirements, and implemented changes to corporate governance and executive compensation practices. Ten years later, analysts concluded that the Act had remained generally intact although some provisions had been challenged in the courts. Notably, the Supreme Court had ruled that the CFPB director was subject to removal at the will of the President.20 Antitrust: A Special Kind of Economic Regulation One important kind of economic regulation occurs when government acts to preserve competition in the marketplace, thereby protecting consumers. Antitrust laws prohibit unfair, anticompetitive practices by business. (The term antitrust law is used in the United States; most other countries use the term competition law.) For example, if a group of companies agreed among themselves to set prices at a particular level, this would generally be an antitrust violation. In addition, a firm may not engage in predatory pricing, the practice of selling below cost to drive rivals out of business. If a company uses its market dominance to restrain commerce, compete unfairly, or hurt consumers, then it may be found guilty of violating antitrust laws. The two main antitrust enforcement agencies in the United States are the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission. Both agencies may bring suits against companies they believe to be guilty of violating antitrust laws. They also may investigate possible violations, issue guidelines and advisory opinions for firms planning mergers or acquisitions, identify specific practices considered to be illegal, and negotiate informal settlements out of court. A new target for antitrust legislation emerged in 2021 when some Democratic members of Congress proposed reining in the perceived monopolistic power of some technology companies, including Facebook and Google. While unlikely to pass a divided Congress, the proposed legislation led technology companies to engage with Congress in hearings to address the legislators’ concerns.21 page 153 In Europe, the European Commission investigates antitrust violations for the European Union who may act to enforce EU laws, as seen in the examples that follow. For example, in 2018 the European Union slapped U.S.-technology giant Qualcomm Inc. with a €997 million ($1.23 million) antitrust fine. EU antitrust regulators accused Qualcomm of paying billions of dollars to Apple from 2011 to 2016 on the condition that Apple would not buy from Qualcomm’s rivals, hindering its competitors in the marketplace for chips that connected smartphones and tablets to cellular networks. In 2019 the European Union penalized Alphabet Inc.’s Google with a €1.49 billion ($1.7 billion) fine for limiting how some websites could display ads sold by its rivals. And later that year, the EU imposed a rarely used sanction on another high-tech firm, Broadcom—an injunction stopping the firm from requiring contract terms with customers, alleging that this action was anticompetitive.22 If a company is found guilty of antitrust violations, what are the penalties? The government may levy a fine—sometimes a large one, as the EU did against Qualcomm and Google. In the case of private lawsuits, companies may also be required to pay damages to firms or individuals they have harmed. Sysco and U.S. Foods Holdings, two of the largest U.S. food distribution companies, joined retailer Winn-Dixie Stores, in filing lawsuits for undisclosed damages against the chicken industry, accusing Tyson Foods, Pilgrim’s Pride, Sanderson Farms, and other poultry suppliers of manipulating wholesale chicken prices.23 In addition, regulators may impose other, nonmonetary remedies. A structural remedy may require the breakup of a monopolistic firm; this occurred when (the old) AT&T was broken up by government order in 1984. A conduct remedy, more commonly used, involves an agreement that the offending firm will change its conduct, often under government supervision. For example, a company might agree to stop certain anticompetitive practices. Finally, an intellectual property remedy is used in some kinds of high-technology businesses; it involves disclosure of information to competitors. All these are part of the regulator’s arsenal. Antitrust regulations cut across industry lines and apply generally to all enterprises. Other economic regulations, such as those governing stock exchanges, may be confined to specific industries and companies. One example of a conflict over the application of antitrust laws to a proposed merger is discussed in Exhibit 7.A. Exhibit 7.A The AT&T–Time Warner Merger of 2018 In 2018, a federal judge handed down what many economists believed to be a sweeping victory against governmental antitrust regulation by approving AT&T’s $85 billion acquisition of Time Warner. Judge Richard Leon ruled that the government—which had tried to block the merger—had failed to prove that the telecom company’s acquisition of Time Warner would violate antitrust law by leading to fewer choices for consumers and higher prices for television and internet services. With this final roadblock removed, the merger was expected to create a media and telecommunications powerhouse, reshaping the landscape of those industries. The combined company would join Time Warner’s library, including HBO’s hit “Game of Thrones” and channels like CNN, with AT&T’s vast distribution reach through wireless and satellite television services across the country. Media executives supported the AT&T–Time Warner merger deal, arguing that content creation and distribution had to be combined to compete successfully against technology companies like Amazon and Netflix. Although those companies had just started producing their own shows during the past several years, they were now spending billions of dollars a year on original programming. Their users could stream the video on apps in homes and on mobile devices, putting pressure on traditional media businesses. Yet, Makan Delrahim, the top antitrust official at the Justice Department said, “We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner.” Antitrust experts predicted that the court ruling would lead to a flood of new merger proposals. Just days after the AT&T–Time Warner decision, Comcast bid to acquire 21st Century Fox, challenging Disney, which previously had bid for 21st Century Fox’s assets. In response, Disney increased their offer to acquire 21st Century Fox. Both Comcast and 21st Century Fox made bids on acquiring Sky, a European media company. Sources: “AT&T Wins Approval for $85.4 Billion Time Warner Deal in Defeat for Justice Department,” The New York Times, June 12, 2018, www.nytimes.com; and “Judge Approves $85 Billion AT&T-Time Warner Deal,” CNNMoney, June 13, 2018, money.cnn.com. Social Regulations Social regulations are aimed at such important social goals as protecting consumers and the environment and providing workers with safe and healthy working conditions. Equal employment opportunity, protection of pension benefits, and health care for citizens are other important areas of social regulation. Unlike the economic regulations mentioned above, social regulations are not limited to one type of business or industry. Laws concerning pollution, safety and health, health care, and job discrimination apply to all businesses; consumer protection laws apply to all relevant businesses producing and selling consumer goods. page 154 After the rate of obesity in Chile doubled between 1980 and 2014, causing national health care costs to increase by $750 million annually over two decades, the Chilean government declared war on fat. “They killed Tony the Tiger. They did away with Cheetos’ Chester Cheetah. They banned Kinder Surprise, the chocolate eggs with a hidden toy,” The New York Times reported. The Chilean government imposed multiple marketing restrictions, mandatory packaging redesigns, and labeling rules on the nation’s food producers and retailers aimed at transforming the eating habits of 18 million Chilean residents. Nutrition experts said this was the world’s most ambitious attempt to remake a country’s food culture and could be a model for how to turn the tide on a global obesity epidemic that researchers said contributed to 4.7 million premature deaths a year.24 The most significant social regulation in the United States since the 1960s was the comprehensive reform of health care coverage passed by Congress in 2009. It is described in Exhibit 7.B. Exhibit 7.B The Affordable Care Act: Health Care Coverage Mandated for Americans In 2010, led by President Obama, Congress passed the Affordable Care Act, often referred to as “Obamacare.” The basic purpose of the law was to hold insurance companies accountable for their costs and services to their customers, lower the rising health care costs, provide Americans with greater freedom and control over their health care choices, and ultimately improve the quality of health care in America. Its provisions would be rolled out over 10 years. In 2010, the government began giving subsidies to small businesses that offered health coverage to employees, insurance companies were barred from denying coverage to children with pre-existing illnesses, and children were permitted to stay on their parents’ insurance policies until age 26. The health care reform law aroused strong passions on both sides. Proponents of the law argued that more than 5.1 million people on Medicare would save over $3 billion in prescription drugs costs, 105 million Americans would no longer have lifetime dollar limits on their health care coverage, and approximately 54 million Americans would receive greater preventative medical coverage. Health care fraud would decline by $4.1 billion annually due to new fraud detection measures, and 2.5 million young adults would retain health care coverage under their parents’ plan. Most importantly, most Americans would now have health insurance coverage. But, opponents challenged the new law as filled with myths, untruths, and harmful consequences. Some believed that the act would do nothing to bring down the cost of health care. Business leaders worried that the burden of providing their employees with health care insurance would result in bankruptcy or cause employers to reduce the level of health care coverage for their employees. Many worried that the mandate infringed on individual rights—including the right to go without health insurance if they chose. Several states sued, saying the law violated the constitution. In the late 2010s, repeated attempts by Congress to repeal all or part of the Affordable Care Act failed. By 2020, 11.4 million Americans had enrolled through the state marketplaces and HealthCare.gov. Of that number, nearly 87 percent were getting some form of cost assistance. Under the Act, millions of Americans receive preventive services, such as vaccines, cancer screenings, and annual wellness visits at no out-of-pocket cost. In addition, Americans could no longer be denied or dropped from coverage because of pre-existing conditions or because they hit an annual or lifetime cap in benefits. Sources: For a comprehensive overview of the Affordable Care Act, see “27+ Affordable Care Act Statistics and Facts (2021),” Policy Advice, February 14, 2021, policyadvice.net. Who regulates? Normally, for both economic and social regulation, specific rules are set by agencies of government and by the executive branch, and may be further interpreted by the courts. Many kinds of business behavior are also regulated at the state level. Government regulators and the courts have the challenging job of applying the broad mandates of public policy. page 155 Figure 7.1 depicts these two types of regulation—economic and social—along with the major regulatory agencies responsible for enforcing the rules at the federal level in the United States. Only the most prominent federal agencies are included in the chart. Individual states, some cities, and other national governments have their own array of agencies to implement regulatory policy. There is a legitimate need for government regulation in modern economies, but regulation also has problems. Businesses feel these problems firsthand, often because the regulations directly affect the cost of products and the freedom of managers to design their business operations. In the modern economy, the costs and effectiveness of regulation, as well as its unintended consequences, are serious issues that cannot be overlooked. Each is discussed below. The Effects of Regulation Regulation affects many societal stakeholders, including business. Sometimes the consequences are known and intended, but at other times unintended or accidental consequences emerge from regulatory actions. In general, government hopes that the benefits arising from regulation outweigh the costs. page 156 FIGURE 7.1 Types of Regulation and Regulatory Agencies page 157 The Costs and Benefits of Regulation The call for regulation may seem irresistible to government leaders and officials given the benefits they seek, but there are always costs to regulation. An old economic adage says, “There is no free lunch.” Eventually, someone must pay for the benefits created. An industrial society such as the United States can afford almost anything, including social regulations, if it is willing to pay the price. Sometimes the benefits are worth the costs; sometimes the costs exceed the benefits. The test of cost-benefit analysis helps the public understand what is at stake when new regulation is sought. Figure 7.2 illustrates the increase in costs of federal regulation in the United States since 1960. Economic regulation has existed for many decades, and its cost has grown more slowly than that of social regulation. Social regulation spending reflects growth in such areas as environmental health, occupational safety, and consumer protection. A rapid growth of social regulation spending occurred in the 1970s and again in the 2000s. The cost of regulation has its critics, especially when the costs to small businesses or manufacturing firms are considered. FIGURE 7.2 Budgetary Costs of Federal Regulation, 1960–2020 Sources: “FY 2021 Regulators’ Budget,” The George Washington University Regulatory Studies Center and the Weidenbaum Center on the Economy, Government and Public Policy at Washington University in Saint Louis, regulatorystudies.columbian.gwu.edu. In addition to paying for regulatory programs, it takes people to administer, monitor, and enforce these regulations. Although the numbers have gone up and down, depending on the approach of various administrations, the overall trend has been toward growth of the regulatory apparatus of government. In 1960, fewer than 60,000 federal employees monitored and enforced government regulations; by 2015, this number had grown to more than 277,000 employees and has remained fairly steady since then. John J. DiIulio Jr., of the University of Pennsylvania and the Brookings Institution, criticized the size of government regulation when he said, “Today’s government is indeed big—3.5 times bigger than five and a half decades ago, but dispersed to disguise its size.”25 Continuous Regulatory Reform The amount of regulatory activity often is cyclical—historically rising during some periods and declining during others. Businesses in the United States experienced a lessening of regulation in the early 2000s—deregulation, then experienced a return of regulatory activity page 158in the late 2000s and early 2010s—reregulation. The cycle continued as the pendulum swung back to deregulation in the late 2010s under the Trump administration. Early evidence suggests a return to greater regulation once again under the Biden administration in the early 2020s. Deregulation is the removal or scaling down of regulatory authority and regulatory activities of government. Deregulation is often a politically popular idea. President Ronald Reagan strongly advocated deregulation in the early 1980s, when he campaigned on the promise to “get government off the back of the people.” Major deregulatory laws were enacted off and on in the United States from the 1980s to today, mostly dependent upon whether there was a Republican administration in power. Proponents of deregulation often challenge the public’s desire to see government solve problems. This generates situations in which government is trying to deregulate in some areas while at the same time creating new regulation in others. Reregulation is the increase or expansion of government regulation, especially in areas where the regulatory activities had previously been reduced. The scandals that rocked corporate America in the 2000s—and the failure or near-failure of several big commercial and investment banks in the late 2000s—brought cries from many stakeholder groups for reregulation of the securities and financial services industries. Analysts predict that the passage of a $1.9 trillion stimulus package by the Biden-led administration in March 2021 indicates more involvement by regulators in American’s personal lives and business operations. According to PricewaterhouseCooper, federal regulatory agencies likely will promote the new president’s domestic agenda, with special emphasis on gender and racial equality and climate change.26 Regulation in a Global Context International commerce unites people and businesses in new and complicated ways, as described in Chapter 4. U.S. consumers routinely buy food, automobiles, and clothing from companies located in Europe, Canada, Latin America, Australia, Africa, and Asia. Citizens of other nations do the same. As these patterns of international commerce grow more complicated, governments recognize the need to establish rules that protect the interests of their own citizens. International regulatory bodies also work to establish common global rules affecting many nations. One such effort, involving food safety, is described in Exhibit 7.C. Exhibit 7.C The Need for the Global Regulation of Food Safety The global regulation of food safety significantly impacts developing countries around the world. One region where it has made a big difference is Africa. Food supplies in many African countries are inadequate in both quality and quantity. This contributes to widespread malnutrition on the continent. At least 60 percent of the food supply across Africa is imported to supplement local production. Many African countries do not have effective food safety regimes and hence the safety of imported food cannot be assured, adding to the risk of widespread food contamination. In 2017, one effort to address this problem was undertaken collaboratively by the Food and Agriculture Organization (FAO) of the United Nations and the World Trade Organization (WTO). The combined leadership of the FAO and WTO declared that “food standards give confidence to consumers in the safety, quality, and authenticity of what they eat.” The FAO–WTO believed that by creating common global standards for food safety would enable trade of agricultural and processed food products and give confidence to consumers, producers, and governments. On the other hand, if every government applied different food standards, trade would cost more, and it would be more difficult to ensure that the food was safe and met all stakeholders’ expectations. Together this organization created the joint FAO/WTO Codex Alimentarius Commission to establish food standards. These science-based standards stipulate internationally agreed-upon food quality requirements and are fast becoming the benchmark for international trade of food products. The standards lay out rules for food safety and animal and plant health protection measures in trade. They also provide a set of tools to facilitate international dialogue on food-related measures and to resolve trade concerns when they arise. Sources: “Global Regulation: Development of Food Legislation around the World,” ScienceDirect, 2010, www.sciencedirect.com; and “Trade and Food Standards,” Food and Agricultural Organization of the United Nations and the World Trade Organization, 2017, www.fao.org. No nation wants to accept dangerous food produced elsewhere that will injure its citizens, and no government wants to see its economy damaged by unfair competition from foreign competitors. These concerns provide the rationale for international regulatory agreements and cooperation. Another example of international regulation occurred in the aviation industry. The International Civil Aviation Organization, representing more than 190 countries, adopted The Aviation Plan, designed to reduce the climate impact of international jet travel, which accounted for about 2 percent of the world’s emissions of greenhouse gases. The measure would require air carriers to take major steps to improve fuel economy in their routes and fleets, likely accelerating the purchase of newer, more efficient planes. The plan was scheduled to take effect in 2021. “This measure addresses a growing source of global emissions, demonstrates the international page 159community’s strong and growing support for climate action in all areas and helps avoid a patchwork of potentially costly and overlapping regional and national measures,” said John Kerry, the then-U.S. Secretary of State.27 Whether at the local, state, federal or international levels, governments exert their control seeking to protect society through regulation. The significant challenge involves balancing the costs of this form of governance against the benefits received or the prevention of the harms that might occur if the regulation is not in place and enforced. Businesses have long understood that managing and, if possible, cooperating with the government regarding regulation generally leads to a more productive economic environment and financial health of the firm. Summary Government’s relationship with business ranges from collaborative to working at arm’s length. This relationship often is tenuous, and managers must be vigilant to anticipate any change that may affect business and its operations. A public policy is an action undertaken by government to achieve a broad public purpose. The public policy process involves inputs, goals, tools or instruments, and effects. Regulation is needed to correct for market failure, overcome natural monopoly, and protect stakeholders who might otherwise be hurt by the unrestricted actions of business. page 160Regulation can take the form of laws affecting an organization’s economic operations (e.g., trade and labor practices, allocation of scarce resources, price controls) or focus on social good (e.g., consumer protection, employee health and safety, environmental protection). Antitrust laws seek to preserve competition in the marketplace, thereby protecting consumers. Remedies may involve imposing a fine, breaking up a firm, changing the firm’s conduct, or requiring the disclosure of information to competitors. Although regulations are often very costly, many believe that these costs are worth the benefits they bring. The ongoing debate over the need for and effectiveness of regulation leads to alternating periods of deregulation and reregulation. The global regulation of business often occurs when commerce crosses national borders or the consequences of unregulated business activity by a national government are so large that global regulation is necessary. Key Terms antitrust laws, 152 cost–benefit analysis, 157 deregulation, 158 Dodd-Frank Act, 152 economic regulation, 152 fiscal policy, 147 market failure, 150 monetary policy, 148 natural monopoly, 151 negative externalities, 150 predatory pricing, 152 public policy, 144 regulation, 149 reregulation, 158 social assistance policies, 149 social regulation, 153 trade policy, 148 Internet Resources www.cato.org Cato Institute www.consumerfinance.gov U.S. Consumer Financial Protection Bureau www.economywatch.com Economy Watch www.federalreserve.gov Board of Governors of the Federal Reserve System www.ftc.gov U.S. Federal Trade Commission www.mercatus.org Mercatus Center, George Mason University www.reginfo.gov U.S. Office of Information and Regulatory Affairs www.regulations.gov Regulations.gov www.un.org/en/law International Law, United Nations www.usa.gov Online Guide to Government Information and Services Discussion Case: Government’s Response to the Coronavirus Pandemic in the United States and the European Union In 2020, the spread of the coronavirus caused a global pandemic that in just one year claimed nearly 3 million lives and infected more than 120 million worldwide. The economic fallout was immediate and devastating. The World Bank calculated that the world economy shrank by 4.3 percent in 2020, a setback matched only by the Great Depression and the two World Wars. page 161 Prior to the pandemic, unemployment in the United States was at a 50-year low, and inflation was below the Fed’s target of 2.0 percent. Yet, in 2020, the U.S. real GDP growth fell during the second quarter by an astounding 31.4 percent, a drop not seen in the United States since the Great Depression of the 1930s. The country’s unemployment rate spiked to 14.7 percent, the highest in the post-WWII era. Similar economic impacts were seen in Europe. By the end of 2020, seasonally adjusted GDP decreased by 1.3 percent in the euro area and by 0.9 percent in the EU. These declines were the sharpest decreases since 1995. Unemployment in the euro area reached 8.1 percent, compared to 6.4 percent a year earlier. In the fourth quarter of 2020, household real consumption per capita decreased by 2.9 percent in the euro area. The U.S. government came to the aid of many Americans and American businesses with the passage of numerous “COVID relief” stimulus packages. In March 2020, a $2 trillion stimulus package provided Americans with adjusted gross income up to $75,000 ($150,000 for married couples) with checks of $1,200 ($2,400 for married couples). The unemployed received an extra $600 per week for up to four months, in addition to their current state unemployment benefits. Businesses also benefited from the March relief bill. The hospitality industry, particularly hard hit during the pandemic, received $100 billion in rescue funds. The airline industry, also devastated by the substantial drop in air travel, received $29 billion in grants and $29 billion in loans and loan guarantees, as well as a reprieve from paying multiple taxes. Health Care providers were eligible for $100 billion in grants to help fight the coronavirus and subsidize health care facilities for losses due to delays of elective surgeries and other procedures. Other businesses received a tax credit for keeping idle workers on their payrolls during the pandemic and a refund for half of what they spent on wages, up to $5,000 per worker. Nearly $24 billion was earmarked for farmers and ranchers to stabilize the farm sector. Financial support was also extended to state and local governments, schools, and investments in telemedicine. The U.S. government also targeted Americans’ health care. In 2020, the CARES Provider Relief Fund supported American families, workers, and the health care providers in the battle against the COVID-19 outbreak. The Department of Health and Human Services (HHS) distributed $178 billion to hospitals and health care providers on the front lines of the coronavirus response. The HHS and various state and local governmental agencies coordinated a massive testing, treatment information, and vaccine distribution program. Government agencies also targeted support for mental illness during the pandemic for any American who sought this help. Government-supported research was essential in the rapid development of vaccines in response to the coronavirus. The government poured an additional $10.5 billion into vaccine companies since the pandemic began to accelerate the delivery of their products. By May 2021, the United States ranked third among countries in percentage of the population vaccinated: 43 percent (following only Israel, 62 percent, and the United Kingdom, 50 percent). In response to the fight against the coronavirus, the European Commission pledged €1.4 billion as part of the Coronavirus Global Response, launched by the World Health Organization in 2020, for coronavirus vaccine development. The EU also provided various social programs to encourage coronavirus testing and vaccinations. The EU’s Health Security Committee adopted a common standardized set of data to be included in a COVID-19 test result certificates. Test results were commonly requested by EU members as part of their free movement within the EU to prevent further spread of the virus and its variants. Four months later, Congress passed the Paycheck Protection Program (PPP), assisting small businesses across almost every sector of the economy. More than 90 industry sectors each had more than 10,000 firms approved for the PPP loans. About 264,000 companies in page 162the restaurant industry received PPP money. Economists reported that the hotel industry was able to retain 980,890 jobs, while recipients in the computer system design sector said 589,532 jobs were protected. The U.S. unemployment rate remained quite high but had fallen to 11.1 percent. In December 2020, Congress reached a final agreement on an additional $1.9 trillion worth of coronavirus relief. Stimulus checks for $1,400 were sent to individuals making less than $75,000, and married couples could receive two checks if their combined income was below $150,000. Enhanced unemployment benefits totaling $300 a week were extended through September. Tens of billions of dollars facilitated the vaccine rollout, with $8.75 billion going to many levels of government agencies for the distribution, administration, and tracking of vaccinations. This legislation raised the $2,000 Child Tax Credit to $3,000, set the tax credit at $3,600 for parents of children under age 6, and increased the maximum tax credit to $6,600 from $2,800 per household. Similarly, in the summer of 2020, EU leaders committed €1.8 trillion in an unprecedented effort to reverse the economic slump in their 27 member countries. The aid provided a massive fiscal injection for the bloc’s hardest-hit countries, without increasing the soaring debt levels of the southern countries, including Spain, Italy, and Greece. The EU also adopted a program to provide up to €3 billion of macro-financial assistance to 10 EU partners (countries neighboring the EU but not formally members of the EU) to help them cope with the economic fallout of the COVID-19 pandemic. Financial assistance was provided in the form of loans with highly favorable terms. Together with the support from the International Monetary Fund, the EU assistance program helped enhance macroeconomic stability and allowed resources to be allocated to protecting citizens and mitigating the negative socio-economic consequences of the coronavirus pandemic. Economic reports released in April 2021 showed that the U.S. and EU recoveries were on different trajectories. According to Peter Goodman, “The lesson—along with vaccines, it pays to unleash enormous amounts of public money in the face of a livelihood-destroying health crisis.” Yet, it seems that the EU may not have done enough, compared to the United States. The Eurozone economy contracted by 0.6 percent in the first quarter of 2021, while the U.S. economy expanded by 1.6 percent over the same period, after more substantial expenditures aimed at stimulating growth
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