Question

• Explain the rationale for government regulations on businesses in your own words.
• Identify a federal or state regulation that you support or oppose.
• Explain your support or opposition to the regulation.

Answer 1

Many sectors of the business world have long complained about government regulation. Often cited as an impediment to corporate and small-business profits and a waste of resources, government rules have been denounced, side-stepped, and violated by many businesses since the early 20th century, when the corporate income tax and antitrust laws were enacted or first enforced.

Since then, amid an ever-increasing number of regulations and a huge, complex tax code, American business has both prospered and suffered as a consequence of government action. The relationship has been at times collaborative and complementary, or restrictive and adversarial. Yet the same rules have protected consumers from exploitative business practices. Below, we'll look at some of these regulations to see why the question of whether they help business has no easy answers.

KEY TAKEAWAYS

• Government regulation of the US economy has expanded enormously over the past century, prompting business complaints that interventions impede growth and efficiency.
• Proponents of intervention say it’s necessary to mitigate the adverse impacts of unregulated commerce, which range from environmental harm to labor abuses.
• Some interventions are aimed at helping businesses by (among other things) providing loans and advice to small businesses and protecting copyrights.

Anti-Business Regulations and Laws

Congress passed the first antitrust law in 1890, and followed with periodic increases in corporate tax rates and increasingly complex regulations governing business. The business community has generally opposed laws, regulations, or tax levies that it thinks impede profitability or business operations. A common argument against over-regulation and excessive taxation is that they impose a net cost on society in the long run.

Others argue that there are good reasons for regulation. In pursuit of profit, businesses have despoiled the environment, abused labor, violated immigration laws, defrauded consumers and done much else over the decades that has had adverse public consequences. That, they say, is why publicly accountable elected officials are in charge of regulation in the first place.

In response to some of the behaviors mentioned above, we now have entities and regulations to discourage repeats. Businesses complain about them endlessly.

The Environmental Protection Agency (EPA)

President Richard Nixon created the EPA by executive order in 1970. The agency regulates disposal of waste materials, restrictions on greenhouse emissions, pollutants and other substances harmful to land, water, and atmosphere. Companies to which these rules apply have complained that the restrictions are costly and compromise profits.

The Federal Trade Commission

Some firms regard the FTC as a foe of business. It was created in 1914 to protect consumers from deceptive or anti-competitive business practices. These can include price fixing, the formation of monopolies and fraudulent advertising.

The Securities and Exchange Commission

Congress created the SEC in 1934 to regulate initial public offerings of corporate stock, to ensure full disclosure by issuing companies, and to enforce rules governing the trading of stocks on public exchanges.

The Food and Drug Administration

Pharmaceutical companies often complain that the FDA needlessly withholds approval and subsequent marketing of certain drugs pending additional or more extensive clinical trials, even when these drugs have already proved effective.

Those are just a few examples of government/business friction. Yet the government has also been a friend of business, helping companies large and small in numerous ways.

Pro-Business Government Agencies and Activity

Hundreds of assistance programs from the government—in the form of money, information, and services—are available to businesses and entrepreneurs. The Small Business Administration arranges loans for start-ups. It also provides grants, advice, training and management counseling. The Commerce Department helps small and medium-size businesses increase overseas sales of their products.

An often overlooked service that the government provides all businesses is the rule of law. The U.S. Patent and Trademark Office offers protection of inventions and certain products from illegal infringement by competitors, thus encouraging innovation and creativity. Patent and trademark violations are punishable by heavy fines and subject to civil actions that can be costly if the defendant loses.

On top of all of this, the government occasionally takes extraordinary steps to protect businesses in dire economic conditions. Many economists say the Troubled Asset Relief Program (TARP), signed into law by President George W. Bush, and the economic stimulus program enacted under President Barack Obama, averted a repeat of the Great Depression.

Other economists insist that the government should not have intervened and that free markets should have been allowed to weed out business failures. No matter which side you agree with, there is little doubt that the corporate world would look very different today if those programs hadn't backstopped the financial system.

The Bottom Line

The government can be a friend of business, providing it with financial, advisory and other services. It can also be a friend of the public, creating, and enforcing consumer-protection, worker-safety, and other laws.

This conflict will probably never be completely resolved because there will likely always be some degree of conflict between the profit goals of businesses and the public-welfare goals of everyone else. As technological breakthroughs continue, the dual nature of government's relation to business may become increasingly regulatory and collaborative at the same time. The government, therefore, may be justifiably regarded as benefiting both business and consumer, friend to each and foe of neither.