Chapter 11
Business, Government, and Regulation
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1. Articulate a brief history of the changing nature of the government’s role in its relationship
with business.
3. Identify the elements in the complex interactions among business, government, and the
public.
5. Identify and describe the government’s regulatory influences on business, including the
major reasons for regulation, the types of regulation, and issues arising out of deregulation.
TEACHING SUGGESTIONS
INTRODUCTION – In this chapter the authors examine the relationship between business and
government, along with the general public, which also plays an important role. The central focus
here is the government’s role in influencing business, although, as discussed in the next chapter,
business also influences government.
KEY TALKING POINTS – Many schools provide an entire course titled Business, Government,
and Society, which indicates the centrality of the subject matter in this chapter. Many students
Several books have delved into this subject in some depth. The instructor may want to
incorporate some of their content into the classroom discussion or assign students to read
sections of different books. One of the earlier writings was Taking Care of Business, a 32-page
pamphlet written by Richard Grossman and Frank Adams. This item is currently available
through the Program on Corporations, Law & Democracy (POCLAD) at http://www.poclad.org/.
Other relevant books include:
While many students understand the concept of regulation, they don’t understand the process. At
a basic level, students should understand that Congress creates laws, various regulatory agencies
create rules/regulations within the parameters of those laws and that the public has an
opportunity to comment on the proposed regulations. The first group project in this chapter is
designed to help students understand this concept.
PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:
Cases:
18-Dole’s DBCP Legacy
19-Should Directors Shine Light on Dark Money?
20-DTCA – The Pill Pushing Debate
Ethics in Practice Cases:
The Marijuana Regulatory Dilemma
Banning the Big Gulp
Spotlight on Sustainability:
Utilities and the Costs of Going Green
chapters.
LECTURE OUTLINE
I. THE PENDULUM OF GOVERNMENT’S ROLE IN BUSINESS
II. THE ROLES OF GOVERNMENT AND BUSINESS
A. A Clash of Ethical Belief Systems
IV. GOVERNMENT’S NONREGULATORY INFLUENCE ON BUSINESS
A. Industrial Policy
B. Privatization
1. Producing versus Providing a Service
V. GOVERNMENT’S REGULATORY INFLUENCES ON BUSINESS
A. Regulation: What Does It Mean?
B. Reasons for Regulation
1. Controlling Natural Monopolies
2. Controlling Negative Externalities
3. Achieving Social Goals
4. Other Reasons
VI. DEREGULATION
A. Purpose of Deregulation
B. The Changing World of Deregulation
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Students should recognize that their answers to these discussion questions should be well
reasoned and supported with evidence. Although some answers will be more correct than others,
students should be aware that simplistic answers to complex questions, problems, or issues such
as these will never be “good” answers.
1. Question: Briefly explain how business and government represent a clash of ethical
systems (belief systems). With which do you find yourself identifying most? Explain. With
which would most business students identify? Explain.
Answer: As business historians often point out, corporate charters were first issued
explicitly to serve a public good. In that sense, business has changed from a collectivist
ethic, in which the good of the group is placed above the rights or good of individuals, to
2. Question: Explain why the public is treated as a separate group in the interactions among
business, government, and the public. Doesn’t government represent the public’s
interests? How should the public’s interests be manifested?
Answer: Ideally, the public is represented by the government. However, this is an
imperfect process. In addition, the public does not speak with a single voice—there are
many minority views that, while important and relevant, may not be sufficiently
widespread so they garner a voice in government. One of the most dangerous realities in
the United States is the influence of money on the governing process. Michael Walzer, in
Spheres of Justice, warns of the danger of goods from one sphere (e.g., money from the
3. Question: What is regulation? Why does government see a need to regulate? Differentiate
between economic and social regulation. What social regulations do you think are most
important, and why? What social regulations ought to be eliminated? Explain.
Answer: Regulation is the act of controlling the activities of others by means of rules, law,
or constituted authority. Typically, government regulates to correct past wrongs, achieve
social goals, control natural monopolies, or control negative externalities. These
regulations fall into two general categories—economic regulations that control commerce
and social regulations that seek to achieve some type of social objective. The needs for
social regulations are numerous. Because of the complexity of our interactions, our society
4. Question: Outline the major benefits and costs of government regulation. In general, do
you think the benefits of government regulation exceed the costs? In what areas, if any, do
you think the costs exceed the benefits?
Answer: This will be a difficult question for students to answer, simply because the costs
and benefits have not been quantified for them (or anyone else). Without hard data on
which they can base their answer, the students will rely on their general feelings about
5. Question: What are the trade-offs between privatization and federalization? When would
one or the other be more appropriate? What problems might you foresee and what future
events would merit a shift in the current mix?
Answer: The privatization/federalization debate centers on the question of efficiency.
Proponents of privatization contend that almost everything can be accomplished more
efficiently in the private sector than through government control. Supporters of
federalization contend that there are some functions that cannot be adequately handled by
the private sector. What the two sides often miss is that efficiency may not be the right
6. Question: What are deregulation and reregulation? Under what circumstances should
each be considered?
Answer: Deregulation is the counterpart to regulation, that can sometime overlap due to a
mix of economic and political decisions that is in a state of flux. Deregulation is used to
remove certain industries from the old-line economic regulations of the past, to keep the
GROUP ACTIVITIES
Group Activity 1 – The Regulatory Process
While many students understand the concept of regulation, they do not understand the regulatory
process. At a basic level, students should understand that Congress creates laws, various
regulatory agencies create rules/regulations within the parameters of those laws and that the
public has an opportunity to comment on the proposed regulations.
created by the appropriate regulatory agency under the law and note any public opposition or
support that was generated during the comment period.
Group Activity 2 – Deregulation
Divide students into groups of three to four students. Have students research (1) how Enron
lobbied Congress to deregulate the wholesale electricity industry and (2) how the deregulation of
INDIVIDUAL ASSIGNMENT
Ask students to research the Patient Protection and Affordable Care Act of 2010. As a starting
point, instructors may want to guide students to the following websites, which summarize the
law:
In connection with their research, students should prepare a typed-written response to the
following questions:
(1) What are health insurance exchanges?
(2) How will the law affect business? Specifically, what requirements does the law place on
employers?