1187
Unit Nine
Focus on Ethics:
Government Regulation
See Separate Lecture Outline System
INTRODUCTION
This Focus on Ethics looks at selected examples of some of the ways in which government regulation reflects the trade-
offs that society has been willing to make in the interests of protecting consumers, the environment, and free competition in
our society. Ethical issues in government regulation arise because regulation, by its nature, means that some rights and
freedoms have to be given up to ensure that others are protected. Regulation brings two ethical principles into conflict. On the
one hand, deeply embedded in American culture is the idea that the government should play a limited role in directing our lives.
On the other hand, the basic functions of government include the protection of constitutional rights and competition in the
marketplace.
ADDITIONAL RESOURCES—
1188 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
VIDEO SUPPLEMENTS
The following video supplements relate to topics discussed in this feature—
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this feature include the following.
• Drama of the Law
Advertising and Communication Law: Bait and Switch—Advertising sales and promotions are utilized to draw the
customer’s attention and to bring them into a business. What are the legal ramifications if the advertised item is
altered or replaced with another product?
Consumer Protection: Fair Credit Reports—In selling a vehicle, or other large ticket items, a seller often checks the
buyer’s credit history. When credit is denied, the seller should be prepared to back-up the denial.
Environmental Regulation: Smog Story—Car dealers are occasionally called upon to conduct state government
inspection. When they do, they cannot ignore the test results on their customers vehicles.
Pharzime Corporation, Scene 1—A marketing vice president at a pharmaceutical company tries to gain the support
of a vice president of regulatory affairs for his marketing strategy for a new drug use. The scene considers the pressure
of patent expiration, the regulatory approval process, and legal and ethical strategies for new drug use.
• LawFlix
Cinderella Man—Regulatory agencies; ethics (Scene in which Russell Crowe tries to repay the welfare money he
has received after he is back on his feet financially).
FOCUS OUTLINE
I. Telemarketing and Consumers’ Privacy Rights
The Federal Trade Commission’s 2002 amendment to the Telemarketing Sales Rule to add a “do-not-call” list pitted the
rights of consumers (not to be disturbed) against those of telemarketing firms (to do business). The firms claimed that
the amendment violated their rights to commercial speech under the First Amendment. At least one court refused to
support this claim.
UNIT NINE: FOCUS ON ETHICS—GOVERNMENT REGULATION 1189
II. Credit Reporting Agencies and “Blacklisting”
Some credit reporting agencies report on individuals’ litigation history, which may be of interest to landlords and
medical professionals. Some agencies do not allow consumers to review this information. Consumer advocates oppose
both practices, comparing the former to discriminatory “blacklisting” and labeling the latter unfair. A consumer might
pursue a claim against an agency for dissemination of false information.
1190 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
III. Consumer Safety
Domestic manufacturers cannot always compete with foreign companies in terms of price. Sometimes foreign-made
goods are less safe. But domestic designers and importers have also been found to be the source of safety lapses,
which could be ascribed to the products’ specifications. The trade-off for safer products, of course, is the price.
IV. Environmental Law
V. Concerns over Pharmaceuticals in Drinking Water
Trace amounts of drugs have been detected in our water supply. Some comes from unmetabolized drugs that pass
through those who ingest them, but the rest has been literally flushed down the toilet—largely on the advice of
pharmacists, physicians, and the federal government to keep the drugs from being abused. Environmental effects are
not known. Requiring that water be tested and that all traces of drugs be filtered from it would be enormously
expensive.
VI. Global Environmental Issues
What one nation does with respect to environmental issues can affect what happens in other nations. Countries have
made attempts to reduce cross-border pollution, under treaties and other agreements, but this remains a challenging
issue. The Kyoto Protocol set different rates of reduction in greenhouse-effect emissions for different countries and
regions. Most nations, including the United States, will not meet the goals.
A. IS ECONOMIC DEVELOPMENT THE ANSWER?
Economic development may lead to pollution reduction because richer nations have the financial resources to
pay for it.
actual result, ask students to weigh the factors and come to their own regulatory conclusion. After they reach their
decisions and “issue” their regulations, present the results of “new” studies that could affect those regulations,
TEACHING SUGGESTIONS
1. As an illustration that regulation may not always be in the best interests of those that it is intended to benefit,
point out that, due to the United States’s testing process for new products and drugs (which may be the most stringent
in the world), many products are available in other countries long before they are available in the United States. This is
often underscored by events, most recently in connection with drugs marketed abroad for the treatment of AIDS and
Alzheimer’s disease. Ask students to consider the social costs of this extended testing. At what point do the costs out-
weigh the benefits?
2. Create a hypothetical based on an actual administrative regulation, including some of the evidence and other
factors that the agency considered in issuing (or deciding not to issue) a specific regulation. Without disclosing the
3. Explain that from an ethical perspective, government regulation is problematic because it imposes significant costs
on American society (the cost to operate the agency, the cost to comply with its regulations). The benefits are not as
easily quantifiable (for instance, what is the value of a human life?). In any case, government agencies generally weigh
these, and other, factors and make a decision as to the extent of regulation. Given the choice, many of us might make
different decisions.
Cyberlaw Link
As banking and bill-paying, and other credit transactions go online, what protections should be implemented to
safeguard consumers? Whether or not it is illegal to “crack” encryption code, is there an ethical obligation to keep
such “cracks” relatively secret to avoid their use by irresponsible hacker? Or should defects be publicized to inhibit the
use of the code?
ADDITIONAL QUESTIONS
1. What is the conflict many businesses face in acting to protect the environment? Generally, environmental protection
2. Is government regulation is necessary to reduce environmental destruction? It can be argued that government
3. Is government regulation entirely beneficial? No, not even for its intended beneficiaries. For example, rent control
4. What is the guiding principle of antitrust law? The guiding principle of antitrust law is to promote competition. How
has the Robinson-Patman Act been used to undercut this principle? Small firms have used this statute to extort tribute from
large firms that were able to undercut the small firms’ prices. Lawyers, businesspersons, and economists have criticized this use
of the statute as anticompetitive. How does antitrust law hinder international competitiveness? For the most part, antitrust
law inhibits rivals’ cooperation in developing and producing goods. Because firms face skyrocketing development costs, a high
cost of capital, and a short product life cycle, only the largest firms can afford to go it alone and compete against large pro–
duction consortiums common in Europe and Japan.
ACTIVITY AND RESEARCH ASSIGNMENT
1192 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
If businesses were freed of government regulation and conducted their affairs restrained only by ethical assumptions,
would consumers, employees, and competitors be treated fairly and the environment be protected? This question could be
posed to the class as a whole, discussed in small groups, or assigned as a research topic. Adam Smith believed that man was a
divine being guided by reason—if government (and corporations and landlords) did not interfere, individuals would bring
abundance to all. Thomas Malthus believed that man was not a rational being, but a being of passion and stupidity, who was
not guided by reason—if government did not interfere, individuals would bring ruin to all. Other philosophers, economists, and
political theorists may have different views on the subject. This issue may also be considered in light of recent political events—
for example, what conclusions might be drawn from the failure of Russian communism, which theoretically sought social good
through pervasive government regulation and an omnipresent bureaucracy?
GOVERNMENT REGULATION—
ANSWERS TO DISCUSSION QUESTIONS
1. Does the national Do Not Call Registry adversely affect the way that business is conducted in this country? If so,
how? Should Congress enact a Do Not Spam law? Why or why not? Yes, the Do Not Call Registry has affected the way
Do Not Call Registry. Consumers can register their phone numbers with the Federal Trade Commission (FTC) to protect
themselves from unwanted phone solicitations. Consumers have welcomed this registry and the reduced number of
calls that they receive as a result.
consisted in large measure of cold calling, and jobs were lost. Some firms have defied the regulation to continue to
2. If 90 percent of the toxic waste at a given site can be removed for $50,000, but removing the last 10 percent will
cost $2 million, is it reasonable to require that the last 10 percent be removed? How would you address this question?
This question asks at what point the government goes too far in the interest of cleaning up the environment. When do
the costs of environmental regulations become too burdensome for society to bear? Everybody is in favor of cleaning
up toxic waste, but nobody knows what the task would ultimately cost. Moreover, there is no agreed-on standard as to
how clean a site must be before it no longer poses any threat. Must 100 percent of the contamination be removed, or
UNIT NINE: FOCUS ON ETHICS—GOVERNMENT REGULATION 1193
environment may be felt by citizens in countries next door or oceans away.
Any law that would be effectively brought to bear on the issue of global warming would have to be international.
would removal of some lesser amount achieve a reasonable degree of environmental quality?
3. In a time of economic recession, should the government wait until there is scientific proof of the harmful effects on
humans and wildlife before attempting to regulate pharmaceuticals in drinking water? Or should the government enact
legislation to address the problem now—before it becomes worse? Discuss fully? No one knows how long-term
traces of drugs be filtered from it—would be enormously expensive.
Thus, there are valid points on both sides of the issue posed in the question. Until there is scientific proof of the
the federal government recommended that people dispose of unused medications by flushing them away. This
prevents children from accidentally ingesting the drugs and keeps controlled substances from falling into the hands of
4. Can you think of a better way that the law can address the problem of global warming, which is clearly not just a
national issue? Explain. The effect of the release of substances that contribute to global warming, like pollution
