How Business and Government Interact

Government cooperates with business for mutually

beneficial goals
Influenced by nations values and customs, therefore differs by
county

Governments goals and businesss objectives are in
conflict

Companies operating globally may find governments
whose legitimacy or right to be in power is questioned
May be faced with dilemma of continuing to do business when
could be supporting the illegitimate power
May choose to become politically active or refuse to conduct
business until legitimate government is in place
Governments Public Policy Role
Public policy
A plan of action undertaken by government officials to
achieve some broad purpose affecting a substantial
segment of a nations citizens

Public policy inputs shape a governments policy decisions
and strategies to address problems
Public policy goals can be broad and high-minded or narrow
and self-serving
Governments use public policy tools involving combinations of
incentives and penalties to prompt citizens to act in ways that
achieve policy goals
Public policy effects are the outcomes arising from government
regulation
Types of Economic Public Policies
Fiscal policy
Refers to patterns of government taxing and
spending that are intended to stimulate or
support the economy

Monetary policy
Refers to policies that affect the supply, demand,
and value of a nations currency
Types of Economic Public Policies
Taxation policy
Raising or lowering taxes on business or individuals

Industrial policy
Directing economic resources toward the development of
specific industries

Trade policy
Encouraging or discouraging trade with other countries
Types of Social Public Policies
Advanced industrial nations have developed
elaborate systems of social services for their citizens

Developing economies have improved key areas of
social assistance (health care, education)

Social assistance policies that effect specific
stakeholder groups are discussed in subsequent
chapters
Government Regulation of Business
Regulation
The action of government to establish rules of
conduct for citizens and organizations. It is a primary
way of accomplishing public policy.

Reasons for regulation
Market failure
Negative externalalities
Natural monopolies
Ethical arguments
Types of Regulation: Economic
Economic regulations
Aim to modify the normal operation of the free market
and the forces of supply and demand

Includes regulations that
Control prices or wages
Allocate public resources
Establish service territories
Set the number of participants
Ration resources
Types of Regulation: Social
Social regulations
Aimed at such important social goals as protecting
consumers and the environment and providing workers
with safe and healthy working conditions

Includes regulations which apply to all businesses
Pollution laws
Safety and health laws
Job discrimination laws

And others that only apply to certain businesses
Consumer protection laws for businesses producing and selling
consumer goods
Types of Regulation and
Regulatory Agencies
Continuous Regulatory Reform
Levels of regulatory activity tend to be cyclical and
dependent on politics
Deregulation refers to the scaling down of regulatory
authority
Reregulation is the return to increased regulatory activity

Areas where deregulation has occurred in recent
years
Commercial airlines
Interstate trucking companies
Railroads
Financial institutions
Regulation in a Global Context
As patterns of international commerce grow more
complicated, governments recognize the need to
establish rules that protect the interests of their own
citizens

International regulation in general occurs when there is a
growth of exiting, yet often conflicting, national
regulations of a product, or the product itself is global in
nature, thus requiring international oversight and control

Sometimes national leaders resist the notion of
international regulation; yet at other times, international
regulation is welcomed or at least accepted as
necessary