Download Chapter 10 Regulating Business and Changing Social Contract

Why do we have
corporate daycare?
Who should raise our
children?
Business
Government
Families
…one can best analyze modern
society by thinking of it as an
uneasy amalgam of three distinct
realms: the social structure
(principally the techno-economic
order), the polity, and the culture.
Daniel Bell
Government
Culture
Business
Government
Social Contract
Culture
Business
Social Contract: Underlying agreement between business and society
[the institutions of society] on the basic duties and responsibilities
business [each of the institutions] must carry out… reflected in laws and
regulations [and tacit understandings] p.9.
Government
Culture
Business
1776
1876
1930
1976
Economy
Agriculture
Local Markets
Transportation
Communications
Industrial
National
Markets
Robber
Barons
Depression Post-Industrial
Global
Markets
Corporations
Government
State Power
Laissez faire
Federal
Power
Antitrust
ICC FTC
New Deal: Social
ICC, NLRB, Regulation:
FDIC,SEC EPA, EEOC,
CPSC,
OSHA…
Culture
Rural
Agrarian
WASP
Slavery
Immigration
Urbanization
Segregation
Changing
Workforce
Mobility
Feminism
Civil Rights
Diversity
Government
Culture
Business
[We] have embraced a half-truth as the
basis of our dominant social philosophy and
public policy.
The half that is true is that at the root of
our deteriorating state lies excessive
governmental intervention in private lives.
The half that is amiss is the assumption
that merely slashing the government will
restore America’s economic, social, political,
and ethical vigor.
Amitai Etzioni
Merely cutting back government
will not set America on a course of
recovery unless these efforts are
coupled with a period of
reconstruction of community—of
family, schools, neighborhoods,
and nation– and above all
individual renewal.
Amitai Etzioni
Figure 9-1
C9-S2
Korean War
WW II
WW I
Civil War
Volume and Intensity of
Government Regulations
Historical Waves of Government
Regulation of Business
Wave 4
Wave 3
Wave 2
Wave 1
1790
1837
18611865
19171919
1933
19421945
1950
1953
1960
1980
1990
Historical Patterns of Federal
Regulation of Business




First wave – Few regulations (Laissez Faire) some
promotional for business.
Second wave – The era of regulation was dominated by
public demands for government to regulate big business,
and the Supreme Court gave the federal government new
power to act. Antitrust Regulation
Third wave – The burst of activity in this wave was the
result of many New Deal laws designed to deal with the
ravages of the Great Depression of the 1930s.
Fourth wave – Intent to improve the quality of life resulted
in new controls that deeply involved government. Social
Regulation
McGraw-Hill/Irwin
10-12
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Government regulation of the
private sector is justified under two
circumstances:
 Economic: When flaws appear in the
marketplace that product undesirable
consequences.
 Social: When adequate social, political,
and other reasons for government
regulations exist.
10-4
Reasons For Regulation
1.
Economic -- Focus is market
efficiency and control
 Market Failure (Assumptions not
met).
 Natural Monopoly


Where because of natural conditions, a
single firm can supply the entire market
more efficiently than several competing
firms.
Weigh economic benefits versus
economic costs
Reasons For Regulation
2.
Achieve Social/Political Goals

Non economic values in the public
interest






Socially desirable goods and services
Protecting individual rights and privacy
Resolution of national and global problems
Regulation to benefit special groups
Conservation of resources
Social value versus economic cost
Benefits of
Government Regulation
 Regulation has helped to:









Improve the position of minorities
Clean the environment
Prevent monopoly
Reinforce free competition
Prevent corruption
Strengthen the banking system
Reduce industrial accidents
Provide resources for the elderly
Control communicable diseases
 These benefits are enormous and
incalculable
10-16
Costs of Regulation

1. Administrative Costs: $37.8 billion in 2007
 Costs
of regulating (agencies, enforcement,...)
 Paid by Taxpayers
 2. Compliance Costs: $1.1 trillion 11% of GDP
 Costs to companies to meet regulations
 Paid by customers/shareholders

3. Indirect Costs: total costs unknown
 Non
monetary costs (employment,
productivity, innovation,…)
 Paid by society in general
Administrative Costs of
Regulation
10-15
Administrative Costs of
Regulation
McGraw-Hill/Irwin
10-19
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.