Regulation of Business

Government Regulation of Business

I. Background

A. Regulations: Rules imposed by government on business to achieve some desired goal.  (e.g. clean air regulations on factories, protection of wetlands and fragile environments, safety regulations in coal mines.)

B. Types

     1. Economic

         a. Gov’t controls on behavior of business in the marketplace

         b. Among the first laws: Interstate Commerce Act (1887), Sherman Antitrust Act (1890)

         c. Examples: Stock market regulations that prevent fraud, anti-trust guidelines that protect competition, ban on false advertising

     2. Social

         a. Gov’t controls to correct ill side effects of capitalism

         b. Examples: worker safety regulations, environmental regulations, auto safety regulations, child labor laws

C. History of gov’t regulation of business

     1. Industrial era of late18th/early20th century had produced a number of “ill side effects of capitalism”

         a. Growth of abusive monopolies and oligopolies that unfairly drove out competition

         b. Atrocious working conditions

         c. Unsafe and unhealthy products: The Jungle, Silent Spring, Unsafe at any Speed

         d. Business bribery of politicians

     2. Growth of such abusive practices by monopolies led to an antitrust policy

         a. Such policy did not necessarily mean that all monopolies were bad.  The policy was merely to regulate or break up the abusive ones and restore competition.

         b. Examples of such antitrust policy:

             1) Sherman Antitrust Act, 1890

             2) Clayton Act, 1914

             3) Federal Trade Commission Act, 1914: FTC to be “traffic cop” to ensure competition.  Issues cease and desist orders and negotiates consent decrees with businesses to end unfair practices

    3. Development of other regulatory commissions (e.g., FCC, SEC)

D. Developments in recent years

    1. FTC and Antitrust Division intentionally understaffed by Reagan and Bush to discourage excessive antitrust activity

     2. Corporate mergers have exploded in recent years (e.g., GE and RCA, Warner Communications and Time, RJ reynolds and Nabisco), with little response from the federal gov’t

     3. Business claims that with such strong foreign competition, it needs to consolidate in order to be competitive

III. The debate over regulation

A. Arguments in favor of regulation

     1. Prevents unhealthy monopolies and oligopolies as existed in Industrial Revolution

     2. Protects consumers from unsafe and unhealthy products

     3. Protects consumers from unsafe practices (airline regulations that prevent pilots fro flying excessive hours, federal airline inspections, etc)

     4. Protects working people from unsanfe working conditions

     5. Protects those (poor, consumers) who lack strong voice in gov’t (levels out the playing field with giant corporations)

B. Arguments against regulation

     1. Not needed – market forces will compel businesses to work for the benefit of consumers.  If business doesn’t, consumers will simply buy elsewhere.

     2. Regulation is inefficient.  Businesses have to hire hordes of people to comply with the endless regulations imposed by Washington.  This makes US business less competitive with the rest of the world, which is not overburdened by such regulations.

     3. Regulation kills jobs.  Because it lessens our competitiveness with the rest of the world, we lose business to other nations

     4. Regulation increases prices.  Complying with federal regulations costs money; these costs are then passed on to the consumers in the form of higher prices

     5. Regulations have become increasingly unreasonable, farmers are denied the use of their lands because a rodent on the endangered species list lives there, loggers lose their jobs because the spotted owl nests in forests, etc etc