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PA 315
GOVERNMENT BUSINESS RELATIONS
CHAPTER 5

California State University San Bernardino

College of Business & Public Administration

Professor Sharon Pierce

REGULATION - WHAT DOES IT MEAN?

Regulation -
The act of governing, directing according to rule, or bringing under the control of law or constituted authority.
A federal regulatory agency -
Has decision-making authority
Establishes standards
Operates principally on domestic business
Has members appointed by the President subject to Senate confirmation
Has its legal procedures governed by the Administrative Procedures Act – governs they way an agency may propose and establish regulations

Checks and balances in place.

The Administrative Procedure Act (APA) enacted June 11, 1946, is the United States federal statute that governs the way in which administrative agencies of the federal government of the United States may propose and establish regulations.

MAJOR U.S. FEDERAL REGULATORY AGENCIES

Consumer Product Safety Commission (CPSC): enforces federal safety standards

Environmental Protection Agency (EPA): establishes and enforces pollution standards

Equal Employment Opportunity Commission (EEOC): administers and enforces Title VIII (8) or the Civil Rights Act of 1964 (fair employment)

Federal Aviation Administration (FAA): regulates and promotes air transportation safety, including airports and pilot licensing

Federal Communications Commission (FCC): regulates interstate/foreign communication by radio, telephone, telegraph, and television

Federal Deposit Insurance Corporation (FDIC): insures bank deposits, approves mergers, and audits banking practices

Federal Reserve System (the FED): regulates banking; manages the money supply

Federal Trade Commission (FTC): ensures free and fair competition and protects consumers from unfair or deceptive practices

Food and Drug Administration (FDA): administers federal food purity laws, drug testing and safety, and cosmetics

Interstate Commerce Commission (ICC): enforces federal laws concerning transportation that crosses state lines

National Labor Relations Board (NLRB): prevents or corrects unfair labor practices by either employers or unions

Occupational Safety and Health Administration (OSHA): develops and enforces federal standards and regulations ensuring working conditions

Securities and Exchange Commission (SEC): administers federal laws concerning the buying and selling of securities

BUSINESS, GOVERNMENT, AND REGULATION

The government tends to become involved in business after serious problems arise, and there has been no shortage of problems.
Women and children working long hours - Massachusetts passed the nation’s first law to limit work days to 10 hours for women and children in 1874
Railroad prices were out of control - regulation of railroad rates in 1887 (Interstate Commerce Commission)
Crash of 1929 - regulation of stock market in 1934 (US Securities and Exchange Commission)
Industrial revolution brought workforce issues 1930’s and up
Airline industry in the 1980’s
Financial crisis late 2000’s
Manmade environmental disasters such as Deepwater Horizon oil spill in 2010
Government needed to step in

GOVERNMENT’S
REGULATORY INFLUENCE ON BUSINESS

Government Regulation can be controversial in the business-government relationship as it affects every aspect of business.
Some regulation necessary -
consumers and employees are treated fairly
consumers and employees are not exposed to hazards
to protect the environment
Would you agree?

Regulations can be too extensive in scope, too costly, and burdensome in terms of red tape.

ISSUES RELATED TO REGULATION -

Innovation may be affected –

When corporate budgets must focus on “defensive research” certain types of innovation are less likely to take place.

New investments in plant and equipment may be affected –

To the extent that corporate funds must be used for regulatory compliance, they are diverted from more productive uses.

Small business may be adversely affected –

Federal regulations can have a disproportionately adverse effect on small firms because of the cannot compete with larger firms

THE ROLES OF
GOVERNMENT AND BUSINESS

What should be the role of government when it comes to regulating business?
If the role of business were simply production and distribution of goods and services, business would need little regulation.
What is their bottom line?
Important factors to consider – business does not automatically factor into the business decision making process.
safe working environment
equal employment opportunities
fair pay
clean air
safe products

As a result, it falls to government to ensure those goals are achieved.

EXAMPLES OF GOVERNMENT REGULATION IN OUR LIVES…

Going to school –
local, state, and federal government regulate and funds schools we have an educated workforce
Take a shower –
water that flows from your showerhead has been analyzed by your local water department to ensure safety
Brushing your teeth –
a government agency assured that the ingredients in your toothpaste are safe and it was packaged safely

Driving –
traffic laws that allowed you to get to school safety have been created and enforced by local government and police departments.
Listening to the radio –
you can enjoy music because a government agency assigns a separate frequency to each competing station.
Going to work –
government agencies assure that your workplace is safe and protect you from discrimination.

GOVERNMENT AS A PROTECTIVE REGULATOR

Regulations falls into two categories
Economic regulations – sets prices or conditions on entry of firms into an industry
Federal Communications Commission (FCC)
Civil Aeronautics Board (CAB)
Social regulations – involves the correction of externalities and in largely protective in nature
Environmental Protection Agency (EPA)
Occupational Safety and Health Administration (OSHA)
Concerned with the qualities of the goods and services produced, the conditions under which production occurs, and impact of production on society

COMPARISON OF
ECONOMIC AND SOCIAL REGULATION

TYPES OF REGULATION (1 OF 2)

FTC - main goals are to protect consumers and to ensure a strong competitive market by enforcing a variety of consumer protection and antitrust laws. These laws guard against harmful business practices and protect the market from anti-competitive practices such as large mergers and price-fixing conspiracies.

FCC - regulates interstate and international communications by radio, television, wire, satellite and cable -

Federal Communications Commission (FCC) – The FCC regulates interstate and international communications by radio, television, wire, satellite and cable in all 50 states, the District of Columbia and U.S. territories. The FCC is an independent government agency overseen by Congress. The FCC is primary authority for communications law, regulation and technological innovation.

NET NEUTRALITY -

While the removal of net neutrality restrictions on internet service providers will allow ISPs to charge more or less for user-access to individual websites,

the Federal Trade Commission will monitor ISP activities to provide against monopoly formation and unfair trade practices.

FEDERAL TRADE COMMISSION

Mission:

To prevent business practices that are anticompetitive, deceptive, or unfair to consumers

Consumer Protection:

The Federal Trade Commission Act provides that “unfair or deceptive acts or practices in or affecting commerce…are…declared unlawful.”
(15 U.S.C. Sec. 45(a)(1))

Competition:

The FTC Act also prohibits “unfair methods of competition.”
(15 U.S.C. Sec. 45(a))
Including any conduct that violates the Sherman Antitrust Act or the Clayton Act

ANTITRUST LAWS

SHERMAN ACT

Passed by Congress in 1890.
Regarded as a way to reduce concerns that large business interests dominated industry.
Private parties may sue.
The major sections of the Act are so broad that one could find almost any business activity to be illegal.

No restraint of trade

Cannot monopolize or attempt to monopolize

CLAYTON ACT

Enacted in 1914
Wanted government to have the ability to attack a business practice early in its use to prevent a firm from becoming a monopoly.
Practices are illegal that “substantially lessen competition or tend to create a monopoly.”
Private parties may sue

Clayton Act exempts some activities of nonprofit and certain agricultural, fishing and some other cooperatives.

WHAT DOES THE FTC DO...

Challenges deceptive advertising and marketing
Consumers should get what they pay for. The FTC works to ensure that national advertisers can back up the claims they make for their products, especially health and safety claims. (Sketchers)
Protects consumer in the tech industry
Applies antitrust/consumer protection principles to technology markets, focusing on the facts as they develop in real time to asses when to best protect consumers and how to encourage competition. (Apple – $32.5m settlement for in-app purchases)
Safeguards children
The Children’s Online Privacy Protection Act (COPPA) and the FTC’s COPPA Rule protect children’s privacy when they’re online by putting their parents in charge of who gets to collect personal information about their preteen kids. The FTC enforces COPPA by ensuring that parents have the tools they need to protect their children’s privacy.
Protects consumers in economy
Takes effective actions to ensure that consumers are protected from abusive credit practices and get the information they need to make informed financial choices.
www.ftc.gov

WHAT DOES THE FTC DO...

Protects consumer privacy
Makes sure companies keep their privacy promises to consumers, and ensure that consumers have confidence to take advantage of the benefits that a dynamic marketplace offers.
Accuracy and transparency in Credit Reporting
Ensure consumers have tools to keep credit information accurate.
Stopping Fraud
Law enforcement to prevent consumer fraud continues as a high priority for the agency.
Health Industry
The FTC is engaged in ongoing efforts to stop (1) bogus claims that unproven remedies can be used to prevent and treat serious diseases and (2) misleading claims for products promoting easy weight loss and slimmer bodies. Finally, the FTC is committed to ensuring that firms who collect that data use reasonable and appropriate security measures to prevent it from falling into the hands of identity thieves and other unauthorized users.
Wellness Support Network - $2.2 m phony claims regarding diabetes
Energy and Environmental Products
Devotes significant resources to ensure that competition to produce these items remains robust and that consumers are protected.

TYPES OF REGULATION

EEOC – responsible for enforcing federal laws regarding discrimination against a job applicant or an employee in the United States of America.

OSHA – responsibility of ensuring safety at work and a healthful work environment.

EPA - the purpose of protecting human health and the environment by writing and enforcing regulations based on laws passed by Congress.

CONSUMER PROTECTION

Refers to the regulatory framework designed to ensure right of consumers, as well as fair competition and accurate information in the marketplace.

Consumers have the freedom of choice – free to accept or reject a product
Producers have to effectively respond to the needs of consumer in order to pursue a profit
In the past, the relationship with buyer and seller was “buyer beware” – both parties were responsible for knowing their product
Too many products in the marketplace
Increased demand for protecting the rights of consumers came into play

The first industrial revolution was the result of the war of 1812

CONSUMER PROTECTION

Prevention of fraud and misrepresentation of food, drugs, and cosmetics.

Protect consumers from –

Contamination
Misbranding
Mislabeling

FDA – Food and Drug Administration –

The Food and Drug Administration is responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices; and by ensuring the safety of our nation's food supply, cosmetics, and products that emit radiation.

https://www.fda.gov/

EMPLOYEE PROTECTION

Employee protection refers to the legal framework that protects the welfare of employees, including wages, working hours, health, safety, and working conditions, as well as the right for equal employment opportunities.

EMPLOYEE PROTECTION

Factory Act – 1833 - to improve conditions for

children working in factories.

no child workers under nine years of age
employers must have an age certificate for their child workers
children of 9-13 years to work no more than nine hours a day
children of 13-18 years to work no more than 12 hours a day
children are not to work at night
two hours schooling each day for children
four factory inspectors appointed to enforce the law

However, the passing of this act did not mean that the mistreatment of children stopped overnight.

In 1833 the Government passed a Factory Act

Young children were working very long hours in workplaces where conditions were often terrible.

The basic act was as follows:

no child workers under nine years of age

employers must have an age certificate for their child workers

children of 9-13 years to work no more than nine hours a day

children of 13-18 years to work no more than 12 hours a day

children are not to work at night

two hours schooling each day for children

four factory inspectors appointed to enforce the law

However, the passing of this act did not mean that the mistreatment of children stopped overnight. Using these sources, investigate how the far the act had solved the problems of child labour.

EMPLOYEE PROTECTION

Industrial revolution – 1874 Massachusetts passed the nation’s first law to limit the working hours of women and children employed in factories
Fair Labor Standards – 1938 – introduced a maximum 44 hour, seven day work week and established a minimum wage
Occupational Health and Safety – 1970 Occupational Safety and Health Act to ensure employers provided their employees with a working environment free from recognized hazards such as toxic chemicals, unsanitary conditions, mechanical dangers, etc. OSHA was established in the US Department of Labor – April 28, 1971.
Family Medical Leave Act – 1993 – balance the demands of the workplace with the needs of family.

ENVIRONMENTAL PROTECTION

In the 1900’s, President Theodore Roosevelt established the National Park System – preserve land and sites of historical or scientific value.
Post WWII, environment became a larger part of the public discourse – viewed as a public good
In 1969, the Cuyahoga River near Cleveland, Ohio caught fire from a spark from a rail car, igniting flammable materials floating on the river. As a result, in 1969 Congress passed the National Environmental Protection Act (NEPA) – which mandates that negative environmental impacts of potential federal agency actions needed to listed on environmental impact statements (EIS).

FORMATION OF THE EPA
ENVIRONMENTAL PROTECTION AGENCY

Born in the wake of elevated concern about environmental pollution, EPA was established on December 2, 1970.
To protect from significant risks to human health and the environment where they live, learn, and work
National efforts to reduce environmental risk
Protect natural resources, human health, economic growth, energy, transportation, agriculture, industry, and international trade

ENVIRONMENTAL PROTECTION

Reasons why –
Climate change
Wealthy countries consume and are responsible for more than their share of pollution
Ensure the air we breath is free of contaminants
Clean water
Create a healthy environment

GOVERNMENT AS A REGULATOR OF BUSINESS

Regulation is a type of government intervention in economic activity through commands and controls enforced with coercive power.
Deregulation is the reduction or removal of government intervention in a particular industry – usually enacted to create competition.

DEREGULATION

Deregulation has been a priority for President Trump –

Shortly after being elected president, Donald Trump signed an executive order directing all federal agencies to find two regulations to cut for every new one issued.

Agencies also were asked to pay for new regulatory costs by eliminating existing rules.

Regulations that have been eliminated – 22 for every 1 that has been put into place.

Neomi Rao, the administrator of the Office of Information and Regulatory Affairs, said the administration had completed 67 deregulatory actions and taken three regulatory actions through the end of September that would result in a cost savings of $570 million a year.

Those deregulatory actions include a wide range of actions, including the withdrawal of guidance documents and reductions in paperwork burdens, and a dozen regulations killed by Congress, Rao said.

More than 1,500 regulations other rules and regulations have been withdrawn, delayed, or are under reconsideration, officials said.

Administration believes By amending and eliminating regulations that are ineffective, duplicative, and obsolete, the Administration can promote economic growth and innovation and protect individual liberty.

CURRENT STATE OF DEREGULATION

Deregulation has been a priority for President Trump
Shortly after being elected president, Donald Trump signed an executive order directing all federal agencies to find two regulations to cut for every new one issued.
Agencies also were asked to pay for new regulatory costs by eliminating existing rules.
Regulations that have been eliminated – 22 for every 1 that has been put into place.
Administration believes by amending and eliminating regulations that are ineffective, duplicative, and obsolete, the Administration can promote economic growth and innovation and protect individual liberty.

AIRLINE INDUSTRY

https://www.youtube.com/watch?v=91Pza6w2anE

DEREGULATION OF THE AIRLINE INDUSTRY

Economy was poor: high prices, high unemployment
Airlines: regulated since the 1930’s
No new competition
Civil Aeronautics Board (CAB) regulated aviation services, included scheduled airline services, fare pricing, discounting, controlled market entry,
Freddy Laker: Cheaper alternative
PanAm couldn’t compete with his prices
Alfred Kahn, former chair of the CAB: Assigned to investigate effectiveness of CAB by President Jimmy Carter
CAB closed
Competition in industry went UP
Prices of air travel went DOWN
Demand went UP

Airline Deregulation Act of 1978 – deregulated the airline industry removing US federal government control over fares, routes, and market entry of new airlines – free market in the commercial airline industry

QUESTIONS

Provide an argument for or against social regulation? Be specific – consumer, employee, and/or environment.

Provide an argument for or against regulation or deregulation of business.

HOPE YOU ALL HAVE A GREAT WEEKEND!

Which industry did not experience substantial re-regulation in the Era of Rightsizing Government?

California power

Financial sector

Airlines

All of the above

None of the above

Airlines

QUESTIONS

According to the reading, the three models of analysis of business-government relations—the shareholder, strategic, and stakeholder perspectives—all have their strengths and weaknesses in varying situations, and the quality of implementation is often as important as the selection of any given model.
True
False

Community banks are depository institutions that are generally owned and operated locally. They are a prime example of the shareholder model.

True

False

Which model tends to focus on government as an occasional advantage, partner, and lucrative source of revenue?

The shareholder model

The strategic model

The stakeholder model

All of the above

None of the above

The strategic model

Which model tends to focus on business as a part of, and subordinate to, society?

The shareholder model

The strategic model

The stakeholder model

What are early examples of corporate ethics efforts?

The Good Housekeeping Seal of Approval

The Better Business Bureau

Consumer Reports

All of the above

None of the above

Government is larger today, largely because the roles that we expect it to play are much more expansive.
True
False

Federal regulation of business in the U.S. has always been extensive.

True

False

Which agency is the best example of one designed to be a safeguard against risk?

OMB (Office of Management and Budget)

Department of Commerce

OPM (Office of Personnel Management)

FEMA (Federal Emergency Management Agency)

Public schools