|Subject:||Chapter 7--Government Regulation of Business|
|Category:||Chapter Outlines||Date:||Thursday, 1/22/98 12:11 PM EST|
Chapter 7-Government Regulation of Business: An Introduction
Government regulation is constantly present in our lives. The government has a presence in many areas, such as public utilities, child labor laws, zoning restrictions, and protecting competition in business through antitrust laws. Government presence has brought about cleaner air, safer cars, fewer drugs, more jobs for minorities, safer workplaces, and more.
One of the roles of the government is to make sure that the public's interests are maintained and preserved, that is to see that market failure is controlled. Market failure is present due to the following four factors:
Inadequate Information-The public must have accurate and enough information to make good choices. For this reason, the government makes rules to make sure that this information is available to the public. For example, the government makes rules that all medicines have proper labels with detailed information so the public can make a good and safe choice.
Monopoly-A monopoly exists when a company can fix prices and keep out competition. This is unfair to the consumer. Thus, the government makes rules making monopolies generally illegal. This is done through antitrust law.
Externalities-Sometimes in the course of business, there are negative effects which are not always paid for by the producer or user. Government regulation makes sure that companies take care of the negative effects they produce in their business. For example, government rules makes sure that companies that produce pollution find ways to reduce it.
Public Goods-Governments enforce rules to make sure that everyone pays a little bit (generally through taxes) for goods that all people benefit from. For example, national defense, roads, education and pollution control.
Philosophy and Politics
We need government regulation of business for many reasons. First, regulation is important to protect the general public. Secondly, regulation protects small businesses and allows them to grow.
THE HISTORY OF GOVERNMENT REGULATION IN BUSINESS
Before the Civil War, there was hardly any relationship between government and business. The need to have a uniform banking system caused Congress to get involved by passing the Federal Banking Act of 1864. This law laid the foundation for the government's role in business, though companies did not always like it. However, the public began to see in the 1800s that without government regulation, big businesses just did not keep the best interests of the public in mind, and so the government passed many acts to make sure the public is looked after.
THE CONSTITUTIONAL FOUNDATION OF BUSINESS REGULATION
The Commerce Clause provides the main foundation for the government's regulation of business. The Supremacy Clause says that the U.S. Constitution is the highest law in the land. The Commerce Clause says that the government has the right to regulate foreign and interstate commerce. See: Heart of Atlanta Motel v. United States, p. 274.
STATE AND LOCAL REGULATION OF INTERSTATE COMMERCE
State governments also have some power to regulate commerce to protect the citizens of their states. The Federal government, however, is the ultimate authority on commerce. If there is confusion between state and federal rules, the federal rules win. See: Carbone v. Town of Clarkestown, p.278. Sometimes, the states fight among each other to protect their goods and citizens.
THE EUROPEAN COMMUNITY
Just like the U.S., Europe is now struggling with coming up with rules that will apply to all members of the EC (European Community). The article on page 282 discusses this international issue.
SMALL FIRMS AND STATE REGULATIONS
State and local regulations also play an important role in business. They attempt to regulate in three areas: 1) controlling entry into business; 2) regulating competition; and 3) preventing consumer fraud. States are primarily responsible for regulating insurance, restaurants, banking, liquor sales and professional licensure. See: "Domestic Partner Rule Worries Business", p. 286.
Local, state and federal governments are allowed to take private property of a citizen to do such things as build roads, dams, and airports among other things. However, the government must pay the owner "just compensation". See: Dolan v. City of Tigard, p.289.
TOO MUCH REGULATION?
It is often debated whether the government regulates too much. The article on page 294-296 discuss how despite complaints, the government's rules serve the public well for the majority of the time.
Summarized with the permission of Irwin McGraw-Hill