Organization Management

4. In a capitalist economy, we assume that the market plays a major role in monitoring and regulating the business environment. Businesses that act irresponsibly often lose customers and are unprofitable. However, government regulations can require businesses to act in a socially responsible manner. On the other hand, excessive regulation has driven many U.S. businesses to move some or all of their operations offshore, resulting in lost jobs and tax revenues. Do you think government regulation is good for business? Discuss.

    In a capitalist economy, factors of production which included land, labour, capital and entrepreneurship are owned by private individuals or businesses(Investopedia n.d.) . According to Ferguson, “Capitalism is a free-market form or capitalistic economy may be characterised as an automatic self-regulating system motivated by self-interest of individuals and regulated by competitions.” This clearly shows that the market which includes both buyers and sellers is the one who decide what, how and for whom will the goods be produced based on law of demand and law of supply. The advantage of this economy is that everyone is given the freedom to choose what they able and willing to buy and companies are given opportunities to product those products in an efficient and effective way to maximize profit(Woodruff 2018). However, this does not mean that government is excluded in capitalism, government need to play a substantial and regulatory role. This is due to the lack of competitive skills which includes the elderly, children, the developmentally disabled, and caretakers(Amadeo 2018). To keep the society balance, government is a must in capitalism.

    The government has established rules and frameworks in which companies can compete with each other. Not only that, the government will change these rules and frameworks from time to time, forcing companies to change the way they operate. Without doubt, companies are greatly affected by government policies (Business Case Studies n.d.). In most cases, government regulations imposed on companies fall into four categories; employee relations, taxation, bureaucracy, and international trade. Firstly, business regulations affect employer to employee relationships and vice-versa. This is because labor law is a regulation that is directly related to how companies treat employees. These laws include minimum wage regulations, wage deduction rules and rules for the protection of workers, such as immigration and seasonal agricultural worker protection laws (Elaws 2016). Secondly, tax laws control how companies must report their financial status to the government. For example, the US Internal Revenue Service (IRS) sets out many different methods companies must use to report revenue and expenses (Meredith 2018). Companies that exceed a certain size need to adopt an accrual accounting method. In the area of international trade, commercial law is imposed on international trade tariffs (Tyler n.d.). These rules and regulations are stringent and out of international product range. International trade rules and regulations also correspond to the implementation guidelines of all parties involved in international trade. Finally, the government implements business rules and regulations to ensure that all businesses are ethical, healthy and secure to consumers. However, with that said, it is important to understand that business laws differ by state, locality or country.

Regulations are broadly defined as imposition of rules, principles or conditions made by a government or authority in order to command the way something is done or the way of behavior by citizens(Collins n.d.). Various regulatory instruments or target exist (OECD). Government regulation can be categorize into direct regulation and indirect regulation. Direct regulation can be seen as the government explicitly limiting or supporting an activity based on the types of externalities it creates. There are some positive externalities incites government to direct regulate(EconPort 2006). An example of direct regulation would be farm subsidies. Without price supports by government, farmers will not be able to stay in business. Not only that, government also plays a role in healthcare through Medicare and Medicaid program so that rural hospitals will still have a chance to stay in business through these payments(Enotes 2016). While indirect regulation would be the pays of government on public schools and universities. Educated workforce that benefit the society certainly increases as there are presence of these schools. This will certainly allow the economy to be more innovative and productive (Enotes 2013). Besides, giving tax incentive to the companies that practices Corporate Social Responsibility(CSR) is also another indirect regulation. This can certainly make the businesses to concern for the welfare of society which is based on a commitment to integrity, fairness and respect.

The advantage of government regulation in business is that companies are forced to consider consumer’s safety and environment pollution problem which are important to health of consumer other than their profits(Daniels 2018). Regulations can force business to be responsible to customers by giving consumers the right to safety, to be informed, to choose and to be heard. Besides, government regulation can cut down market failures such as presence of externalities, monopoly power and public goods. Providing financial aid to positive externalities and tax negative externalities can be another way to force them follow the regulations (CourseHero n.d.). On the other hand, there are also some disadvantages of government regulation. It makes businesses hard to operate as there are lots of paperwork, double taxation that increases their costs dramatically(Enotes 2013). To make profit, businesses have no choice but to increase the selling price that cause burden to the consumers.  

Excessive regulations such as excessive taxations, excessive laws, high minimum wage and workers compensation can weaken any business (Freedomworks 2006). Restrictive environment for companies and less competitive may create by the excessive regulations. Today, U.S. businesses has the most excessive regulations in the world (Price 2011). It causes many businesses move their operations offshore because of lost jobs and tax revenues. The companies closing shop and move to other part of the country where they find more attractive regulatory. An example of this is the moratorium of oil drilling off the Gulf Coast of the United States, where 50,000 direct jobs are being lost and hundreds of thousands of more dependent on them will fade away. Rand Paul (2018) said that “Using taxes to punish the rich, in reality, punishes everyone because we are all interconnected. High taxes and excessive regulations and massive debt are not working.” The disadvantage of excessive regulations is rigid nature of business rules that difficult to make changes. It is difficult to make changes because the rules that are already in places. In the business world, some rules need to be changed to account for changing realities (Lewis 2018). Rules and regulations must always be in a business, but if there are so many millions of rules in the business, the rules have become invalid.