The following lesson covers how the U.S.
government uses its regulatory policy to oversee business activities. A short quiz will follow the lesson to check your understanding.
Regulatory Policy in the U.
All national U.S.
sporting events begin with the singing of the National Anthem, and in that song, there is the phrase, ‘O’er the land of the free and the home of the brave’ that many of us take for granted. While most Americans are proud of living ‘in the land of the free,’ in reality, their lives are regulated by the government in many inconspicuous ways.Consider the food that you might buy while you are at that sporting event. That food is regulated for purity and freshness, and the appliances used to make that food must meet federal safety requirements. The mode of transportation you used to get to the game, the stadium, and the roads you traveled on all meet federal standards. State and local governments may even impose additional regulations.
In fact, even the start time of the game is regulated by the government because our time zones are determined by our government. The government’s restriction and control over business practices is called its regulatory policy.Regulatory policy is designed to achieve efficiency and equity, which requires the government to intervene, for example, to maintain competitive trade practices (an efficiency goal) and to protect vulnerable parties in economic transactions (an equity goal). Many of the regulatory decisions of the federal government are also made largely in the context of group politics.
Business lobbies also have an especially strong influence on the regulatory policies that affect them.
Efficiency Through Government Intervention
Many of us have played a certain board game in which the purpose of the game was to buy as many spaces or properties as possible in the hopes that our competitors would have to pay high-priced rent for landing on them. In fact, if you owned spaces that were all marked by the same color, you were said to have a monopoly on that property. A monopoly is an unfair restraint of trade, and while it is fun to have one during a game, in real life, monopolies really can hurt the economy.
Thus, one of the main goals of the government in its regulatory policy is to maintain competitive trade practices for all, called an efficiency goal.The national government began regulating businesses in the late 1800s in order to eliminate monopolies. Businesses or groups that had exclusive control of an industry caused widespread corruption and created economic imbalance.
The government now regulates a wide array of business practices, including the elimination of competition and fraudulent product offerings. This regulation comes mostly in the form of laws and government oversight agencies. Some laws that prevent unfair trade practices include the Sherman Antitrust Act and the Clayton Antitrust Act, which were created during the Progressive Era. Government oversight agencies that oversee government regulation of business are the Interstate Commerce Commission, the Federal Trade Commission, and the Securities and Exchange Commission.Throughout history, there have been some big-name companies who have been accused of violating antitrust laws, like Microsoft in 2001, or have had to pay hefty fines or have had their companies broken up because of violating antitrust laws, including AT&T in 1984.Despite the government disliking one company trying to unfairly control a large portion of a particular industry, the government does tolerate large business concentrations, such as corporate takeovers and mergers. In fact, if current cable and Internet provider Comcast Cable merges with Time-Warner Cable, Comcast would become the nation’s largest de facto cable and Internet provider.
And while there are many reasons why the government would allow this merger to happen and not consider it a monopoly, in general, the government tolerates conglomerates because of high capital costs and/or foreign competition in some industries.
Equity Through Government Intervention
Another main goal of the government’s use of regulatory policy is to protect the vulnerable parties in economic transactions, otherwise known as an equity goal. The government has attempted to do this many times throughout history and most notably during the Progressive Era. Acts, such as the Pure Food and Drug Acts, kept people safe when buying and ingesting consumable goods, while the Fair Labor Standard Act of 1938 set regulations regarding minimum wage, maximum work hours, and safer working conditions.
The Politics of Regulatory Policy
We should be pretty thankful to the government for most of its regulatory policy in keeping prices reasonable and keeping us safe. If I were alive before the Progressive Era of the mid-1800s, I could very well have been eating meat that rats and bugs could have been crawling through.
Or, if I was alive during the Great Depression of the 1930s, I may have lost all my money because of the failure of the banking system.While regulation has done a great job in our nation’s history, too much regulation can lead to overregulation, in which businesses waste resources in an attempt to comply with regulatory policy. This cost of compliance often gets passed on to the consumer in the form of higher prices. Nevertheless, governments usually over-regulate out of a desire to increase equity or promote social justice.As regulatory policy has become more numerous and farther reaching, there has also been a greater push for more deregulation, or a push to repeal or reduce regulations. Deregulation usually occurs in the name of boosting economic efficiency.
Although it can increase competition, deregulation can sometimes lead to chaos and hurt consumers. For example, the commercial airline industry in the United States was deregulated in the 1970s and 1980s. In general, this deregulation resulted in lower prices and more choices for consumers.
But many airlines now perpetually hover on the brink of bankruptcy.In general, newer regulatory agencies have policy responsibilities that are broader in scope and apply to a larger number of firms than those during the Progressive and New Deal Eras. Many of the regulatory decisions of the federal government today are made by agencies in the context of group politics where Republican administrations tend to be less vigorous in their regulation of business than Democratic administrations. This political context is also heavily influenced by the pressure of business lobbies because of the regulatory policies that affect them.
The government’s restriction and control over business practices is called its regulatory policy.
Regulatory policy is designed to achieve efficiency and equity, which requires the government to intervene, for example, to maintain competitive trade practices (an efficiency goal) and to protect vulnerable parties in economic transactions (an equity goal). Too much regulation, however, can lead to overregulation and a waste of resources for a company, so therefore, there is sometimes a move to push to repeal or reduce regulations, called deregulation. Today’s regulatory agencies are also heavy influenced by their party politics and supporting business lobbies.
You could accumulate the knowledge necessary to do the following while watching this video lesson:
- Recite the definition of regulatory policy
- Understand the goals of regulatory policy and examine the ways in which the government might meet those goals
- Name specific laws that were enacted to mitigate economic corruption
- Recall the government’s use of equity goals to protect the economically vulnerable
- Provide details about overregulation and deregulation
- Point out the relationship between politics and regulatory policy