Regulation is often seen as a negative by most American businesses. In this lesson, you will learn both the costs and benefits of regulation in the corporate world.
There is always two sides to every issue. In this lesson, you will learn the costs and benefits of regulation in business. The central way the government affects business is through regulation, or controlling and managing an industry through laws. Let's take a look at how different industries are affected by regulation to understand both the advantages and disadvantages.
Costs of Regulation in Business
The government's steady stream of daily new regulation seems to implicate a significant cost to businesses. In just the last 60 days alone, the government instituted the following new rules, just to name a few:
- Mangos are allowed to be imported from Jamaica
- Changes in the way controlled substances are disposed
- New air traffic service routes are established
- Changes in poultry slaughter inspections
Every time a new rule is established by the government, it creates the following for business:
- Increased financial costs as companies are burdened with complying with the new regulations - With new laws come additional financial costs, such as adding inspectors, creating new business procedures or purchasing new equipment. For example, the new law that requires changes in the way poultry slaughter inspections happen will be costly to poultry companies because they have to train their employees on the new procedures.
- Decrease in new product development - Regulations place restrictions on businesses that can hamper creativity and innovation. A prime example is a new smartphone app that helps city dwellers hail an idle limo for their transportation needs. Legislators in certain cities are trying to block the app because they are not able to exert taxation or regulate the service. Now, the popular new service is being denied to consumers and the business is hurting financially.
- Decrease in fixed asset expenditures - In addition, the costs associated with regulation prevent a company's ability to invest in plants and equipment. For example, a new regulation eliminated the tax breaks within the auto industry for the purchasing of equipment and building of factories stateside. This new regulation ended up dissuading auto companies from spending money on plants, and also eliminated a slew of new jobs that would have accompanied the new factories.
- Increase in litigation - New regulation causes businesses to have to spend enormous amounts of money for legal help to understand and comply with new rules. In addition, since not all businesses comply or some don't understand the new regulation, there is always an increase in legal issues. For example, a new law was passed that prohibited the advertising of tobacco to teenagers. From that law, there has been numerous lawsuits by the government against tobacco companies regarding improper advertising targeting minors.
There are also benefits to the use of regulation in business. Let's take a look at the other side of the issue.
Benefits of Regulation
Government regulation should not be viewed as entirely negative. There are many benefits of regulation in the workplace. Here are some examples:
- Provides reduced prices through subsidizations - Regulations do have a positive effect on some industries when subsidies are provided by the government. For example, the government provides the farming industry numerous subsidies that allow farms to make a profit and sell their crops at a low cost.
- Improves treatment of employees by providing specific regulations that protects employees. For example, OSHA (Occupational Safety and Health Administration) has created extensive legislation that provides for the safety and welfare of employees. For instance, OSHA has set forth regulations that all companies with ten or more employees must have an emergency action plan to ensure the safe procedure and exit of their employees from the company due to a fire or other issues.
- Safer products are produced by companies due to government legislation. Federal regulatory agencies, such as the Consumer Product Safety Commission (CPSC), have a mission to protect consumers from unsafe products. The agency has issued recalls for defective baby cribs to dangerous toys that could harm or kill young children.
- Social improvements - The final benefit of regulation in business is the overall social improvements due to laws forcing companies to become socially responsible. Government regulatory agencies, such as the Environmental Protection Agency (EPA), ensure that companies do not act unethically and destroy valuable resources. For example, the EPA is pushing forward new legislation, called the Clean Power Plan, to cut carbon emissions to ensure healthier air and reduce the amount of climate change.
In this lesson, we focused on both the costs and the benefits to regulation in business. Congress and federal regulatory agencies can be seen as both saviors and enemies to businesses, depending on the industry and regulation. The costs of regulation are:
- Increased financial costs as companies are burdened with complying with the new regulations
- Decrease in new product development
- Decrease in fixed asset expenditures
- Increase in litigation
The benefits of regulation in business are:
- Provides reduced prices through subsidizations
- Improves treatment of employees
- Safer products are produced by companies due to government legislation
- Social improvements
Display your capacity to do the following after studying the video lesson's concepts:
- Interpret the ways in which new regulation can increase costs and negatively affect businesses
- Discuss the benefits of legislation for companies and their employees