The Cost and Benefits of Regulation in Business

The Cost and Benefits of Regulation in Business
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  • 0:01 Regulation
  • 0:26 Costs of Regulation in…
  • 3:07 Benefits of Regulation
  • 5:03 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
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.

Regulation

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:

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