Government regulations: do they help companies?

Many sectors of the business community have long complained about government regulation. Companies and their spokespersons often denounce government rules as irrational obstacles to profit, economic efficiency, and job creation. Unsurprisingly, many companies used loopholes in their attempts to respond to regulations, moved their business abroad, and violated antitrust laws.

In fact, American companies have both prospered and suffered due to more and more rules and complicated tax laws. Therefore, the relationship between enterprises and governments can be cooperative or confrontational. More importantly, these rules protect consumers from exploitation. Below, we will review some of these regulations to understand why their impact on companies is difficult to determine.

Key points

  • Over the past century, the government’s oversight of the US economy has expanded dramatically, sparking corporate complaints about interventions that hinder growth and efficiency.
  • Proponents of the intervention say it is necessary to mitigate the adverse effects of unregulated businesses, including environmental damage and labor abuse.
  • Some interventions aim to help the private sector by providing clear guidelines, loans and advice to companies.

Restraining the enterprise

Congress passed the first antitrust law in 1890, followed by regular changes in corporate tax rates, and regulations governing business became increasingly complex. The business community generally opposes laws, regulations or taxes that it believes will hinder its operations and profitability. A common argument against over-regulation and over-taxation is that they will bring a net cost to society in the long run. Critics believe that government regulations will slow down disruptive innovation and cannot adapt to changes in society.

Others believe that there are good reasons for regulation. In order to pursue profits, companies destroy the environment, abuse labor, violate immigration laws, and deceive consumers. Proponents say this is why elected officials who are accountable to the public are the first to supervise. In addition, some rules are necessary conditions for the vigorous development of civilized competitive enterprises. Few legitimate companies are willing to participate in extortion or participate in the underground market.

In any case, we now have entities and regulations to limit so-called free market excesses. Companies complain about many of these rules, and they are also lobbying to change other rules to their advantage.

Sarbanes-Oxley Act

After major corporate frauds occurred in several companies, including Enron, Tyco, and WorldCom, Congress passed the Sarbanes-Oxley Act in 2002. The Act governs accounting, auditing and corporate responsibility. Many business people oppose the bill, claiming that compliance will be difficult, time-consuming and ineffective. In addition, they predict that the law will not protect shareholders from fraud.When Bernie Madoff and many other financial frauds were exposed during the 2008 financial crisis, this position gained some support.

Environmental Protection Agency (EPA)

President Richard Nixon created the EPA by executive order in 1970. This agency is responsible for overseeing the disposal of waste, the restriction of greenhouse gas emissions, and the control of other pollutants. Companies that need to comply with these rules complain that these restrictions are costly and hurt profits.

Federal Trade Commission (FTC)

Some companies see FTC as the enemy of the enterprise. It was created in 1914 to protect consumers from deceptive or anti-competitive business practices. These may include price manipulation, monopoly formation and fraudulent advertising.

U.S. Securities and Exchange Commission (SEC)

Congress established the Securities and Exchange Commission (SEC) in 1934. It oversees initial public offerings (IPOs), ensures full disclosure, and enforces rules governing stock trading.

U.S. Food and Drug Administration (FDA)

Pharmaceutical companies often complain that the FDA unnecessarily delays the approval and sale of certain drugs. They usually require additional or more extensive clinical trials, even if these drugs have already shown effectiveness. The high cost of obtaining drug approvals may prevent small companies from entering the market. In addition, the FDA has been criticized for delaying approval and conducting human trials of drugs for people facing life-threatening conditions.

Regulatory capture

Perhaps the most serious criticism of government regulation is that they create the potential for regulatory capture. When this happens, the agencies that are supposed to protect consumers will be controlled by the industries they are supposed to oversee. Regulators may actively set up barriers to entry and use public funds for assistance to benefit the beneficiary companies.

If policymakers are not careful when formulating new rules, regulations can enhance the power of dominant and abusive companies.

Support enterprise

Hundreds of government aid programs—in the form of money, information, and services—are available to businesses and entrepreneurs. The Small Business Administration (SBA) arranges loans for start-ups. It also provides grants, advice, training and management consulting. The Ministry of Commerce helps SMEs increase overseas sales of their products.

An often overlooked service provided by the government to all businesses is the rule of law. The United States Patent and Trademark Office protects inventions and specific products from illegal infringement by competitors, thereby encouraging innovation and creativity. Infringements of patents and trademarks can be punished with huge fines and are affected by civil litigation. If the defendant loses the lawsuit, it may pay a high price.

Most importantly, the government sometimes takes extraordinary measures to protect companies under severe economic conditions. Some economists claimed that the Troubled Asset Relief Program (TARP) and subsequent economic stimulus plan prevented the Great Depression from repeating itself. Similarly, the Coronavirus Aid, Relief, and Economic Security (CARES) Act may prevent many companies from closing in 2020.

Other economists insist that the government should not intervene and should allow free markets to eliminate commercial failures. No matter which party you agree with, there is no doubt that without these plans, the corporate world would be very different.

Bottom line

The government can become a friend of companies and provide them with financial, consulting, and other services. It can also become a friend of the public, enacting and enforcing consumer protection, worker safety and other laws. Unfortunately, the government also has a long history of over-regulating the country into a long-term recession.

This conflict may never be completely resolved, because there will be disputes between different classes of any society. With continuous technological breakthroughs, the dual nature of the relationship between government and business may become increasingly regulated and coordinated at the same time. The key to success may be to maintain the government’s role as a neutral referee under the ever-changing rules of the game.

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