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Business Regulation: Government or Self-regulation Essay

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Updated: Aug 30th, 2019

Introduction

The government and business participate in the process of executing their respective economic roles. The government plays the role of governing by controlling and directing people on how to carry out their economic activities.

The administration controls and guides various state parties or persons who have the power of developing the courses of action. Business entities constitute one of the parties within a state, which the government has a share in their operations.

Business entities encompass all organizations that engage in the trading of goods and services. Governments and business entities demonstrate a mutual relationship.

Businesses thrive in environments in which the government has established policies to guide their conducts through the enactment and development of authoritative rules or a condition that customarily governs behavior while not curtailing businesses’ fundamental freedoms.

For example, businesses must serve the interests of the communities. Thus, the government ensures equal public participation in business processes. Should the government engage in the regulation of all businesses, including their decision-making process and the setting of their policies?

This paper addresses the role of government regulation on businesses. The goal is to determine whether businesses should operate as free entities by ensuring deregulation.

The Role of the Government in Regulating Businesses

The government plays a proactive role in ensuring a fair play of businesses in the process of executing their functions. In all markets, the government regulates the conduct of business players. Indeed, even in liberalized markets, businesses should be monitored to avoid unethical practices among the competing entities.

The government safeguards the environment, promotes fair labor practices, and/or guarantees healthier working conditions while at the same time setting the minimum wage for workers. Businesses also have a responsibility of developing their self-regulatory models.

However, the government should play the ultimate role in ensuring that the set standards are met and that all stakeholders operate within the laid down regulations.

Organizations are established to perform different functions depending on whether they are profit-making or non-profit-making entities. For profit-making organizations, their strategies are developed consistently with the profit maximization behavior in mind.

Thus, business strategies are formulated in accordance with the need to enhance the performance of a firm in the short and long term. Rumelt, Schendel, and Teece (2009) provide evidence for this assertion by claiming, “As never before, strategic management academics have adopted the language and logic of economics” (p. 5).

The magnitude of profit is one of the most crucial parameters to measure business performance. In this context, neoclassical economics firms are characterized by profit maximization.

Such firms make products through the deployment of cost-analysis formulas that ensure that marginal revenues are equal to marginal costs. While increasing profit levels, minimal costs should be less than marginal revenues.

Without appropriate regulation, the profit maximization behavior may be explored as a business policy without paying ardent consideration to the negative consequences of their cost reduction strategies on stakeholders.

Therefore, the government needs to engage in business regulations to protect the interest of various stakeholders who may be harmed by a business entity when it is permitted to make decisions without appropriate guidance.

The government has interest in the regulation of businesses in the context of various issues such as health, safety standard in administrative centers, wages and salaries, advertising, imposition of taxes, and other items that relate to employee fundamental rights.

Organizations increase their profits by pushing the maximum number of products to the market. This process involves promotion through advertising. Organizations can engage in unethical practices in advertising simply to make high sales if not controlled by the government.

This claim means that through regulation, the government ensures that all marketing efforts guarantee that the target audience gains the highest good from the products. This role is well played out by the US government through its regulation of business entities.

For example, FDA has different regulations on the advertisement of pharmaceutical products. In case of advertisements of products with claims, an organization must make a fair balance in the advertisement through the inclusion of the likely risks in “major statement’ and ‘adequate provision’ for access to ‘brief summary’” (Ventola, 2011, p.682).

This strategy helps to avoid the transfer of product risks to their intended consumers who are targeted by business entities’ advertising campaigns.

In the US, state and federal laws protect individuals and organizations’ intellectual properties (IP). Thus, one of the issues that relate to IP entails theft or infringement of copyright. The IP bears national and international perspectives.

National laws and regulations control and protect patents. International conventions guarantee that the licenses have specific rights while also ensuring that laws exist to enforce the rights in contractual relationships.

Legal litigation involving IP resolves the question of whether the defendant has copied the claimed work or invention or whether the plaintiff owns the claimed work.

Therefore, through regulation by means of legislation, the government ensures that the operations of a business entity do not lead to infringement of other state parties’ rights.

These expositions reveal how the government plays the role of ensuring a fair play in business practices and relations through the development and implementation of regulations with which business entities must comply.

The government plays an essential role in regulating businesses to ensure environmental sustainability. To this extent, companies are required by state organizations that are in charge of regulating business conducts, especially if they interfere with the environment, to ensure that they produce and distribute green products.

Indeed, ensuring sustainable modern supply chains is essential for businesses, especially following the heavy emphasis on producing and giving out green products in the effort to curb environmental degradation.

Adopting green business strategies is not only a measure for ensuring sustainable long-term business operations but also a measure for ensuring that an organization behaves and acts in a socially responsible manner.

This claim reveals how government regulation can help businesses to develop strategies for ensuring environmental cautiousness by setting acceptable standards in relation to waste generation and disposal.

Although individual states have environmental regulations, government agencies and international treaties may also create additional directives.

For example, in the US, the Environmental Protection Agency plays the role of enforcing various environmental laws that are enacted by the federal governments.

It accomplished this mission through inspections, enhancing, and ensuring transparency and accountability in business operations to the environment. It also guarantees compliance with the established laws.

Apart from the environment, the labor sector is another crucial area of government regulation. Businesses face the changing government regulations. In fact, employment and labor constitute one of the areas that the government has an interest in establishing rules in a bid to safeguard the interests and rights of workers.

In the US, employment and labor laws relate to the regulation of minimum wages, compliance with health standards, safety in the work environments, equality in terms of accessing employment opportunities, and privacy regulations among other issues.

One of the most important mechanisms for regulating employment and labor is ensuring employees’ freedom to choose to remain employed by a business establishment without any coercion. In the US, the government ensures that businesses respect this right through the employment-at-will doctrine.

With an exception of Montana, in all regions in the US, employment contracts are guided by the employment-at-will doctrine. In other nations, employment dismissals are based on reasonable causes.

States that retain the at-will-presumption assert that the law is essential in respecting contract freedoms and/or ensuring employer reverence. Instead of job security, most employers and employees prefer the presumption.

The employment-at-will doctrine holds that employers have the right and freedom of terminating employee(s) at any particular time for whatever reason they deem necessary apart from an illegal purpose and/or when an organization does not incur any liability.

The doctrine also allows employees to quit their jobs any time without giving any reason or having to issue a notification. Once they follow this path, they should not face any legal consequence.

Government regulations of conducts of businesses through doctrines such as the employment-at-will attract criticisms to the extent that some companies may capitalize on the available loopholes to disadvantage some employees.

For instance, the at-will presumption gives employers the freedom to alter employment terms without giving prior notice and/or without attracting any legal consequences. This observation means that employers can change wages and salaries and withdraw certain benefits without any legal liability.

Therefore, in the absence of any modification, the laws open employees to the vulnerability of arbitrary dismissals or being called for work without following any schedule to meet the employers’ needs.

In many states, including South Carolina, contractual terms modify the employment-at-will doctrine. For instance, employers and employees can enter into contracts with the provision for termination in an event of a cause.

In South Carolina and other states, apart from Montana, negotiations for contractual employment terms are mainly done with top-ranking employees only.

This situation leaves low-ranking employees with the collective bargaining as the only option for modification of the employment-at-will doctrine that is anchored in employment and labor laws.

This case suggests that the adherence to proper principles of protection of employee rights also requires not only government regulations through laws, but also the willingness of businesses to participate with goodwill in the development of policies for protecting employee employment relations.

Should the Government Intervene to Protect Culture, Enforce Minimum Wages, Safety Standards, and/or Prevent Unjust Discrimination?

Profit-making businesses embrace bargaining economic models in realizing their objectives. The model “presumes that an organization is a cooperative, sometimes competitive, resource distributing system” (Barney 2007, p.68.).

Competitiveness in the allocation of resources is enhanced through strategies, for instance, cost reduction in relation to the anticipated returns on investments.

In this context, Collins and Jerry (1996) reckon, “Decisions, problems, and goals are more useful when shared by a greater number of people with each decision-maker bargaining with other groups for scarce resources, which are vital in solving problems and meeting goals” (p.87).

The proclaimed goals refer to the aims and objectives of an organization as stipulated in the businesses’ action plans and terms.

Strategic plans establish action plans that are established in the implementation plan procedures (Barney 2007). The concept of cost reduction that is embraced in business strategic management approaches is analogous or even equal to the cost elements that are used in profit-maximization models.

For maximum profits, costs must remain low. In some situations, this process may involve the cutting down of labor costs and/or reduction of benefits provided to employees.

Therefore, the government needs to get involved to ensure that businesses provide wages and salaries that can enable employees to live a worthwhile life.

Under the principles of corporate social responsibility, businesses have a responsibility to ensure that they do not just serve their interest while ignoring the benefit of other stakeholders.

While this situation is expected to streamline business behaviors, checks are essential for businesses that fail to comply with corporate responsibility ethical requirements by exploring discriminatory policies, exploiting employees, and/or failing to ensure safety standards among other issues.

Therefore, the government needs to intervene to regulate businesses to enforce minimum wages, safety standards, and/or prevent unjust discrimination. Indeed, safety comprises an essential factor that many governments control across the globe. Protection may apply to workplaces and in products and services.

The US government ensures ardent regulation of businesses with respect to product safety. Product safety involves proper product labeling and description of packaged contents.

The ingredient that is described on the product label should not only match the contents, but also reveal the substances that are permitted by the Foods and Drug Regulation Administration (FDA) body. The FDA inspects mass-produced products to ensure that businesses meet this ethical requirement.

This plan ensures that unethical businesses do not sell unsubstantiated products, which may cause damage to their consumers.

The government has the responsibility of ensuring that businesses do not explore discriminatory policies while employing people or evaluating contracts bids. The 2009 data from the US Census Bureau depicted a close relationship between small business populations’ racial and gender characteristic.

According to the data, women represented 28 percent of all active contractors. This figure corresponded to 28 percent of their total share of the population of people who engage in small businesses that focus on contracting or subcontracting with federal governments.

From the context of minority groups, data from the same organization showed that persons of color accounted for 24 percent of all active small business contractors against their population of 20 percent in the overall population of small businesses.

This data indicates that small business owners have equal opportunities in winning a federal contract, irrespective of gender, or racial demographic characteristics.

Apart from the federal governments, even in private business establishments, the government has a responsibility for ensuring equality and fair play among different business industry actors.

It is essential for the government to ensure that organizations do not engage in practices that lead to the exploitation of employees in terms of salaries and wages by regulating minimum payments and/or denying benefits such as health insurance.

It also needs to intervene to guarantee that unjust discrimination does not occur. However, it is essential to note that some otherwise considered discriminatory practices are beyond the government control.

Female small industrialists encounter challenges that are articulated to business formation and equal engagement in government contracts.

In the effort to ensure that the businesses overcome these challenges, the US government has created policies such as affirmative action to increase the number of minority-owned small business firms that can secure government contracts.

For instance, it has established a policy that requires the reservation of 5% of all contracts that are awarded by federal governments to minority-owned small businesses (Trechiel & Scott, 2006).

Nevertheless, such policies do not necessarily translate into increasing the number of marginalized people-owned small businesses that engage in government contracting. Why does this situation occur?

Inequalities exist between men-owned and women-owned small businesses. The organization reveals that women-owned business revenue accounted for only 9 percent of the entire US economy in comparison with the 36 percent contribution from the revenue that was generated by the men-owned small business enterprise in 2011.

This observation suggests that in case women increase their revenue objectives to equalize with small businesses that are owned by men, they are likely to make a more significant economic impact. However, a scholarly question emerges on how this goal can be accomplished.

Trechiel and Scott (2006) suggest that women small business owners lack adequate “negotiating, assertiveness, and decision-making skills” (p.52).

Government regulations fail to resolve any inequality that arises from differences in expertise levels. Government regulation only provides legal processes that ensure that the best business owners in terms of skills and knowledge bases acquire contracts and opportunities to do business with it.

In the process of protecting employee interests, the government needs to take part in the development of policies for regulating business conducts. The plans should address the freedom of unionization.

Labor unions are essential in different nations. They ensure the protection of employee interests. They fight for better salaries and wages, reasonable working hours, and safe and conducive work environments for their members.

Labor unions also fight for unsuitable forms of labor, such as child labor. They ensure that employees gain health benefits. They also support people who are injured in work environments to pursue their rights through the payment of damages.

This claim suggests that the government needs to support the ordinary course that employees pursue through labor unions. Such a course reflects significant areas of concern to the government while developing employment and labor regulations.

Businesses have different cultures. As a way of making sure that all organizational stakeholders focus on common goals and objectives, it is essential for them to subscribe to a common form of thinking, interacting, and upholding values and norms.

Organizational norms, standards, and ways of thinking define an organizational culture, which needs to be aligned with the operations of a business entity.

Organizations’ cultural elements constitute some underlying assumptions that when adopted and observed by all stakeholders, especially the diverse workforce, can aid in enhancing the success of a business entity.

This claim suggests that any government interference with a business entity’s traditions through cultural regulation influences the variation of norms and values that differentiate business entities.

Thus, such regulations may create an inappropriate organizational cultural hegemony within a nation after considering that a culture is an essential aspect of business entities’ competitive advantage.

While it is crucial for governments to regulate some aspects of business, others such as culture are inappropriate. An alternative to government regulation of businesses entails allowing organizations to behave as good corporate citizens.

They need to self-regulate themselves in matters of cultures, policies on minimum wages, safety standards, and/or protection of employees against unjust discrimination.

An emerging question is whether organizations should protect culture, enforce minimum wages, safety standards, and/or prevent unjust discrimination through self-regulation.

Self-regulation of Businesses

Government regulations are important in ensuring that businesses balance the interests of different stakeholders rather than focusing on profit maximization behavior.

However, in the absence of government regulation, business entities also need to develop their internal mechanisms for ensuring protection of their cultures.

They need to shun from exploring policies that encourage unjust practices such as discrimination or failing to provide safe and healthy working environments for their employees.

A good functioning of an organization requires control and monitoring. One of the ways of ensuring self-regulation in business entails respecting the principle of corporate responsibility and corporate governance.

Corporate governance comprises one of the ways of controlling and enhancing the monitoring of business operations.

At its basic premise is the need to alleviate disagreements of interest among partners. This agenda is mostly accomplished through the enactment of various customs, laws, processes, policies and institutions, which have enormous repercussions in terms of affecting the manner in which businesses are controlled.

Eliminating conflicts of interest between businesses and employees requires firms to develop and implement policies that guarantee fundamental freedoms of employees, including unionization.

Corporate governance policies and other control structures may help to regulate employee conducts and decisions by defining what is ethically permitted. However, organizational culture may act as important regulator of employee decision-making processes.

Businesses owners need to effectively deploy strategic initiatives to instill an influential culture of loyalty, which helps to drive ethical decision-making processes among employees. Through utilitarianism as an appropriate ethical theory to influence business culture, self-regulating becomes possible.

For example, as a self- regulation mechanism, businesses can deploy utilitarianism to regulate employee cultures so that without government regulation, different stakeholders can act in a manner that guarantees utmost good for all.

In the formation of organizational cultures, governments’ influence is inappropriate after considering that regulations must apply harmoniously within different organizations. This situation creates a government-induced cultural hegemony in various businesses. Thus, they lack the opportunity to differentiate themselves.

Therefore, governments should not regulate organizational cultures, unless where such cultures pursue policies that are misaligned with the acceptable practices in corporate social responsibility and ethics such as failure to embrace organizational diversity, which may lead to discrimination of employees on racial, ethnic, and gender lines when remunerating them or giving various benefits.

Although organizations should not be regulated by influencing or protecting cultures, regulation is essential on other matters such as enforcing minimum wages, safety standards and preventing unmerited favoritism.

This position is held with reference to the various experiences in which businesses have pursued policies that disadvantage employees through their exploration, amid the existence of government regulations on these issues.

For example, over the last decade, some major manufacturing organizations have encountered criticisms over exploration of policies that have led to the re-emergence of sweatshops accompanied by discrimination and the paying of low wages.

Some business entities, especially in areas that are exempted from minimum wage laws and/or regions that are dominated by consistent denial of the freedom to unionize, employees are often subjected to poor working conditions and low pay. In such businesses, child labor is also high.

The current US government labor laws prohibit businesses from employing minors. The government also places legal requirements that improve the rights of workers, such as setting minimum wage and the number of hours per work shift.

This achievement has been realized through intensive struggles of labor movements against sweatshops that appeared during the industrial revolution. Such regulation ensures that organizations do not self-regulate themselves on matters that undermine the rights of the citizenry.

This position is perhaps correct considering that failure to comply with the established business conventions may not attract any legal liability.

In this context, Powell (2012,) asserts, “trade unions, minimum wage laws, fire safety laws, and labor laws have made sweatshops rare in the developed world” (p.452).

Nevertheless, such achievements have not eliminated sweatshops in the US, although the term is more related to manufacturing organizations in the developing nations.

This claim suggests the necessity of government regulation for businesses to ensure that they continue respecting human rights in their policies rather than just focusing on increasing their profitability by overworking employees or paying them low wages and salaries.

Businesses have the responsibility of motivating their employees, enhancing safe working environment, and/or guaranteeing job satisfaction. Therefore, government regulations on work environment standards also produce positive implications for businesses.

Employees who are treated poorly produce goods that fail to pass the quality test. Through government regulations, appropriate conditions are also created for businesses to benefit from employee commitment.

Self-regulation in some businesses gives them the freedom to explore policies that are not in agreement with employee safety and health. For example, it is common in China and other developing nations to find garment factories in which workers execute their daily routines in an environment that has fiber-dust enriched air.

Permitting businesses to pay their workers without following government-enacted regulations on minimum wages only creates the likelihood of companies to underpay them or keep on reviewing their salaries and wages upward and downward.

Such a situation exposes employees to business operational environment dynamics to the extent that they cannot plan their lives well. This claim is perhaps well evidenced by the case of Honduran garment manufacturing factory.

In 2003, employees at the factory were paid only USD0.24 for every shirt and USD0.15 for a long-sleeved t-shirt. Shirts went for USD50 in the retail market. This finding suggests that even if a worker makes 100 shirts in a day, he or she will still not afford a single shirt that he or she makes, notwithstanding other daily needs.

Therefore, the government needs to intervene to regulate Honduran garment in terms of imposing regulations on minimum wage and salaries.

For several years, Nike has faced criticisms for employing children in its Cambodia-based plants. However, the company refuted the accusations claiming that it was possible for people in Cambodia to fake their age by corruptly obtaining false documents.

The company uses a minimal portion of the cost of production of its pair of shoes (70 pounds) in the payment of labor.

Whether this assertion is true or not, government regulation of minimum wages and salaries can help to eliminate such negative accusations, which may impair the success of a business, especially where some nations prohibit the exportation or importation of products that are produced with child labor, discrimination, and/or in unsafe work environments.

Apart from the criticism for the violation of labor laws that govern the operation of manufacturing businesses in the US, other objections have been raised in other factories such as Addidas. Among the major concerns in these businesses are low wages and poor conditions of working in Asian-based production plants.

Bad working conditions pose a major threat to employee safety or occupational health. Therefore, the government needs to mediate to discourage self-regulation by putting in place regulations for enforcing minimum wages and safety standards while at the same time preventing unjust discrimination.

Conclusion

Businesses need to operate with policies that ensure that they defend the welfare of all their partners. Corporate governance and corporate responsibility may aid them to eliminate unjust discrimination, underpayment of employees, and the development of a business culture that undermines employee rights such as unionization.

However, businesses that seek to operate as good corporate citizens develop and implement such principles. However, this move may not serve interest of all businesses.

Therefore, by allowing the freedom of self-regulation on matters of minimum wages, safety standards, and preventing unjust discrimination, some businesses may exploit employees with the objective of making optimal profits.

Consequently, government regulation is relevant on issues such as minimum wages, safety standards, and preventing unjust discrimination. However, it is essential to create a nationwide business cultural hegemony. Thus, self-regulation of businesses on matters of protection of culture is essential.

Reference List

Barney, J. (2007). Gaining and Sustaining Competitive Advantage. New Jersey, NJ: Prentice-Hall.

Collins, J., & Jerry, I. (1996). Building Your Company’s Vision. Harvard Business Review, 32(5), 65–90.

Powell, B. (2012). The Ethics and Economic Case Against Sweatshop Labor. Journal of Business Ethics, 107(4), 449-472.

Rumelt, P., Schendel, D., & Teece, J. (2009). Strategic Management and Economics. Strategic Management Journal, 12(2), 5-29.

Shih, H., & Chiang, Y. (2005). Strategy alignment between HRM, KM, and corporate development. Information Journal of Manpower, 26(6), 582–603.

Trechiel, M., & Scott, J. (2006). Women-Owned Businesses and Access to Bank Credit: Evidence from Three Surveys since 1987. Venture Capital, 8(1), 51-67.

Ventola, L. (2011). Direct-To-Consumer Pharmaceutical Advertising. Journal of Managed Care and Hospital Formulary Management, 36(10), 681–684.

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