2004GIR Government-Business Relations

Workshop 5: Government, Business and Regulations

1. Why is government regulation needed?

- It sets the rules of the game.
- Protects firms from unfair competition and reduces social harm that might affect the trading
environment.
- Furthermore, regulation ensures that everyone is treated equally and that not one particular
business is treated favourably.
- It protects consumers, investors, workers, industry and environment.
- Goods government are interested in good outcomes.
- Regulation is a tool to encourage good behaviour, even though it may not always be effective or
enforced.
- Regulation can maintain equity.
- Government like regulation so they have a revenue base business. (taxes)
- Cigarettes and alcohol are a good example. The taxes which government places on those items
both regulates, protecting consumers (health effects), whilst ensuring the government has a steady
revenue base.
- The benefits are two-fold; Encouraging better social behaviors and trying to improve the overall
health of society, whilst also obtaining money from these industries, which are harmful to society,
in order to fund the negative impacts of smoking and alcohol invest in better health facilities
activities, which are desired by the government.
- Government likes stability and certainty which regulation ensure.
- Someone needs to represent the environment and often regulation can protect and conserve it.
- Regulation ensures people’s safety.

Regulation is essential for the proper functioning of society and the economy. Regulation includes any
laws or other government-endorsed 'rules' where there is an expectation of compliance.

2. What is market failure?

Market failure is the economic situation defined by an inefficient distribution of goods and services in
the free market. In market failure, the individual incentives for rational behaviour do not lead to rational
outcomes for the group.

Where in any given market, the quantity of a product demanded by consumers does not equate to the
quantity supplied by suppliers.

Inability of the market (private firms) to deliver goods that people need with government
intervention/help (monetary).

This makes regulation necessary in order to avoid a market failure.

Essentially, it refers to a situation in which the allocation of goods and services are not efficient.

Example: National broadband network, something Australia needs to ensure they remain up to date,
but business can’t provide it, hence government intervention is necessary.

Essentially, private business could not do it, therefore government needed to help.

3. Is regulation a positive or a negative for business?

Regulation is both a positive and negative element.
Positive:
- Because it Is about protecting their own private interest.
- Positive for business and the overall economy.
- Protects a business
- Regulation enables policing of large business who pose unfair competition.
Example
- Entry control (licensing-taxis)
- Price fixing (minimum prices)
- Guaranteed markets
Negative:
- Because businesses are less able to do what they want.
- Lowers economic growth
- Adds to business costs because they need to generate paperwork
- Regulation can stifle entrepreneurship and innovation.
- May reduce profitability or individual firms
- Too much regulation deters people from starting up businesses – can constrain business
- Red tape is not beneficial

4. Are there any limits to government's power to regulate business?

The Commerce Clause of the United States Constitution provides that the Congress shall have
the power to regulate interstate and foreign commerce. The plain meaning of this language might
indicate a limited power to regulate commercial trade between persons in one state and persons
outside of that state.