What Is The Purpose Of Government Regulation – Many sectors of the business world have long complained about government regulation. Corporations and their spokespeople often denounce government regulations as irrational impediments to profits, economic efficiency and job creation. Unsurprisingly, many firms exploited loopholes, moved operations overseas and violated antitrust laws as they tried to cope with the regulations.
In reality, American businesses have both prospered and suffered due to an ever-increasing number of regulations and a complicated tax code. As a result, the relationship between firms and government can be either collaborative or adversarial. More importantly, the rules protected consumers from exploitative practices. Below, we’ll look at some of these regulations to see why it’s difficult to determine their impacts on businesses.
- 1 What Is The Purpose Of Government Regulation
- 2 Navigation Acts Of 1651
- 3 Regulation I Definition
What Is The Purpose Of Government Regulation
Congress passed the first antitrust law in 1890 and followed with periodic changes in corporate tax rates and increasingly complex regulations governing business. The business community has generally resisted laws, regulations, or taxes that it sees as impeding its operations and profitability. A common argument against over-regulation and over-taxation is that in the long run they impose a net cost on society. According to critics, government regulations slow down disruptive innovation and fail to adapt to changes in society.
Others argue that there are good reasons for regulation. In pursuit of profits, businesses have damaged the environment, abused labor, violated immigration laws, and defrauded consumers. Proponents say that’s why publicly accountable elected officials are in charge of regulation in the first place. Furthermore, some rules are essential for civilized competitive businesses to flourish. Few legitimate firms want to engage in racketeering or participate in the underground market.
In any case, we now have entities and regulations to curb the supposed excesses of the free market. Businesses complain about many of these rules while also lobbying to change other rules in their favor.
In the wake of massive corporate fraud at several companies, including Enron, Tyco, and WorldCom, Congress passed the Sarbanes-Oxley Act in 2002. The act regulates accounting, auditing and corporate responsibility. Many in the business world opposed the bill, arguing that compliance would be difficult, time-consuming and inefficient. Furthermore, they predicted that the law would not protect shareholders from fraud. This position gained some support when numerous financial frauds, such as Bernie Madoff’s, were exposed during the 2008 financial crisis.
President Richard Nixon created the EPA by executive order in 1970. The agency regulates the disposal of waste materials, limits on greenhouse emissions and the control of other pollutants. Companies required to comply with these rules have complained that the restrictions are costly and compromise profits.
Regulatory Agencies And Innovation
Some firms view the FTC as the enemy of business. It was created in 1914 to protect consumers from deceptive or anti-competitive business practices. These may include price fixing, the formation of monopolies and false advertising.
Congress created the Securities and Exchange Commission (SEC) in 1934. It regulates initial public offerings (IPOs), ensures full disclosure and enforces stock trading rules.
Pharmaceutical companies often complain that the FDA unnecessarily delays the approval and marketing of certain drugs. They often require additional or more extensive clinical trials, even when drugs have already shown efficacy. The high costs of obtaining drug approval can deter small firms from entering the market. Furthermore, the FDA has been criticized for delaying approval and human trials of drugs for people facing life-threatening conditions.
Perhaps the most fundamental criticism of government regulations is that they create the potential for regulatory capture. When that happens, the agencies that are supposed to be responsible for protecting consumers come under the control of the industries they are supposed to regulate. The regulator can actively create barriers to entry and divert public bailout funds in favor of favored firms.
Office Of Information And Regulatory Affairs
Regulations can increase the power of dominant and offending firms if policymakers are not careful when creating new rules.
Hundreds of government assistance programs—in the form of money, information, and services—are available to businesses and entrepreneurs. The Small Business Administration (SBA) arranges loans for startups. It also provides grants, advice, training and management consultancy. The Trade Department helps small and medium-sized businesses to increase sales of their products abroad.
An often overlooked service that government provides to all businesses is the rule of law. The US Patent and Trademark Office offers protection for inventions and specific products from illegal infringement by competitors, thus encouraging innovation and creativity. Patent and trademark infringements are punishable by heavy fines and are subject to civil actions that can be costly if the defendant loses.
On top of all this, the government occasionally takes extraordinary steps to protect businesses in difficult economic conditions. Some economists argue that the Troubled Asset Relief Program (TARP) and the economic stimulus plans that followed prevented a repeat of the Great Depression. Similarly, the Coronavirus Relief, Assistance, and Economic Security (CARES) Act could prevent many firms from going out of business in 2020.
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Other economists insist that the government should not have intervened and that free markets should have been allowed to eliminate business failures. Regardless of which side you agree with, there is no doubt that the corporate world would look very different without these programs.
Government can be a friend to business, providing financial, advisory and other services. It can also be a friend to the public, creating and enforcing consumer protection, worker safety and other laws. Unfortunately, governments also have a long history of trapping nations in patterns of long-term decline through overregulation.
This conflict will probably never be fully resolved because there will always be disputes between different segments in any society. As technological breakthroughs continue, the dual nature of government’s relationship with businesses may become increasingly regulatory and collaborative at the same time. The key to success may be preserving the government’s role as a neutral referee, even as the rules of the game keep changing.
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By clicking “Accept all cookies”, you consent to the storage of cookies on your device to improve site navigation, analyze site usage and assist in our marketing efforts. Regulation I is a requirement enforced by the Federal Reserve on member banks. Regulation I stipulates that each bank that becomes a member of the Federal Reserve must acquire a certain amount of stock in its Federal Reserve Bank. Regulation I outlines the procedures through which banks purchase and redeem Federal Reserve Bank capital. The bank cannot use these shares as collateral.
Federal regional banks issue shares of their stock to Federal Reserve member banks. This is not the same as owning stock in private companies like Microsoft or General Electric, in that the stock cannot be traded or sold on a market or stock exchange. Federal Reserve Bank branches do not operate for profit, and ownership of a certain amount of stock is a requirement for membership in the Federal Banking System.
Federal Reserve member banks are required to purchase stock equal to at least 6% of their capital and surplus. Reserve Bank shares are non-transferable and pay a dividend every six months. Banks must ensure that the ratio of shares held to their capital and surplus remains constant at 6% or more at all times. Banks must pay in 3% of their capital and surplus shares. Generally, banks must subscribe to or purchase capital from their Federal Reserve Bank.
Regulation I Definition
Regulation I sets forth procedures for Federal Reserve member banks to remain in compliance with capital subscription requirements, as well as procedures for banks seeking to become Federal Reserve member banks. Regulation I addresses both the issuance and cancellation of capital in the Federal Reserve Bank, how to deal with changes that may occur in the capital or surplus of a member bank, and how banks may enter or leave the Federal Reserve’s banking system. reserves.
Under Regulation I, a bank wishing to become a member of the Federal Reserve banking system must apply for shares to the Federal Reserve Bank of the county in which it is located. The regulation also sets forth procedures for canceling this action if a bank should withdraw from or involuntarily or voluntarily terminate membership in the Federal Reserve System. Circumstances under which this may occur include the bank’s winding up, its merger with a non-member bank or its liquidation.
Regulation I also outlines the procedure for determining how much Federal Reserve stock a member bank should purchase, including procedures for adjusting that amount in accordance with changes in the member bank’s liquid assets. Furthermore, the regulation specifies how dividends are to be assessed and how the record of the Federal Reserve Bank’s holdings of member banks is to be recorded on the books of the Reserve Bank.
Governments’ Influence On Markets
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