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mazingerz88's avatar

What are the pros and cons of goverment regulation of businesses in the US?

Asked by mazingerz88 (25915points) July 7th, 2011

Honestly, I’m quite ignorant of the nature of goverment regulation on businesses here in the US, so I would be grateful if through Fluther I would get some enlightenment on its pros and cons.

I’ve been hearing and reading that regulations are harmful to the present economic situation. Does this mean it was helpful before? Would anyone even bother to regulate anything for no good reason?

Is there really a bad guy vs good guy scenario in this argument and is this really a battle between evil and good, regulations being “evil” as one political party seems to paint it while the other side touts its critical importance?

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8 Answers

marinelife's avatar

Pros:
Greater safety for consumers.
Level playing field for investors.
Better product quality.

Cons:
Expense for businesses.

flutherother's avatar

Let’s not forget, businesses are there to make money, that is their purpose in life and we can’t expect any more from them. Don’t expect them to care for their employees, to care for the environment or to care for you. They may not be evil but they have the moral code of a nine month old baby and so they should be regulated. It was a failure on the part of the Minerals Management Service to properly regulate BP’s operations in the Gulf of Mexico that led to the recent disaster there.

TheIntern55's avatar

Pro= fewer monopoloies
Con= It could turn communistic. I think that’s a word.

tedd's avatar

I agree with @marinelife on a whole. I would add that it can hurt the product in the con side (if regulated improperly). There are various others you could go into but in the end its a game of balancing between free market and regulation….. too much of either and it won’t work, and the right amount of each is constantly changing.

the100thmonkey's avatar

@TheIntern55 – how could it turn “communistic”? You realise that all major communist nations got there through massive exploitation of a peasant class leading to leftist revolution.

I can’t think of one country that became communist through government regulation. If fact, I’d argue that government regulation in fact does the opposite – by preventing the most egregious abuses of the proletariat, regulation has saved more than a few capitalist economies from revolution.

Pros: government “socialised” healthcare saved my life. I have never worked more than 40 hours a week without giving my explicit consent. I have never earned less than the minimum wage as an adult. I am more aware of what’s in the food I eat. Damaging and dangerous substances like DDT are banned.

Cons: Bureaucracy. It’s a pain in the arse.

Jaxk's avatar

Regulation (like most other arguments) gets portrayed as either good or bad. All regulation is good or all regulation is bad. It just doesn’t work that way. In truth some is good and some is bad. Virtually all regulation has a cost. The trick is to figure out whether the benefit outweighs the cost and whether the regulation actually accomplishes the goal.

For example, in 1974 we passed regulation to make automakers install bumpers that would withstand a 5mph crash. The cost of these bumpers added about $750 per car plus the cost of designing these into the car (millions). The bumpers not only add cost but weight and since weight is a major factor in mileage, it reduces that as well. Within a few years the 5mph requirement was dropped to 2½ but the insurance industry is still fighting that. What I find interesting is a suggestion from Ford that instead of the 5mph requirement there would be much more benefit by just making the bumpers meet. In other words a regulation that specified the bumper height would reduce damage more than 5mph requirement and have very little cost.

You may also be surprised to learn that many of the regulations are not opposed by the manufacturers. During the same time that the 5mph bumpers were being disputed, they passed regulation requiring laminated windshields. This was easily agreed and accepted by the auto industry even though it added cost. as did the seat belt regulation. These safety features were not disputed and implemented with little fanfare. The idea that industry fights all regulation is patently untrue.

Where you will see disputes is where regulation provides an advantage to one group over another such as the ‘Cafe Standards’. These standards provided foriegn automakers a distinct advantage and has resulted in the Japanese takeover of our auto industry. To keep from writing a book here I won’t go into how it worked but if asked I will gladly explain.

Reasonable regulation is not the problem. But overzealous and overreaching regulation can kill industry and cost us all more than we know. I’ve posted this before but the total cost of regulation doubles the cost of everything we buy. At least everything we buy that’s made domestically. Cutting that in half would spur the economy beyond anything else we could do and make us competitive internationally. Not to mention bringing home many of those jobs we’ve sent overseas.

mazingerz88's avatar

@Jaxk Thanks for the post. If I may, but what would compel the fed or state goverments to be overzealous and overreaching in regulation? Surely no one would go out of their way to cause the economy more damage than repair?

Jaxk's avatar

@mazingerz88

There are a number of things that go wrong. For instance the Enron scandal prompted congress to pass Sarbanes-Oxley. The public was outraged at that failure and congress felt they needed to pass new legislation even though the actions of Enron were already illegal (remember that people went to jail). Sarbanes-Oxley is a very expensive solution to a situation that was already illegal and had the regulators been doing their job would have been caught. But congress wanted the public to think they were fixing a problem. The average cost of compliance to every public company is in excess of two million dollars. There are about 6500 public companies in the US for a grand total cost of $13 billion annually to American business.

This is but one piece of legislation and there is no indication that it has had any positive impact. But Congress felt they needed to appease the public and they did it at the expense of all the legitimate businesses. This is not a one time event and the regulation we deal with is littered with this kind of unreasonable expense.

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