Business Regulations - Coursework Example

Add (Add (Add Information) (Add Business Regulations Rules and regulations, in any walk of social life are intended to maintain order and discipline, and business is no exception. A look into the various aspects of business proves that if there exists some order in the business world, the credit almost solely goes to governmental regulations and interventions though certain other factors like social pressure and improving consumer concerns also have some influence on regulating business practices. Thus, governmental intervention into the business world is fully justified. To my mind, there are various roles played by regulations in the business field. Firstly, regulations act as the source to understand fair and unfair practice. This protects the consumers and businesses from unfair practices. Also, they handle legal concerns, provide labor employment laws, and set specific rules and regulations for various businesses. In order to understand how a lack of governmental regulations would affect the economy, the best example is the price-fixing that threatened the American economy during the second half of the 19th century. Until that time, the US government was in support of the dramatic growth of big businesses. However, as big trusts consolidated major shares of manufacturing and mining industries into nationwide monopolies, the trusts became able to charge excessive prices as there was little competition in the market. Some most notorious trusts of that time were the Sugar Trust, the Whisky Trust, the Cordage Trust, the Beef Trust, the Tobacco Trust, John D. Rockefeller’s Oil Trust, and J. P. Morgan’s Steel Trust. What happened to the American consumers, employees, and suppliers, was huge financial burden as a result of this monopolization. As Connor states, since the government itself had its fingers burnt, immediate actions were followed to stop anti-competitive practices and unjustifiable amassing of economic power; and the result was a number of acts ranging from the Sherman Act, the Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act (46). Admittedly, most people are unaware about the various ways in which these acts help in protecting a healthy economy that benefits the nation, the economy, and the business arena as a whole. First of all, these acts prevent concerted action by businesses. There is similar restriction on joint ventures, which are aimed at fixing prices. The regulations also ban any form of horizontal and vertical price-fixing. Another important illegal practice that is restricted by the rules is market allocation. The term market allocation means an agreement between competitors that agree not to compete in certain areas. They either select different geographic areas, different products, or different consumers. This gives the companies total monopoly in the segment they select as there is no competition. Here, consumers are the ones who suffer. Another important practice that is effectively managed is that of boycott. Often companies refuse to deal with a third party as a result of the agreement reached with other companies. This results in lack of competition in the market, thus a violation of the Acts. Another practice that comes under legal scrutiny as a result of the regulations is that of tying agreements. The term tying agreement means forcing consumers to purchase a tied product along with the original product. This is an illegal practice because it can be used by a company to introduce a new product utilizing the existing market power of the company. The offence gains more seriousness especially when the company has significant market influence. In addition are the restrictions on the efforts to monopolize market. To monopolize means to have a considerable proportion of a market or sales of a particular product in the hands of very few companies. This monopolizing gives the controllers the power to control the price of the product or to exclude competitors, and thus becomes a hindrance to market growth. Thus, it becomes evident that the business world will be full of chaos and disorder without government regulations. In the words of Gunningham and Kagan, the business world is capable of self regulation, especially considering the fact that there are various other factors like social pressures and internalized norms that influence the practices of a company (214). However, a large number of studies prove that there is certainly a positive impact of governmental regulations. To begin with, Wayne Gray and Ronald Shadbegian, in their article named ‘When and why do plants comply? Paper mills in the 1980s’ looked into the impact of air pollution regulation on the compliance levels of various pulp and paper mils in the United States. According to Gray and Shadbegian, it was found that regulatory inspections are positively correlated to compliance (261). Similarly, a study by Mendeloff and Gray looked into the impact of Occupational Safety and Health Administration inspection on employer response (234). It was found that OSHA inspection and penalty results in increased managerial attention to safety. It is rather unwise to think that big businesses are more intended to promote justice than profit. American consumers have not forgotten the notorious Corvair design issue by General Motors Corporation that gave more importance to style and profit than to the lives of people. In addition is the stunning revelation that though the company was aware about the design fault that could jeopardize lives, it chose not to alter the design because redesigning the vehicle was more expensive than paying compensation to the dead and the injured. According to Ferrell, Fraedrich and Ferrell, the business world proved that it would never alter itself without strict government regulations and court interventions; and it required the introduction of consumer expectation test for the judiciary to declare the company guilty of the irresponsible, unethical, and profit-driven decision (12). Another important issue that will prove that the industry is incapable of self regulation is the medical field and drug promotion. Drug labeling and promotion is a field that despite governmental intervention remains highly prone to malpractices by medical companies. Companies engage in such activities to gain more profit. A perfect example is the heart issues created by the Avandia drug from GlaxoSmithKline. The company, in order to gain Food and Drug Administration (FDA) approval, did not properly label the possible side effects. Thus, many people who took the drug had serious heart problems, and the FDA had to renew its guidelines on labeling in order to avoid such issues. In addition, there are various issues associated with the illicit relationship between drug companies, their representatives, and medical practitioners. Referring to Barfett, Lanting, Lee, Lee, Ng and Simkhocitch, medical companies spend only 25% of the total expenditure on research and development, and the rest is spent on promotion (21). As a result, health professionals deviate from their preferred choice of medicine to prescribe the medicine of those companies which give gifts and monetary benefits. This gives birth to other even more dangerous activities like off-label use too. Despite the presence of FDA regulations and various other self-regulatory codes by the industry, there are innumerous allegations of unethical practices by drug companies. To illustrate, in a recent development, a person challenged the Blackstone Medical in a court of law. The allegation is that the company is engaged in such illegal practices like offering monthly payments, offering entertainment expenses, offering payment to development projects, and so on (“Court green-lights..”). Yet another point that deserves attention is the fact that no company can claim to be fully ethical though there are some positive steps taken by many as a form of self regulation. For example, in the present business climate, Body Shop is considered as one of the most ethically and environmentally sensitive companies in the world. However, a closer look will reveal the fact that the company is more driven by the economic benefits of having an ethical mask than by the real affinity towards the third world and environment. It is revealed by the National Public Radio Morning Edition of 7 September 1994 that though the company publicizes its program of buying raw materials from the developing world in order to attract a considerable proportion of ethical consumers, the reality is that the products the company collects in this way are less than 1% of the total purchases it makes. There are two other important allegations that the company has not disputed. The first one is that despite the ‘fully natural’ label enjoyed by the company, many of its products contain petrochemicals which are not mentioned in the brochure. The second allegation is that the company is abusing its franchisees around the world. This allegation is under investigation, and legal dispute in various nations ranges from US, Australia, and Scotland (“Body shop..”). While talking about the environmental issues and the need for governmental regulations, it is not right to forget Apple. The company recently gained some notoriety for its lack of concern for environmental issues despite continued attack by various environment protection groups including Greenpeace. As Gunther reports, the company was adamant to the allegations, though lately, it has started steps to improve the situation. Thus, in total, it becomes evident that business is always profit-driven. So, for businesses, while taking decisions, the only matter of concern will be profit. In such a situation, it becomes highly necessary to have appropriate governmental intervention and regulations so that consumers, market, and environment are all protected. Though there are other factors like social pressures, and increasing presence of ethics-conscious consumers, yet it is not possible to make all companies be just in their activities through self regulation. This is so because from history, it becomes evident that companies are basically prone to engage in unethical activities that increase profit, when there is a lack of specific regulations, or when there is a lack of intervention. To sum up, governmental intervention in business world is fully justified, or the business world is to be regulated. Works Cited “Body shop international takes heat with ethics charges.” National Public Radio. (1994). Web. 31 January 2012. Barfett, Joseph, Lanting, Brent, Lee, Julian, Lee, Michael, Ng, Victor & Simkhocitch, Peter. “Pharmaceutical marketing to medical students: The student perspective.” McGill Journal of Medicine 8.1 (2004): 21-27. Connor, John M. Global Price Fixing: Studies in Industrial Organization. USA: Springer, 2008. Print. “Court green-lights Whistleblower Lawsuit against implant maker blackstone medical.” Outpatient Surgery. (22 June, 2011). Web. 31 January 2012. Ferrell, Fraedrich & Ferrell. Business Ethics: Ethical decision Making and Cases. USA: Cengage Learning, 2008. Print. Gunningham, Neil & Kagan, Robert. “Regulation and business behavior.” Law & Policy 27.1 (2005): 213-218. Gray, Wayne B & Shadbegian, Ronald J. “When and why do plants comply?: Paper mills in the 1980s.” Law & Policy 27.2 (2005): 238-261. Gunther, Marc. “Gore needs a greener Apple.” CNN Money. (2007). Web. 31 January 2012. Mendeloff, John & Gray, Wayne B. “Inside the Black Box: How do OSHA inspections lead to reductions in workplace injuries.” Law & Policy 27.2 (2005): 219-237. Read More