Investopedia/Marc Davis: Government Regulations: Do They Help Businesses?

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Government Regulations: Do They Help Businesses?

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By Marc Davis
Updated Oct 5, 2018

Many sectors of the business world have long complained about government regulations and their restrictive nature. Often cited as an impediment to corporate and small business profits and a waste of precious time and effort, government statutory requirements have been denounced, side-stepped and violated by many a business since the early twentieth century when the corporate income tax and anti-trust laws were first enacted.

Since then, in an ever-increasing blizzard of regulations and a huge, complex tax code, American business has both prospered and suffered as a consequence of government action - collaborative and complementary, restrictive and adversarial. Concurrently, American consumers have been protected from exploitive business practices by those same government rules and regulations. We'll look at some of these regulations to see why the question of whether or not they help business has no easy answers.
Anti-Business Regulations and Laws

Since the enactment of anti-trust laws in the early twentieth century, followed by periodic increases in corporate tax rates and increasingly complex and restrictive regulatory laws governing the conduct of business, the American business community has generally been an opponent of any government law, regulation, compliance obligation or tax levy that it perceives to undermine profitability or impede business operations. If big business could speak with one mouth, it would likely say that regulations hold it back and cost everyone in the long run.

Of course, if big business did speak with one mouth, it would also have a lot to answer for. Over the past decades, particularly leading up to the Global Financial Crisis that unfolded from 2007-2011, too many publicly traded corporations have misstated earnings to maintain or boost the market price of their stock. They've violated immigration laws by hiring undocumented workers. They've broken environmental laws by illegally dumping wastes or emitting pollutants into the atmosphere or into rivers and lakes. So clearly the "no rules" approach has a cost for the general public - which is why our elected bodies are in charge of regulation in the first place. In response to some of the behaviors mentioned above, we now have entities and regulations to discourage repeats and businesses complain about them endlessly. These include:

    Sarbanes-Oxley: In the wake of major corporate fraud in companies such as Enron, Tyco, WorldCom, among others, major legislation called the Sarbanes-Oxley Act was enacted governing accounting, auditing and corporate responsibility. Many in the business world opposed the bill, claiming that compliance with its rules was difficult, time consuming, and would still not have the desired effect – the protection of shareholders against fraud.
    The EPA: Another frequent target of certain businesses is the Environmental Protection Agency. The disposal of waste materials, the restrictions on greenhouse emissions, pollutants and other substances harmful to land, water and atmosphere are now regulated by this government agency. Companies to which these rules apply have complained that the restrictions are costly and compromise profits.
    The FTC: The Federal Trade Commission has also been perceived as a foe of business by some firms, which have had their practices such as price fixing, monopolies and fraudulent or misleading advertising curtailed by this arm of the government.

    The SEC: The Securities and Exchange Commission has imposed strict regulations on initial public offerings of corporate stock, on the full disclosure requirements of a stock prospectus, and on the buying and selling of equities on the various stock exchanges under its oversight.
    The FDA: Pharmaceutical companies have often complained that the Food and Drug Administration needlessly withholds approval and subsequent marketing of certain drugs pending additional or more extensive clinical trials, although these drugs have already proven to be effective.

The examples above of what seems like government versus business are only a few of the literally thousands of such conflicts that have occurred over the decades. Yet the government has also been a friend of business, helping companies large and small in numerous ways.
Pro-Business Government Agencies and Activity

Hundreds of assistance programs from the government in the form of money, information and service are available to businesses and entrepreneurs. Noteworthy among them is the Small Business Administration, which, among its other pro-business services, arranges for loans for start-up companies. The SBA also provides grants, advice, training and management counseling to companies in an effort to help America's numerous small business succeed in its highly competitive economy. There is also The U.S. Commerce Department and its nationwide program to help small and medium-size businesses increase overseas sales of their products. This is just one of the many services the Commerce Department provides for businesses, which helps them achieve continuing profitability.

An often overlooked service that the government provides all businesses is the rule of law. The U.S. Patent and Trademark Office offers protection of inventions and certain products from illegal infringement by competitors, thus encouraging innovation and creativity in the business community. Patent and trademark violations are punishable by heavy fines and subject to civil actions that can be costly if the defendant loses the infringement case.

On top of all of this, there are the extraordinary steps government takes to protect businesses when the situation calls for it. Economists have claimed that the so-called Troubled Asset Relief Program (TARP), signed into law by President George W. Bush, and the stimulus program enacted under President Obama, averted a repeat of the Great Depression of the 1930s. Other economists insist that the government should not have intervened and that free market elements should've been allowed to weed out the business failures. No matter which side of the argument you find yourself agreeing with, there is no doubt that the corporate world would look very different today if those programs hadn't backstopped the financial system.
The Bottom Line

The government is certainly a friend of business, providing financial, advisory and other forms of service to the business community. Simultaneously, the government is also a friend of the public and the American consumer and acts in what it perceives as their best interests with protective laws, rules and regulations. While businesses may oppose some aspects of restrictive laws, taxes and regulations, they may also endorse other such requirements if they help their own specific business goals.

This conflict may never be resolved, and as business becomes more complex as technological breakthroughs continue, the dual nature of government's relation to business may become increasingly more regulatory and collaborative at the same time. The government, therefore, may be justifiably perceived as benefiting both business and consumer, friend to each, foe of neither.
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