Government Regulations

1. Government Regulations

2. Productivity • The measure of the output of a worker, machine, or an entire national economy in relation to the creation of goods and services to produce wealth. • As a business owner, you need to understand the capacity of your business at any given time. • You also want to have a high productivity rate

3. I Have a High Productivity Rate…Now What? • If you have a product that is in demand, a high return on investment, a low break-even number, and a way to supply customers with the quantity that is demanded, you are ready for success… • But only with a little government intervention!

4. Why Does the Govt Intervene in Businesses? • Social Quality – The government regulates the energy market to make sure there the pollution rate is monitored when power companies burn coal to produce electricity. • Business Transactions – The government regulates the sale of one company to another to ensure that the new company will not be a monopoly.

5. Protection of Ideas • Trademarks (logos) • Trade secrets (recipes or formulas) • Copyright (ideas and/or writings) • Patents (inventions)

6. Lending Practices • Fair Lending act protects consumers seeking credit by requiring lenders to disclose the full conditions of a loan.

7. Protecting the Environment • Environmental Protection Agency protects the environment from pollution and other harmful activities that could happen to the environment. • Providing tax breaks for making energy efficient improvements on your home

8. Taxes • Businesses must pay local, federal and state taxes including sales tax, income tax, payroll, self employment, social security (FICA), and Medicare

9. Consumer Protection • Clayton Act expanded the Sherman Antitrust Laws. Protection against price discrimination, monopolies, and anticompetitive practices. • Robinson Patman Act prohibits anticompetitive practices by producers, specifically price discrimination. It was designed to protect small retail shops against competition from chain stores by fixing a minimum price for retail products. • Food and Drug Administration inspects and researches manufacturers of foods and drugs for consumer safety.

10. Businesses • You must register your business with the state and local authorities and obtain a business license before opening a business. • Land is zoned for different types of uses • Permits are required for building • Health Inspectors insure that food establishments are providing healthy food in a safe environment. • OSHA checks the safety and hazard levels of businesses

11. LLC • Limited Liability Laws. Capitalism requires capital – lots of it. But without limited liability laws, investors are unlikely to risk investing their money in businesses.

12. Bankruptcy Protection • Business is inherently risky and one of the largest risks is business failure, particularly during recessions and depressions. • Encourages more investment in business which in turn sparks more economic growth. • Before bankruptcy laws, business owners were place din debtors prison and debts followed them for life. They couldn’t receive a fresh start.

13. Law and Order • A market system cannot work well without a functioning criminal justice system • Without laws, organized crime would easily take over large sectors of the business community. Extortion, bribery, kidnapping, and murder would become the reigning corporate model. • Without the rule of law, our economy would resemble the “mafia capitalism” that Russia has suffered from in its transition to capitalism.

14. Corporate Charters • Corporations can come into being only through charters: the legal instruments by which state governments allow businesses to incorporate. • These charters and state business laws define what a corporation is, how it is organized, how it is governed, how long it may exist, who has a say in decision making, the rights of stockholders, the extent of its liability, and so on.

15. Banking Regulation and Insurance • Acapitalist economy depends heavily on stable banks to finance growing businesses. • But banks are inherently vulnerable to “runs” – where worried depositors all seek to take out their money at the same time. • Banks loan out most of the money deposited with them so they cannot pay out large sums. • The government insures deposits will be paid.

16. Steady Supply of Money • Without reliable money, markets would be based primarily on barter and thus be extremely limited. • In the U.S., before the Civil War, almost all paper money was issued by private banks – not the government. • Some merchants wouldn’t accept certain currencies • There was no control over the money supply which is key for and inflation correction and economic growth

17. Commercial Transaction Laws • Few would risk doing business on a wide scale unless there was some way of making and enforcing contracts. • The Uniform Commercial Code is a set of legal rules that determines, among other things, what a valid contract is, how contracts can be enforced, and various remedies for fraud, default, etc.

18. International Trade Law • Global capitalism would be impossible without trade. • Governments create the legal frameworks – the treaties and international trade laws – that facilitate and make this trade possible. • “Free trade” is a misnomer because it implies that it is international trade that exists free of any political framework. • NAFTA agreement is over 900 pages and requires 6 working groups to oversee the implementation of the agreement. YIKES!

19. Why Government is Needed to be “Free Trade” • A market economy does not exist separate from government – it is very much a product of government rules and regulations. • The dirty little secret of our “free” market system is that it would simply not exist as we know it without the presence of an active government that creates and maintains the rules and conditions that allow it to operate efficiently.