What Business Does the Government Have In Controlling Businesses?

Posted by: on Oct 24, 2011 | No Comments

It is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense… They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”~

Adam Smith

Several corporations (large and small) across diverse sectors have long complained about the restrictive nature of government regulations. These regulations are considered by many as an impediment to business profits as well as a waste of time, energy and resources. Since the beginning of the twentieth century the statutory government requirements have been bent, violated and even condemned by many businesses. This brings us to the pertinent question – what business does the government have in controlling how business are run?

Why Government Regulation is a Problem?

Several economists around the world have explained that an intervention by the government can be extremely detrimental to a domestic business in three ways:

• Regulatory compliance exerts an excessively large burden on small businesses. This is because the fixed costs of complying with government rules can dig a hole into the limited business profits of a smaller organization.
• Government regulations erase the competitive edge of domestic businesses against foreign competition. Often the rules imposed by the government create inefficiencies in the structure of different industries. This leads to relocation of the production facilities to countries with fewer regulations.
• Regulations in the corporate sector create uncertainty. This generally restrains small business owners from increasing their investment and expanding their work force. This hinders the overall flow of capital and labor in the economy.

How Can Businesses Protect Themselves?

In tackling the escalating burden of government regulations, how can a business mitigate the related cost and build a road map for progress? This is where a business strategy solution comes into play. A business strategy is well-defined, long-term plan of action that helps to focus on improving productivity, saving money as well as making money within a precise timeframe. It is also an excellent tool for:

• Establishing alternative revenue streams.
• Developing and executing a strategic growth plan.
• Assessing and acquiring new market opportunities.
• Identifying and eliminating business hurdles.
• Defining a plan to build the team.
• Linking all financial decisions to the overall business objective.

Government Regulation: A Final Word

Is government intervention essential for the survival of an economy? Should the government let the economy operate on the doctrine of laissez-faire? Many would argue that some degree of intervention is needed, but in a fully competitive market the government regulations are redundant. While it is true that a good economic policy can enable businesses to succeed, but there is a limit to how much the government can contribute in the growth. Beyond a certain point, the government does more damage than good.

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