The Roles of Government in a Business Enterprise

Court systems enforce contracts, enabling American companies to conduct business.
Court systems enforce contracts, enabling American companies to conduct business. (Image: Jupiterimages/ Images)

The proper role of government in a business enterprise, and indeed government's role in business affairs, is a debate as old as the field of economics itself. Extreme views range from those who believe government should stay out of business matters altogether, to those who advocate government direction of the overall economy, including public ownership of many industrial sectors. Most economists, however, stake out a middle position, contending that government acts as a referee, providing a system of laws and regulations that enable enterprises to conduct business in a market system based on mutually beneficial exchanges between sellers and buyers of goods and services.


The 18th century Scottish economist Adam Smith wrote about the role of government in business enterprises in "The Wealth of Nations," his 1776 book that is considered a classic work in economics and an early treatise on the free enterprise system. Modern misconceptions of Smith portray him as someone who saw no role for government in the market economy. In reality, Smith contended that government's role in business was to enforce contracts via the legal system, as well as to grant copyrights and patents to encourage new ideas. He further believed government should provide physical infrastructure, such as roads, that the private marketplace would not necessarily provide.


In a description of the U.S. economy and the role of government, the U.S. Department of State echoes many of Adam Smith's ideas about the relationship between government and business. The State Department points out that businesses need governments to protect property rights, enforce contracts and resolve disputes through the court systems. In addition, governments provide services such as national defense, police and fire protection, and public education.


In addition to the ideas outlined by Adam Smith, governments also affect the activities of business enterprises through various laws, rules and regulations designed to ensure worker safety, environmental protection, product and consumer safety, and other concerns. Examples include minimum wage laws, workplace safety regulations promulgated by the Occupational Safety and Health Administration, and clean air and water laws. The State Department points out that government intervention in business through regulation increased during the Great Depression of the 1930s.


Critics of government regulation, including congressional Republicans and other political conservatives, contend that government intervention unfairly burdens business enterprises, raising the cost of doing business and limiting jobs. However, the State Department reported that in 2007, the World Bank ranked the U.S. number three in the world for ease of doing business. Only Singapore and New Zealand ranked higher.


Government activities and regulations may limit the activities of some businesses, but other enterprises may benefit. The State Department points out that government-funded research and development help keep U.S. firms in the lead in producing new technologies. In addition, U.S. trade policy helps lower tariffs and other trade barriers, opening new markets to the goods and services of American companies.

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