Government Intervention & Regulation in Business Ethics

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Balancing government regulation and business is a common issue today.
Balancing government regulation and business is a common issue today. (Image: Comstock Images/Comstock/Getty Images)

Claims that government intervention and regulation in business will promote ethics have become a common argument. However, such government actions have consequences that provoke an equal, opposite negative reaction which negates any positive effects. The laws of "unintended consequences" are quite clear; the complexities involved in regulating outcomes often result in undesirable effects. Government intervention and regulation of business has stunted innovation and business growth, resulting in fewer jobs and the exodus of business to foreign countries.

Promoting Business Ethics Through Regulation

Though regulating businesses for the benefit of society is a valid desire, the resulting unintended consequences actually inflict social harm. If we look at the issue of business ethics rationally, we can see that the vast majority of businesses are operated on the premise of their benefit to society.

Hence, regulations, which are usually spurred by the misdeeds of one or two bad actors, presume that all businesses are unethical and, therefore, they all need regulating. At best, this philosophy is illogical because people learn ethics at a young age from their parents. By the age at which individuals manage businesses, their ethical foundation is already formed.

Business Welcomes More Regulation

An argument often made in favor of regulation is that big business believes there should be more regulation in order to protect society. This is a wonderful sound bite but a poor argument. Any business seeking greater regulation is a business that wants to benefit from such intervention.

Government regulation creates barriers to for new businesses to enter the marketplace. These barriers give existing companies distinct competitive advantages over potential competitors. Thus, increasing regulation benefits large existing companies, which reduces competition and promotes unethical business practices.

Government Regulation: Good Intentions, Bad Outcomes

Certainly, government has a role in protecting society from unscrupulous business practices. However, businesses also have a fiduciary responsibility to their shareholders and a responsibility to their customers.

When government intervention and regulation insert themselves into business activities, the good intentions of regulation cause companies to neglect their shareholders and to fail to provide their customers optimum products and services.

For example, Enron and WorldCom are perfect examples of the few forcing draconian regulation, via the Sarbanes Oxley Act, on the many, perfectly legitimate and ethical businesses. This regulation has motivated public companies to go private and private businesses to go public in foreign countries. As a result, society is no better off, and out of concerns of violating Sarbanes Oxley regulations, businesses are failing in their fiduciary responsibility to shareholders.

The Logic of Government Intervention and Regulation of Business Ethics

The belief or assumption that pervades societal thought in the United States is that government regulation of business will solve the dilemma of businesses acting to the detriment of society. Since both business and government are competitors and both entities are operated by humans, how is it that the individuals operating government are more ethical than those individuals operating businesses? After all, they both seek power and influence over society.

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