How Government is Good for Business

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Regulations Make Us All Better Off

Defenders of the public sector also point out that the benefits we enjoy as a society from these government regulations far exceed the costs to most businesses. These policies may have a negative impact on some businesses’ profits and growth, but they also produce a better society. Environmental regulations ensure drinkable water and breathable air for all of us. Consumer and workplace regulations protect millions of people from harm. Minimum wage laws help raise families out of poverty. And so on. In general, government regulation of business and markets has made Americans safer and healthier, and has created greater economic security and economic equality.

Apparently even a conservative administration cannot deny this. In 2003, George W. Bush’s Office of Management and Budget issued a report that summarized the cost and benefits from 1992 to 2002 of the most significant 107 regulatory rules implemented by eight main federal agencies. As Table 5 clearly shows, the benefits that Americans enjoy from these regulatory programs far outstrip the economic costs. The benefits of these regulations are from $147 to $231 billion versus $37 to $43 billion in costs – so the net benefits to society are huge. And what makes this study’s result even more impressive is the fact that it comes from an administration generally hostile to regulation and uses traditional cost-benefit techniques that are notorious for underestimating social and environmental benefits. In any case, the record clearly shows that Americans are much better off for having these rules and regulations.

  

Table 5: Estimates of the Total Annual Benefits and Costs of Major Federal Rules, October 1, 1992 to September 30, 2002 (Millions of 2001 dollars)

 

Agency

Benefits

Costs

Agriculture

3,094 to 6,176

1,643 to 1,672

Education

655 to 813

361 to 610

Energy

4,700 to 4,768

2,472

Health & Human Services

9,129 to 11,710

3,165 to 3,334

Housing & Urban Development

551 to 625

348

Labor

1,804 to 4,185

1,056

Transportation

6,144 to 9,456

4,220 to 6,718

Environ. Protection Agency

120,753 to 193,163

23,359 to 26,604

Total

146,812 to 230,896

36,625 to 42,813

 

Source: Office of Management and Budget, Informing Regulatory Decisions, 2003.

  

Government Can Also be Good for Business

Not only are the economic impacts of active government not as bad as business claims, many of the programs and policies of the modern democratic state are often actually good for business and the economy. But you will rarely hear about this from the advocates of reduced government. They deliberately turn a blind eye to the many significant ways that government aids the business community. The rest of this article will detail some of the main ways that government actively supports a growing economy – ways that most Americans often don’t think about. This more accurate and complete view of the relationships between government and the business community reveals that the democratic state often functions as a friend of business, not its enemy. We will see, for instance, that numerous government policies provide crucial direct and indirect subsidies to the business community. In another article, "Capitalism Requires Government,"  I will continue this analysis and document how government establishes the elaborate legal and regulatory infrastructure that enables a market economy to function efficiently and grow. Understanding all of this will get us much closer to understanding the true relationship between government and business in the United States.

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