Unit 3

The role of Public Policies in Governing Business

 What is public Policy?
• Public policy is what government chooses to do or not
to do.

• It is the basic set of goals plans and actions that each

nation and government will follow in achieving its
objectives.

• Public policies may be regulative, distributive,

organisational or extractive .

• Government may engage all of these to achieve its

objectives either singly or collectively.
 Government and Public Policy
• No policy becomes public policy unless it is adopted,
implemented and enforced by some government
institution.
• Government gives public policies three distinctive
characteristics
– It lends legitimacy to policies

– Government policies involve universality as these

extend to all sections in the society.

– Government alone can exercise coercion in the

society.
 Classification of Public Policy
• Public policy can be organised along five lines
– Regulative

– Distributive

– Redistributive

– Capitalisation

– Ethical
• Regulation is one type of public policy enforced through
criminal law statutes which stipulate how people
should act towards one another.

• Distributive policies provide for goods and services

such as welfare and health to specific segment of the
population.

• All public assistance welfare programs are distributive

in character.
• Redistributive policies aim at rearranging one or more
of the basic schedule of social and economic reward as
in case of progressive tax policies.

• Capitalisation policies include:

– cash payments for farmers to improve agriculture

– Tax subsidies to encourage exploration and

production in select industries and audit subsidies.
• Several ethical and moral issues have come to the fore
and have created public debate for and against the
issues.

• Courts do not settle such moral issues.

• Public policies follow the courts directive and set out

what ought and ought not to be done in the area
marked off by deep convictions.
 Areas of Public Policy
• Economic management:
– Economic problems are one of the important areas
of public policy.

– Great depression changed the presumption that

every economy is self correcting and moves
towards the right direction.

– State intervention is considered as essential and

inevitable in economic activities.
• Labour management relations:
– Another area that came out of depression days is
the area of labour management relations.

– Industrial revolution effectively challenged the

outdated thinking of management about labour.

– The concept of industrial democracy is gaining

popularity and states are adopting policies to
protect the right of workers.
• The welfare state:
– The depression changed peoples mindset and led to
the emergence of another set of public policy
measures grouped under the title “welfare”.

– It was designed to alleviate distress.

– The unemployed are no longer blamed for their

plight and the society is willing to accept the
governments responsibility to help the unemployed
and old.
• It is believed that every man has the right to a good
job, decent food, clothing, shelter and it is the
responsibility of the government to guarantee it.

• This philosophy has led to a whole series of measures

like social security, aid to children with dependent
children, education and medicare.
• Shaping of public policies affecting corporate sector:
– Stake holder expectations if unmet, trigger action
to transform concern into pressure on business
and government.

– A gap between the actual and expected

performance stimulates public issues.

– There is a need to understand the reasons for

public issues and how they get transformed into
public policy in macro environment view.
 Need for Public Policy in business
• Public policies that affect corporations are shaped by

– Social forces

– Economic forces

– Political forces

– Technological forces
• Social forces include the size and composition of
population which have a definite effect on both the
demand and supply of goods and services that
corporates deal in.

• Social force that include lifestyles and patterns of

living dictate corporate strategies to cater to whims
and fancies of consumers.

• Economic forces are those that shape corporate

behaviour as well as the reaction of the government to
solve the problems arising therefrom.
• Political forces have an impact on government making
and how government are prompted to shape their
policies affecting corporate.

• Technological forces are very important as far as

shaping of corporate policies are concerned since
these allow corporation to update their products,
process and help them meet competition.
• Public policies help the market to have a perfect
competition by way of controlling monopolies
through license or by creating a competitive market
mechanism.

• Government interferes in regulating foreign

investment in certain industries which is very critical
for the country.

• Its objective is to encourages local investment when

the domestic economy is doing well.
• Government may adopt protectionist policies for the
following reasons:

– To protect growing local industries, government may enact

policies by way of preventing free flow of goods from other
countries and offering tax holidays and other benefits.

– To regulate demand and supply where the resources are

scarce.

– To regulate the prices in the unhealthy competitive

environment through administrative pricing mechanism and
to promote consumer product safety.
– To protect the environment through effluent treatment and
other anti pollution measures.
 Levels of public policy
• National level:
– At the national level public policy is applicable
across the country.

– IRDA and MRTP Acts have an all India reach.

• State level:
– Policies adopted by the state government is
applicable only to the particular state.

– Protecting ground water from contamination.

• Regional level:
– Certain policy perspectives are applicable to certain
regions.

– Sharing of river water among riparian states.

• International level:
– These policies are ones that are adopted by
international organisations with world wide
ramifications.

– IPR and TRIMS are some.

 Elements of Public policy
• Many factors or inputs influence the development of
public policy.

• Government determines its course of action on the

basis of factors like
– economic or foreign policies,
– domestic political pressure from constituents and interest
groups
– Consensus emerging in national politics
– Tax imperatives and reactions to natural and national
calamities.
• Public policy goals can be ideal oriented or narrow and
self serving.

• National values such as freedom, democracy and

equitable distribution of income and wealth for
development have led to adoption of civil rights laws
and assistance programs.

• Narrow self serving goals are evident when nations

decide how tax legislations will allocate the burden of
taxes among various income and interest groups.
• Governments use different tools of public policy
instruments to realise their policy goals.

• These are a combination of incentives and

disincentives that government uses to prompt
citizens, businesses to act in a way that achieve policy
goals.

• Broad government regulatory powers acts as the most

formidable instruments for accomplishing public
policy purpose.
• Public policy actions always have some intended and
unintended effects.

• As public policies affect diverse set of people it is

inevitable that such actions will please some and
displease others.

• In assessing public policy, managers need to get

answers to four questions:
– What inputs will affect public policy?
– What goals are to be achieved?
– What instruments are being used to achieve goals?
– What effects intended and unintended are likely to
occur?
 The Corporation and Public policy
• Limits to powers of democratic government.

• Their powers are restricted under:

– Constitutional law which defines the limits of government to
act, the powers in each level of government and the right of
citizens.

– Common law established, adjudicated and precedents giving

the government the right to act in the interest of justice and
fairness.
• Limits to powers of non democratic monarchy,
dictatorship, religious rulers and socialist state:

– No limits on power of government until the tolerance of the

public.

– When these government exceed public tolerance the usual

result is violent actions to change the government .
 Framing of public policy
• Constitutional governments:
– In this elected form of government the will of the
people and their desires get reflected in public
policies.
– VOX POPULI, VOX DEI.
– petitions through elected representative
– election manifestos
– public debate in election campaign
– Media promotion and exposure.
• Non democratic governments:
– Special interest lobbying of the leadership elite, with illegal
bribes and payments, international pressures for change,
public demonstration and civil disobedience play decisive
roles in shaping public policy.

– Media is controlled

– Public is uninformed and gets frustrated.

– Demonstration and possible violence for change.

 Involvement of business in policy decision making

• Two school of thoughts exist;

– One says business should be involved in policy decision

making.

– Second says business should not be involved in policy

decision making.
 Business and politics-Levels of involvement

• There are three levels of business involvement in

political activities and distribution of goods and
services, income generation and employment.

• Level 1- Financial involvement

– Formation of Political Action Committee
– Trade association support(FICCI, CII, ASSOCHAM).

• Level 2- Organisational involvement

– Lobbying
– Employee grassroot involvement
• Level 3- Strategic public policy involvement
– Executive participation
– Involvement with industry working groups and
task forces
– Policy position development.
 What is Government Regulation?

• Government regulation of business is a mechanism for

implementing social choices and helps in creating the basic
conditions that lead to economic prosperity.

• People rely on government to institute and maintain rules of

conduct for citizens as well as organisation.

• The central government is expected to regulate trade, monetary

and fiscal policies.

• Companies hire lawyers, PRO, Liaison officers to monitor &

manage the interaction with the government.
 Justification of Government Regulations
• Market Failure:
– Using regulation to add the social costs of a
product that are not otherwise demanded in the
market.

• Ethical failure:
– Regulation ensures fairness and justice and adds
this cost to the product.
• Stakeholder demands:
– Special interest groups lobby for more government
intervention in environmental conservation,
consumer protection.

• Public reaction:
– Communication of national events has made most
“accidents” more visible and less acceptable.
• Political advocacy:
– Organisations representing minorities and
women call for government being proactive in
these areas.
 Types of Government Regulations
• Industry specific:
– Prevention of abuse to buyers in markets where market
forces are distorted usually by monopoly or other market
power by suppliers.

• Industry wide:
– Primary social issues that affect all business(environment,
safety, pensions)

• Functional :
– Specific to certain business operations( stock trading, anti
trust , labour, energy)
• Media attention:

– Media connect communities globally.

– Events are chronicled as they occur, the public and

government officials see social needs that should
be highlighted.
 Problems of government Regulations

• Cost/Benefits:

– All regulations add costs to products.

– When government mandates operations that would

not otherwise occur, or interfere with the
operations of markets, costs or premium are added
to products, raising the price to the consumer.

– The trend in government is increasing cost and new

rules.
• Effectiveness:
– Is the intended purpose achieved and what are the
unintended consequences and costs?

• Deregulation:
– Stakeholders resist deregulation even when
cost/benefit and effectiveness clearly favour
deregulation.
• Policy confusion:
– TV and cable system of delivery has caused
confusion.