Regulations regarding business had existed early in the history also but as time passed they have become more structured and standardized. Regulatory bodies have developed to look after the implementation of different regulations. Different types of regulations for business include those imposed by government, the market i.e. the industry in which the business operates (like dairy industry will have different regulations than the banking industry) and international regulations (for businesses involved in trade/business in more than one country). Business regulations are imposed to achieve some particular objective and regulations have both advantages and disadvantages.
Advantages of Business Regulations
Regulations are successful at providing companies with a specific direction to pursue. Rules and regulations actually help standardize the business operations as all workers and businesses will follow a particular set of instructions which are applicable to them.
On the other hand regulations are also important as some businesses do not self-regulate themselves and can therefore be involved in actions which are harmful to the society. For example, if restrictions on factory emissions are not imposed, many companies may not be concerned about the negative effect of factory advertising emissions to save the costs of safe emission systems. When regulations are made and implemented, then these companies are bound to follow it otherwise they’ll have to bear the consequences in form of penalty such are monetary fines or closure of business. Regulation is therefore one way to ensure that the company does not harm society. (Porket, 2003)
Moreover, regulations are also important in protecting the rights of the employees as without regulations, employers may exploit the employees through bad working conditions or low wages etc. Due to this government tend to make regulations regarding minimum wealth, health and safety conditions.
Regulations also help in preventing exploitation of consumers. If there are no regulations, monopolies would exploit consumers at high prices, companies would not produce goods with quality standards and the harmful effects of using a particular product would not be mentioned if proper regulations were not in place. Therefore regulations are beneficial as many businesses don’t tend to self-regulate them. (Porket, 2003)
Disadvantages of Business Regulations
Along with advantages, there are also some drawbacks of regulations. These include the costs of complying with these regulations. Regulations which are stricter than what is actually required can unnecessarily add to the cost of the business.
Regulations also makes business resistant to change as some regulations tend to be inflexible and don’t allow businesses to change according to the changing demand of consumers. Therefore, such stringent regulations don’t benefit the business but instead crates problems. (Porket, 2003)
Another disadvantage of particularly government regulations is that some industries tend to have more lobbying power than other and they may force the government to impose regulations which are in their favor. Therefore, use of power and network can give unfair advantage to one sector over another. (Porket, 2003)
Some countries tend to have weaker implementation of regulation mostly the developing countries due to which some companies exploit this situation and establish their businesses in these countries as they would have to comply with lower level of regulation. For example in some countries working condition laws are not implemented properly so companies establish their manufacturing units or outsource from the local manufacturers. In these units, employees are paid very low rate and also they are forced to work for long hours under bad conditions (of health and safety like extremely hot temperature). Although, regulations are in place in these countries but they are not implemented. Therefore, difference in regulations in different countries creates opportunities for companies to exploit it. Therefore, some regulation should be standardized worldwide in order for them to be effective.
There are both sides to business regulations. They tend to be helpful as they try to overcome different market failure, provide direction to companies, workers etc. but on the other hand they also sometime tend to be unnecessary and add to the cost of doing business. Moreover, implementation of regulations is more important than just forming rules just for the sake of having regulations.
- Porket, J. (2003, January 23). The Pros and Cons of Government Regulation. London: Institute of Economic Affairs.