Regulation

REGULATION IS “A SPECIFIC set of commands or rules” that are set and implemented by government or other authoritarian agencies, as defined by R. Baldwin and M. Cave, to achieve certain economic, social, and political goals. D.J. Gow argues in Business-Government Relations: Concepts and Issues that government uses regulation as a tool to persuade or to request or forbid certain activities by individuals and organizations. Regulation is implemented by specific appointed regulatory and enforcement government agencies.

Regulation is usually considered a form of restriction of undesirable behavior and activities and aims at preventing the occurrence of such behavior or activities. Nevertheless, regulation can improve market efficiency and increase the protection of some groups of citizens who will be more disadvantaged without government interference.

Economic regulation provides guidance to businesses in certain industries in order to ensure their best practices, and to achieve goals in the public's interest. Examples of such regulation are price control, quotas, and the promotion of free and fair competition. Social [Page 904]regulation aims to achieve social goals that can generate benefits to the community, according to H. Colebatch et al. These regulations usually relate to environmental protection, consumer protection, workplace safety, and occupational health. Functional regulation may or may not be directly inflicted on business, but may influence their operations in terms of costs; for instance, a green tax or rules on land use.

At the microlevel, regulatory and legal systems affect the ability of firms to enter or exit the industry, to employ and sack employees, to enforce agreements and contracts, and many other business and operational activities, as described by the Cato Institute. At the macrolevel, regulation affects economic growth, social development, and political stability.

Government needs to correct the distortions caused by market failure and needs to improve market efficiency. Government creates a conducive environment for all sectors by providing the proper legal framework and ensuring the enforcement of law. The most popular form of government intervention is setting laws and regulations to command and control certain activities. Trade legislations contribute to the stabilization of the economy. Social policy can help to tackle poverty.

Government can also give incentives to the involved parties in order to encourage desirable economic and social activities, such as regulation on environmental protection. In some cases, government can take direct action to punish wrongdoing. Government can also harness the market by setting competition laws to ensure a free and fair business environment for all stakeholders. Competition regulation also makes sure that consumers receive sufficient protection when conducting commercial and financial transactions.