Business Practices Laws

Business Practices in the US

Nowadays, business practices in the US are highly regulated. It is necessary to evaluate them and determine whether they are effective or not. First of all, it should be stressed that some legal environment is needed for all types of business and all countries. Private property rights should be guaranteed and adequately specified. Under such conditions, it is possible to organize long-term projects and make significant investments. Moreover, the legal system should allow solving all disputes that may originate among different business companies. However, the existing government regulations greatly exceed the abovementioned areas. Their stated aim is to promote fair, balanced, and competitive business practices.

Each of these areas should be analyzed separately. Fair business is essential for a mutually beneficial exchange. Each party should be able to receive those goods and services and under those conditions that are specified in the contract. Therefore, the legal environment should guarantee these conditions. It may be reached through the maintaining of a high level of property rights protection, as well as through the open system of dispute resolution. At the same time, the government tries to maintain the necessary level of quality and encourage fair business with the help of numerous standards and regulations. This approach is different from the traditional maintaining property rights. The government imposes standards that are supposed to benefit all parties. However, the real consequences are often different from the government's intentions.

The Problem

The first problem comes from the fact that quality is a subjective characteristic. It should be determined by consumers, and government standards are unable to serve as efficiently as voluntary consumers’ choices. Moreover, new government regulations create additional costs for entrepreneurs. Higher costs will shift the supply curve to the left. As a result, the equilibrium market price will increase, and the equilibrium quantity will diminish. This situation will be harmful to both producers and consumers. Consequently, if significant government regulations exist, the allocation of resources will not be optimal as entrepreneurs will have to take into account not only the needs of consumers but bureaucratic requirements, as well. It means that the overall productivity of the national economy may decrease. It will negatively affect the economic perspectives of all industries.

The government often tries to establish a balanced business environment. It may refer to both the internal system and the relationships among different elements of businesses and industries. Under free-market conditions, the balance of businesses and industries is established in the following way. The market prices are determined through the interaction of demand and supply factors. The difference between the market prices and the costs of production demonstrates the rate of profit that may be obtained after the implementation of the given project. Entrepreneurs compare the rates of profits among different industries and determine those directions that may generate the highest profits. The scarce economic resources are directed in this direction. It should be stressed that the market balancing is both effective and flexible. If the consumers’ valuations change, then the production forces adjust accordingly.

The Government System

The government system is very inflexible. The government agencies try to establish the optimal structure that is based on their calculations and understanding of the situation. However, all economic parameters are subject to constant changes, and the final equilibrium cannot be established based on any econometric and statistical models. Even if the calculations are correct, they do not take into account the dynamic nature of the economic process. The structure of industries should correspond to consumers’ valuations as the supply factors should adjust to the demand ones.

The government also tries to promote competitive business practices. For this reason, the size and scope of companies may be regulated. However, these measures do not lead to any positive results because all distortions create misallocations of resources and reduce the companies’ profits. The level of consumer satisfaction will diminish, as well. If the regime of free entry is adopted, then the competition will be maintained on the highest possible level. Only those companies that can earn average or high profits will operate in the given segment. Other firms will have to re-orient their production elements to those fields where they are more desirable from the point of view of ultimate consumers.

The government’s attempts to encourage competition typically result in promoting monopolization of industries because government privileges create artificial advantages for some companies. The level of innovations may decline which will negatively affect the entire industry. Thus, the legal system should merely guarantee the establishment of private property rights for all parties.

The Federal Trade Commission may serve as a specific example of government institutions in the industry. Its strategic goals include protecting consumers, maintaining competition, and advancing performance (FTC, 2014). Its first goal cannot be reached because it imposes additional costs on the businesses. As a result, the market prices increase, and consumers will be able to buy fewer products as their available income is fixed at any given point in time. Its second goal cannot be reached because it imposes additional regulations on firms, and some of the companies will suffer losses. The general performance cannot be advanced through additional regulations as innovations are needed to increase the productivity of the national economy.

Conclusion

Thus, the majority of government regulations in the business sphere are highly inefficient. They should be removed and replaced by maintaining property rights and equal opportunities for all parties in the country.