Writing Assignment – respond to the following questions
1. Provide an argument for or against regulation OR deregulation of businesses. Why is it important?
2. Provide an argument for or against social regulation? Be specific – consumer, employee, and/or environment.
Please write above 300 words!!!
Please refer to the files I uploaded!!!
5 Protection of Consumer,
Employee, and the
Environment
Ann Johnson
Case Scenario: A polluter’s quagmire 137
Government as Regulator of Business 138
Theories of Regulation 139
The US Regulatory Framework 140
Government as a Protective Regulator 141
Consumer Protection 141
Employee Protection 149
Environmental Protection 157
The Debate about Social Regulation 168
Analytical Case: Employees with disabilities 169
Practical Skill: Complying with government regulation 170
Summary and Conclusion 171
CHAPTER CONTENTS
CASE 5 SCENARIO
A polluter’s quagmire
Tyler’s father, Tomas, is the owner of Trujillo Landscaping, Inc., a sod and landscape
company started by Tyler’s grandfather Teodoro, located at the edge of the City of
Somewhere. The company is dedicated to the production, sale, and installation
of lawn grasses and other landscaping products, so it is important for his business
that he keep weeds controlled and make his sod grow lush and green. For that
purpose, Tomas uses both pesticides and a chemical fertilizer to ensure he produces
the best products.
Recently, a grassroots citizen group—the Friends of Somewhere—expressed
concerns about the contents of a nearby water table to the local newspaper. Last
week, a representative from the group visited Trujillo’s and talked with Tomas about
the issue. The representative warned him that his products might have a direct impact
on neighborhood water quality and urged him to switch to organic pesticides and
fertilizer.
Tomas was deeply concerned. He looked into manufacturing his own products
with organic substances and found it to be prohibitively expensive. Tomas learned
that the pesticides he used would really only penetrate about a foot into the soil, so
something else must be contaminating the water table. He also learned that some
amount of pollution would be an unavoidable byproduct of the chemical com –
positions of most pesticides and fertilizers and each state has its own regulations
about the distribution and disposal of toxic substances. Tomas is unsure of where
to turn to find information regarding how to more safely apply a product and dispose
of residual toxic substances. He is also eager to know how to comply with any
regulations concerning groundwater.
At dinner that evening, Tyler suggested to his father that perhaps he could ask
the Friends of Somewhere for a little guidance. Or maybe pay Zoey a visit. After all,
she had just gone through much of the regulatory setup for her own business and
helpful websites and contacts may be fresh in her mind. Tyler’s father thought that
was a good idea. Besides, he needed to deliver a couple corkscrew junipers for the
entrance of Happy Paws anyway, a grand-opening gift from one business owner to
another.
Later, while doing historical research, Tomas discovered that there had once been
a well on his land. When the EPA investigated, they indeed discovered the old well,
which was allowing runoff to penetrate the water table. It was almost completely
obscured at the edge of the Trujillo Landscaping property. But now, with the
discovery, Tomas was able to take the appropriate steps to remedy the problem
and preserve the good name his family worked so hard to create.
Government as Regulator of Business
Regulation is a type of government intervention in economic activity through
commands and controls enforced with coercive power. Government as a regulator
of business has evolved over three major periods in the United States (see Chapter
3). The first occurred in the Moderate-Sized Government Era (1887–1933) with
the passage of the Interstate Commerce Act in 1887, which established the Interstate
Commerce Commission (ICC) to regulate railroad rates. Following the same
tradition, legislation was enacted to shore up anti-trust powers as well as consumer
rights in the early twentieth century. During the Moderate-Sized Government Era
(1933–1970s), regulation was extended to industries as well as to labor markets.
The trend was accelerated in the 1960s and 1970s when many social regulations
addressing externalities and hazards were introduced. Regulation was expanded
to consumer products, the workplace, and the environment. The third period,
the Rightsizing Government Era, introduced economic deregulation to several
industries such as transportation, telecommunications, electric power, and natural
gas trans mission.
138 Business–Government Relations in the Sociopolitical Arena
Regulation at any level of government balances the needs of public and
private interests (Lehne 2006). These needs can be societal as well as economic
(see Chapter 4). This chapter focuses on social regulation and the interplay between
government, the private sector and citizen groups. Three areas of social regulation
will be covered, starting with consumer protection, then moving to employee
protection and, finally, to environmental regulation. The summary of these areas is
intended to provide an overview of the evolution and current status of how
businesses have adapted their practices to comply with government mandates and
will illustrate approaches taken by the public and private sectors to accomplish these
measures.
Theories of Regulation
Philosophically, Emile Durkheim stated that people will be destroyed and societies
will disintegrate without some sort of social regulation, particularly when there is
rapid economic progress. Of all organizations, the state is most equipped to provide
for the welfare of the system and protect labor. Thus, the government has the moral
obligation to fulfill these purposes (Jones 1986). Because people will not naturally
check their own wants, regulations are a check on greed (Jones 1986).
In the modern US system of government regulations, two dominant theoretical
frameworks emerge when social regulation is discussed. Public interest theory
contends that regulations benefit the public in areas where market competition does
not necessarily help the public. One example where the market would not benefit
the public is “natural monopolies,” areas where the circumstances make it unlikely
for competition to exist, such as utility companies or, in the non-economic context,
employment discrimination (Lehne 2006). Another area that would not be regulated
without government intervention is the environment.
Competing ideas exist as to why we regulate. Public choice theory of govern –
mental regulations promotes the view that interest groups and politics are mainly
driven by monetary interests, and that the ends are more important than the
means. Sometimes it is argued that the private sector is able to act on behalf of
the agency that is supposed to be practicing oversight. Thus, regulations benefit the
private sector and not the public. Public choice theory has been criticized as an
over simplification of human behavior (Lehne 2006). Critics of public choice theory
point out that some behavior is altruistic and is clearly not motivated by individuals
gaining money. For example, people may vote for social programs that benefit others
but not themselves. Thus, values and ideology may matter more than what interest
groups can offer to voters from those elected (Lehne 2006). Self-regulation theory
suggests that socially conscious consumers can cause industry to self-regulate
(Volden and Wiesman 2009). Regardless of which theoretical framework seems the
most accurate, social regulations have become increasingly intricate, and it is
crucial that firms are aware of when their business practices involve an area that
is covered by these social regulations.
Consumer, Employee, and Environment 139
The US Regulatory Framework
The US Constitution provides the authority for regulation. Article 1, Section 1
of the Constitution grants Congress the sole power to enact laws. The power to
regulate commerce among states is given to Congress by Section 8 of Article 1 of
the Constitution. Meanwhile, the Constitution also places limits on regulation. The
Fifth Amendment to the Constitution limits government regulatory power by stating
that “No Person shall be deprived of life, liberty, or property, without due process
of law; nor shall private property be taken for public use without just compensation.”
This due process protection is extended to actions taken by states via the Fourteenth
Amendment.
Regulation, as both a political and economic instrument, takes place through
an open public process, which allows interested parties to participate (see
Chapter 7). Most regulations, except anti-trust laws, are implemented by independent
commissions and executive branch agencies. The courts also play a critical role in
interpreting regulatory statutes, assessing their constitutionality, and ensuring
procedural due process. Many legal principles of regulation have come from court
decisions that constitute the common law, which refers to a body of law developed
by judges through court decisions as opposed to statutes passed by the legislative
process or regulations promulgated by the executive agencies.
Although the Constitution does not explicitly authorize Congress to delegate
policy-making to agencies, regulatory agencies assume the responsibility to
promulgate rules, make policies, and resolve disputes. Laws written by Congress
provide the authority for regulatory agencies to write regulations. Regulations
explain the technical, operational, and legal details necessary to implement laws.
Regulatory agencies take two basic forms—independent commissions and executive
branch agencies. Independent commissions, such as the Federal Reserve System,
Federal Trade Commission, International Trade Commission, Securities and
Exchange Commission, National Labor Relations Board, Consumer Products Safety
Commission, and so on, make policies through majority-rule voting and formal rule-
making procedures.
Most executive branch regulatory agencies are housed in a cabinet department,
which has its administrator appointed by the President or a cabinet secretary.
Examples include the OSHA in the Department of Labor (DOL), FDA in the
Department of Health and Human Services (HHS), and National Highway Traffic
Safety Administration (NHTSA) in the Department of Transportation (DOT). The
EPA is an independent executive branch agency and does not belong to a cabinet
department.
To implement statutes passed by Congress, regulatory agencies assume an
important activity of rule-making, which refers to the process that executive and
independent agencies use to create, or promulgate, regulations. Typically, Congress
first sets broad policy mandates by passing statutes, then agencies create more
detailed regulations through rule-making. In addressing the concern about agencies
in exercising their powers, Congress enacted the Administrative Procedure Act
(APA) of 1946, providing that agencies’ rule-making procedures should be
140 Business–Government Relations in the Sociopolitical Arena
consistent with the APA. The APA also grants parties the right to sue for judicial
review of an agency action under the framework of procedural due process; that is,
if an agency fails to follow APA procedures, or procedures it has established, the
courts can overturn the agency’s decision. In addition to procedural due process,
the courts review regulatory actions for whether they are arbitrary or capricious,
which addresses the issue if an action by the agency exceeds the scope of the
mandate and if it has a basis in the record of evidence that agency keeps. The courts
also review regulatory actions for substantive due process to ensure they conform
to the constitutional requirements.
The implementation and enforcement of laws involves regulatory agencies that
assist or force regulated entities to meet legal requirements, as well as hold entities
legally accountable for any violations.
Government as a Protective Regulator
Government’s regulation to business generally falls into two categories— economic
(or industrial) regulation and social regulation. Economic regulation sets prices or
conditions on entry of firms into an industry. It also includes the regulation of
financial firms. Social regulation, otherwise, involves the correction of externalities
(see Chapter 2) and is largely protective in nature. It is concerned with the qualities
of the goods and services produced, the conditions under which production occurs,
as well as the impact of production on society. Social regulation is applicable to
many or all industries and affects a broad spectrum of social groups. It involves
government dictating the details of production, such as the design of products, the
conditions of employment, and the nature of the production process. One factor to
distinguish economic regulation from social regulation is that the two have followed
very different paths in recent decades. Whereas there has been a decline in economic
regulation, a rapid expansion of social regulation has been observed, as described
earlier. When the deregulation movement started in the 1970s, more social regulatory
agencies—including the EPA and OSHA—were created. There appears to have been
a great public demand for government to take a more active role in social regulation.
US social protective regulation generally covers three areas, namely consumer
protection, employee protection, and environmental protection, which are mainly
governed by the federal regulatory framework. Exhibit 5.1 summarizes the federal
regulatory framework of the three areas.
Consumer Protection
Consumer protection refers to the regulatory framework designed to ensure the
rights of consumers, as well as fair competition and accurate information in the
marketplace. The underlying rationale of consumer protection is to correct market
failure associated with asymmetric information (see Chapter 2). A market economy
espouses consumer sovereignty, which refers to the paramount power of the
consumer to affect the operation of a market. In a market economy, “consumption
is the role end and purpose of all production” (Smith 1937, p. 38) and consumers
have the freedom of choice—they are free to accept or reject any products in the
Consumer, Employee, and Environment 141
US federal social protective regulatory framework
Social Regulation Regulatory Agencies Major Laws
EXHIBIT 5.1
142 Business–Government Relations in the Sociopolitical Arena
The Pure Food and Drug Act of 1906
The Meat Inspection Act of 1907
The Food, Drug, and Cosmetics Act of 1938
The Public Health and Service Act of 1944
Drug Amendments of 1951, 1958, and 1962
The Medical Device Amendment of 1976
The Nutrition, Labeling, and Education Act of
1990
The Generic Drug Enforcement Act of 1992
The Best Pharmaceuticals for Children Act of
2002
The Pediatric Research Equity Act of 2003
The Federal Trade Commission Act of 1914
The Wheeler–Lea Amendment to the Clayton
Act of 1938
The Wool Products Labeling Act of 1939
The Fur Products Labeling Act of 1951
The Textile Fiber Products Identification Act of
1958
The Cigarette Labeling and Advertising Act of
1966
The Fair Packaging and Labeling Act of 1966
The Truth-in-Lending Act of 1968
The Poison Prevention Packaging Act of
1970
The Fair Credit Reporting Act of 1970
The Consumer Product Warranty Act of 1975
The Fair Debt and Collection Practices Act of
1977
The Truth in Savings Act of 1991
The Credit Card Accountability Responsibility
and Disclosure Act of 2009
The Flammable Fabrics Labeling Act of 1954
The Refrigerator Safety Act of 1956
The Federal Hazardous Substances
Labeling
Act of 1960
The Hazardous Substance Act of 1964
The Child Protection Act of 1966
The National Traffic and Motor Vehicle Safety
Act of 1966
The Poison Prevention Packaging Act of 1970
The Public Health Smoking Act of 1970
The Consumer Product Safety Act of 1972
The Medicare Reform Act of 2003
The Food and Drug
Administration (1931)
[HHS]
The Federal Trade
Commission (1914)
The Consumer Financial
Protection Bureau
(2011)
The Consumer Product
Safety Commission
(1972)
The National Highway
Traffic Safety
Administration (1970)
[DOT]
The Drug Safety
Oversight Board [FDA]
Consumer
Protection
• Fraud and
misrepresentation
of food, drugs,
and cosmetics
• Unfair competition
and deception
• Product safety
Social Regulation Regulatory Agencies Major Laws
EXHIBIT 5.1 continued
Consumer, Employee, and Environment 143
The National Labor Relations Act of 1935
The Fair Labor Standards Act of 1938
The Labor Management Relations Act of
1947
The Labor Management Reporting and
Disclosure Act of 1959
The Occupational Safety and Health Act of
1970
The Family and Medical Leave Act of
1993
The Equal Pay Act of 1963
The Civil Rights Act of 1964 and 1991
The Age Discrimination in Employment Act
of 1967
The Vocational Rehabilitation Act of 1973
The Pregnancy Discrimination Act of 1978
The Americans with Disabilities Act of
1990
The Violence Against Women Act of 1994
The Refuse Act of 1899
The Oil Pollution Acts of 1924, 1961, 1973,
and 1990
The Water Pollution Control Acts and
Amendments of 1948, 1956, and 1972
The Clean Air Acts of 1963 and
Amendments of 1970, 1977, and 1990
The Water Quality Acts of 1965 and 1970
The Endangered Species Preservation Acts
of 1966 and 1969
The Air Quality Act of 1967
The National Environmental Policy Act of
1970
The Endangered Species Act of 1973
The Safe Drinking Water Act of 1974 and
Amendments of 1992 and Renewal of
1996
The Resource Conservation and Recovery
Act of 1976
The Environmental Response,
Compensation, and Liability Act of
1980
The Hazardous and Solid Waste
Amendments of 1984
The Department of Labor
The National Labor
Relations Board (1935)
The Occupational Safety
and Health
Administration (1973)
[DOL]
The Equal Employment
Opportunity
Commission (1964)
The
Environmental
Protection
Agency
(1970)
Employee
Protection
• Employee welfare
• Anti-discrimination
Environmental
Protection
marketplace; therefore, producers have to effectively respond to the needs of
consumers in order to pursue profit. This assumes that consumers are capable of
making rational decisions in a competitive market filled with a large number
of buyers and sellers. Yet in reality, consumers are often in a disadvantaged situation
where they don’t have enough information to make rational choices.
In the past, the relationship between the buyer and seller was governed by the
common-law concept of caveat emptor (“buyer beware”), which assumed that both
buyer and seller were equally knowledgeable about the merchandise and, in the case
of a dispute between the buyer and seller, the buyer had to undertake the burden to
convince the judge or jury that the seller deliberately misrepresented the condition
of the merchandise before it was sold. The Industrial Revolution fundamentally
changed the landscape when a wide range of manufactured goods was produced,
and consequently, the average person could no longer fully understand the intricacies
of the many products in the market.
The increased demands for protecting consumer rights have led to the passage
of various laws and regulations. Roughly, these laws and regulations comprise three
major areas—prevention of fraud and misrepresentation of food, drugs, and
cosmetics; protection of consumers from unfair competition and deceptive practices;
and consumer product safety (Langran and Schnitzer 2007).
Prevention of Fraud and Misrepresentation of Food, Drugs, and
Cosmetics
Regulations to prevent fraud and misrepresentation of products are designed to
protect consumers from the adulteration, misbranding, or mislabeling of food,
drugs, and cosmetics. Regulations against product adulteration or fraud have a
relatively long history. From colonial times to the late nineteenth century, most food
and drug regulations were enacted at the state and local level. For example, the state
of Massachusetts adopted a food adulteration law in 1641, requiring the official
inspection of beef, pork, and other meat. In the mid-1800s, the states of Virginia
and Ohio started to enact laws against the adulteration of food and drugs. During
the remainder of the century, the scale and scope of state food and drug regulation
expanded significantly. Yet with increased interstate competition, regulation at the
federal level was deemed necessary.
In the late 1800s, pure-food bills were introduced in Congress, but failed to
become law due to opposing business interests. Several events built up public
sentiment for protection and eventually led to the passage of the Pure Food and
Drug Act of 1906 and the Meat Inspection Act of 1907. One of those notable events
was the publication of Upton Sinclair’s bestseller, The Jungle, in 1906, which vividly
described the filthy conditions of the meat-packing industry in Chicago. After
reading the book, President Theodore Roosevelt ordered an immediate investigation
of the industry. Public pressure eventually issued a new lease of life to the shelved
bills and pushed them through Congress. The Pure Food and Drug Act of 1906 is
the first significant piece of consumer protection legislation at the federal level.
It outlawed interstate trade of “adulterated” or “misbranded” foods, and required
producers to indicate the presence of mixtures and/or impurities on product labels.
144 Business–Government Relations in the Sociopolitical Arena
The adulteration and misbranding provisions of this law also applied to drugs, which
went beyond state legislations’ protection at that time. Enforcement of the Act
became the duty of the Bureau of Chemistry, a division under the US Department
of Agriculture. The Bureau of Chemistry was renamed the Food and Drug
Administration (FDA) in 1931. In 1940, the FDA was transferred from the USDA
to the Federal Security Agency, which eventually became the Department of Health
and Human Services in 1979.
During the Depression of the 1930s, there was a resurgence of public interest in
consumer protection, due to exposure of various consumer abuses, including filthy,
decayed, and insect-infested food, as well as the false or misleading advertise-
ment of drugs. The FDA and its supporters started to lobby Congress in favor
of stronger legislation that would give the agency greater authority to regulate
the patent medicine industry. However, their efforts were seriously obstructed
by the patent medicine industry itself and its congressional allies. In 1938, a tragedy
finally broke the deadlock between the two parties, when over 100 people were
killed as a result of consuming a liquid sulfa drug called “Elixir Sulfanilamide,”
which had been marketed without being tested for toxicity. Public outcry over the
tragedy eventually led to the passage of the Food, Drug, and Cosmetics Act of 1938,
which gave the FDA greater oversight over the food and drug industry. The
agency’s authority was extended to include cosmetics and therapeutic devices.
The new law required that drugs be marketed with adequate directions for safe use
and the FDA was granted the power to regulate the therapeutic claims drug
manufacturers printed on their product labels. Most importantly, the Act introduced
mandatory pre-market approval for new drugs, meaning that drug manufacturers
had to demonstrate to the FDA that a new drug was safe before it could be released
to the market.
The Food, Drug, and Cosmetics Act went through several amendments, among
which were the 1962 Drug Amendments, passed in response to a therapeutic crisis,
as the use of a suppressant for morning sickness (thalidomide) by pregnant woman
caused the birth of deformed babies in Europe. Under the amendments, drug
companies were required to prove that drugs were both safe and effective prior to
market release and the FDA was granted the power to oversee clinical trials for
new drugs. In addition, the responsibility for regulating prescription drug advertising,
which originally was given to the Federal Trade Commission (FTC) under the Food,
Drug, and Cosmetics Act of 1938, was transferred from the FTC to the FDA. After
these series of amendments, the United States became one of the toughest drug-
approval regimes in the world.
Since the 1960s, regulation has continuously strengthened the government’s
authority over various aspects of food and drug commerce. For example, the 1976
Medical Device Amendment required premarket safety testing of medical devices.
Similarly, the 1990 Nutrition, Labeling, and Education Act required nutritional
labeling for all packaged foods, and the 1992 Generic Drug Enforcement Act granted
the FDA authority to oversee generic drugs. More recently, the 2002 Best
Pharmaceuticals for Children Act allowed the FDA to request pediatric drug testing
sponsored by National Institutes of Health (an agency of HHS), and the 2003
Pediatric Research Equity Act mandated manufacturer-sponsored pediatric drug
Consumer, Employee, and Environment 145
trials for certain drugs as a “last resort.” However, some legislation has also
weakened government’s regulatory power over the industry. For instance, the 1976
Vitamins and Minerals Amendments and the 1994 Dietary Supplements and
Nutritional Labeling Act preclude the FDA from regulating dietary supplements,
as a result of the advocacy and lobbying efforts of the consumers and producers of
“natural” or “herbal” remedies.
Prevention of Unfair Competition and Deceptive Practices
The prevention of unfair competition and deceptive practices involves government
regulations of various forms of disclosure, including advertising, labeling, and
product warranties, as well as consumer credit (Langran and Schnitzer 2007). This
is a relatively broad area that is generally under the regulatory supervision of the
Federal Trade Commission (FTC). The FTC is an independent agency with a
bipartisan body of five members appointed by the President. The agency’s principal
mission is the promotion of consumer protection and the elimination and prevention
of anti-competitive business practices.
The FTC was established in 1914 by the Federal Trade Commission Act signed
by President Woodrow Wilson against trusts, which had been a significant political
issue during the Progressive Era (see Chapter 3). The Act was passed following
two Supreme Court decisions against Standard Oil and American Tobacco, who
had used their size and clout to undercut competitors in a number of ways. Under
the Act, the commission was authorized to issue “cease and desist” orders to large
corporations to curb unfair trade practices.
Section 5 of the Federal Trade Commission Act granted the FTC the right to
prevent unfair competition practices. Although Section 5 outlawed unfair methods
of competition in commerce, it did not address the issue of fraud and deceptive
practices.
Advertising
In the case of advertising, for instance, in 1931, the Supreme Court overturned the
ruling of the FTC that Raladam, the manufacturer of Marmola (a tablet containing
thyroid substance), misrepresented its product as a remedy for obesity. Although
the Court found evidence of misrepresentation common among vendors of such
remedies, it concluded that since no conclusive proof of damage could be drawn
to Raladam or its competitors, the FTC could not prosecute consumer fraud;
therefore, the court vacated the judgment. In response to the court’s decision, the
Wheeler–Lea Act of 1938 was passed to amend Section 5 of the Federal Trade
Commission Act, specifically proscribing “unfair or deceptive acts or practices”
and “unfair methods of competition,” as well as providing civil penalties for
violations. It added a clause to Section 5, stating “unfair or deceptive acts or
practices in commerce are hereby declared unlawful.” The amendment created
criteria in determining an illegal advertisement, as far as it deceives a significant
number of consumers and therefore is a representation, omission, or practice that
is likely to mislead the consumer in their purchasing decision.
146 Business–Government Relations in the Sociopolitical Arena
Labeling
Another area of disclosure under the FTC oversight is the labeling of products.
Labeling is any written, electronic, or graphic communication on the package or
on a separate but associated label of a certain product. A series of laws have been
passed to protect consumers from product misrepresentation. For instance, the
Wool Products Labeling Act of 1939, the Fur Products Labeling Act of 1951,
the Flammable Fabrics Act of 1954, and the Textile Fiber Products Identification
Act of 1958 required manufacturers to attach labels that specify the nature and
content of the materials. The Cigarette Labeling and Advertising Act of 1966 set
national standards for cigarette packaging and required all cigarettes sold in interstate
commerce to be labeled with a warning that smoking can be harmful to health. The
Fair Packaging and Labeling Act of 1966 required labels on many consumer
products to state the identity of the product, the name and place of business of the
manufacturer, packer, or distributor, as well as the net quantity of contents. The
Poison Prevention Packaging Act of 1970 required the use of child-resistant
packaging for drugs, chemicals, and other hazardous materials that can be unsafe
for children. In recent years, whether or not to require labeling of genetically
engineered (GE) or genetically modified (GM) foods has become an ongoing
debate. Those in favor of labeling emphasize consumers’ right to know what’s in
their food. Opponents point to the fact that no significant differences have been
found between GE or GM and conventional foods and emphasize the expense and
logistical difficulties of labeling. Although mandatory labeling of GE and GM foods
has been proposed, there has been no action by Congress to date.
Product Warranty
A warranty refers to a guarantee or promise that provides an assurance by the
manufacturer to the consumer that affirms specific facts or conditions of the goods
being sold. Commonly, new goods are sold with an implied warranty that the
goods are indeed as advertised. Used products, however, may be sold “as is” with
no warranties. In the US, Article 2 of the Uniform Commercial Code (which has
been adopted with variations in each state) provides implied warranties. The
Consumer Product Warranty Act (also known as the Magnuson–Moss Warranty
Act) of 1975 was designed to protect consumers from deceptive warranty practices.
Consumer products are not required to have warranties, but if one is given, it must
comply with the Act. The Act also required that any written warranty be readily
understood by consumers. The FTC was granted the authority to prescribe rules
and regulations for deceptive practices.
Consumer Credit
Although credit cards of various types had been used for a long time, it was not
until the 1960s that the credit card became popular. Financial institutions also made
credit easier to obtain by consumers about this time, yet incomplete consumer credit
information often made it difficult to choose between various types of loans. For
many years, consumer credit activities were regulated by state laws, which were
Consumer, Employee, and Environment 147
inconsistent in various aspects. The demand for protecting consumers against
fraudulent and unfair credit disclosure practices eventually drove the federal
legislative process and led to the passage of the Truth in Lending Act (TILA) of
1968. The law was designed to promote the informed use of consumer credit by
forcing creditors to notify consumers of the actual cost of that credit. It required
uniform or standardized disclosure of costs and fees to encourage competition in
financing, from which the consumer can benefit. It also prohibits the issuance of a
credit card without the consumer’s oral or written agreement. Later, a handful of
consumer credit protection laws were enacted, among which were the Fair Credit
Reporting Act of 1970—aimed at protecting the privacy of consumers against the
issuance of erroneous credit reports—the Fair Debt Collection Practices Act of
1977—establishing legal protection from abusive debt collection practices—and the
Truth in Savings Act of 1991—establishing uniformity in the disclosure of terms
and conditions regarding interest and fees and forbidding any misleading or
inaccurate advertising for opening bank accounts. During the Great Recession of
2008 (see Chapter 3), which was partially attributed to the fraudulent lending
practices of the financial industry, the Credit Card Accountability Responsibility
and Disclosure Act of 2009 was signed into law by President Barack Obama. The
Act, also known as the Credit Cardholders’ Bill of Rights, mainly aimed to establish
fair and transparent practices by limiting how credit card companies can charge
consumers.
In 2011, the Consumer Financial Protection Bureau (CFPB) was established as
an independent agency of the United States government, responsible for consumer
protection in the financial industry. The CFPB was authorized by the Wall Street
Reform and Consumer Protection Act of 2010, as a response to the financial crisis
of 2007/08 and the subsequent Great Recession. The bureau is located inside and
funded by the Federal Reserve and affiliated with the US Treasury Department.
In addition to writing and enforcing rules for financial institutions, supervising their
operations, and monitoring financial markets, it also collects and tracks consumer
complaints.
Consumer Product Safety
Product safety regulations were often established as responses to tragedies or
consumer advocacies. One early example was the passage of the Flammable Fabrics
Labeling Act of 1954 after serious injuries and deaths caused by the ignition of
clothes made from synthetic fibers. The federal automobile safety standards were
promulgated in the 1960s, mainly driven by the consumer movement advocated by
Ralph Nader. In 1965, Nader published his book Unsafe at Any Speed, accusing
car manufacturers (mainly the manufacturer of Corvair, General Motors) of resist –
ance to the introduction of safety features. General Motors responded to Nadar’s
criticism by hiring an investigator to find evidence against him, which made Nader
a national leader of a consumer movement for car safety. In 1972, the Consumer
Product Safety Act was passed as a result of alarming findings regarding consumer
product safety in a report presented at a congressional hearing. The report indicated
that over 20 million people were injured by unsafe consumer products annually,
148 Business–Government Relations in the Sociopolitical Arena
among whom about 30,000 were killed and over 100,000 were permanently disabled
(US Senate Committee on Commerce 1972).
The authorities that oversee product safety are relatively diffused. Generally
speaking, most product safety issues are under the authority of the Consumer
Product Safety Commission (CPSC), which is an independent agency of the United
States government established in 1972 under the Consumer Product Safety Act. The
CPSC regulates the manufacture and sale of over 15,000 consumer products,
ranging from clothes to vehicles. Products such as alcohol, tobacco, guns, and
explosives, which involve high risks and are often associated with criminal
behaviors, are regulated by the Bureau of Alcohol, Tobacco, Firearms, and
Explosives in the US Department of Justice. Drug safety is supervised by the Drug
Safety Oversight Board of the FDA. Automobiles are regulated by the National
Highway Traffic Safety Administration, which is a branch of the US Department
of Transportation. The agency was established in 1970 to enforce the Federal Motor
Vehicle Safety Standards.
State Regulations of Consumer Protection
In addition to federal regulation, a number of states such as (but not limited to)
Colorado, Delaware, Illinois, and Ohio, have adopted the Uniform Deceptive Trade
Practices Act (UDTPA). The Act aims at preventing deceptive trade practices such
as unfair or fraudulent business practices, as well as untrue or misleading advertising.
States that have not adopted the UDTPA often have similar, other laws. States may
choose to implement food safety standards, such as the Manufactured Food
Regulatory Program Standards (MFRPS), developed by the FDA. Some states,
including Florida, Delaware, and Minnesota, have legislated requirements that
contracts be written at reasonable readability levels that common consumers can
understand.
California has by far the strongest consumer protection laws as a result of
rigorous advocacy and lobbying by many social interest groups such as the
Consumer Federation of California, California Consumer Protection Foundation,
Utility Consumers’ Action Network, and Privacy Rights Clearinghouse. For
example, the state’s Unfair Competition Law broadly prohibits unlawful, unfair,
and fraudulent business practices and deceptive advertising.
Most states have a Department of Consumer Affairs devoted to protecting
consumers and providing legal services. For example, the California Department
of Consumer Affairs, with its 41 regulatory entities (25 boards, nine bureaus, four
committees, two programs, and one commission), issues licenses in more than
100 business and 200 professional categories, including doctors, dentists, con –
tractors, cosmetologists, and automotive repair facilities.
Employee Protection
Employee protection refers to the legal framework that protects the welfare of
employees, including wages, working hours, health, safety, and working conditions,
as well as the right for equal employment opportunities.
Consumer, Employee, and Environment 149
Employee Welfare
As a result of the industrial revolution, productivity increased exponentially, but
the lives of workers worsened in many aspects. The demand for labor in heavy
industry caused many employees to be drawn into a new working environment that
prior generations had not experienced. Concerns about health, safety, and quality
of life for workers began to take center stage as circumstances deteriorated.
There were a few early, scattered, regulatory attempts to address aspects of
employee welfare at the workplace. For example, Massachusetts passed the nation’s
first law to limit the working hours of women and children employed in factories
in 1874 (see Chapter 3). However, there was virtually no consistent labor legislation
at the federal level.
Collective Bargaining and Unions
During the industrial revolution, as a result of frustration over wages, hours, and
working conditions, workers began to organize into trade associations, called
unions, to collectively bargain with employers (Dalton, Hoyle, and Watts 2006).
The National Labor Relations Act (NLRA), also known as the Wagner Act, was
passed in 1935 as a reaction to many of the employment practices of the industrial
revolution (Dalton, Hoyle, and Watts 2006). NLRA is a foundational statute of US
labor law, which granted private sector employees the right to organize into unions,
engage in collective bargaining for better terms and conditions at work, and take
collective action (e.g., strike) if necessary. The NLRA is enforced by the National
Labor Relations Board (NLRB), an independent agency of the US government.
It is charged with conducting elections for labor union representation, as well as
investigating and correcting unfair labor practices.
In a unionized workplace, management will communicate about wages and other
conditions of employment with the union representatives rather than with the
employees themselves (Bernardin 2007). The union has a representative, who is
voted in by union members. The employees are represented by the union during
the bargaining process. If an employee believes they are being treated unfairly
on the job, they will often file a grievance.
For employers with unions, collective bargaining specifically describes the
process where management and unions negotiate terms of employment contracts
specifying the wages and benefits for the contracted period of time (Bernardin 2007).
The NLRA largely drove the labor movement in the 1940s. About 25 percent of
the workforce was unionized after World War II. During the war, unions agreed
not to strike, in order not to destroy the war effort. When the war ended, the issue
of falling wages across the board led to large strikes. From 1945 to 1946, there was
a series of massive labor strikes affecting many industries and public utilities. Many
policy-makers and businesses were threatened by the strikes, as well as labor
unions’ ideological affiliations to communism. As a response to the rising union
movement, the Labor Management Relations Act (also known as the Taft–Hartley
Act) was enacted in 1947 to restrict the activities and power of labor unions. The
amendments added a list of prohibited actions (including many forms of strikes),
or unfair labor practices, on the part of unions to the NLRA. It also required union
150 Business–Government Relations in the Sociopolitical Arena
officers to sign affidavits declaring that they were not supporters of the Communist
Party or any organizations that might attempt to overthrow the United States
government. The Act still remains effective today.
After revealing the corruption and undemocratic practices of unions, in 1959 the
Labor Management Reporting and Disclosure Act was passed to regulate unions’
internal affairs as well as their officials’ relationships with employers. The Act
further restricts union activities in the United States.
Fair Labor Standards
In 1938, the Fair Labor Standards Act (FLSA) was signed into law by President
Roosevelt as part of his New Deal legislation. The FLSA introduced a maximum
44-hour, seven-day work week and established a national minimum wage. Over
700,000 workers were affected by the Act, and over 130 million US workers are
now covered by the FLSA.
The Wage and Hours Division of the US Department of Labor (DOL) governs
minimum wage and overtime in accordance with the Fair Labor Standards Act
(FLSA). Under the FLSA, when an employee works more than 40 hours a week,
the employer is required to pay the employee time and a half normal wages.
See Exhibit 5.2 for an example about Walmart, a frequent FLSA violator.
The Fair Labor Standards Act (FLSA) also governs the conditions of child labor.
The FLSA requires children be 14 years old for most types of jobs, but must be
16 years old for mining, manufacturing, and transportation jobs (Bernardin 2007).
State laws also may have a higher minimum for child labor laws. However, child
labor laws are often violated, and it is difficult to monitor them in many workplaces.
The FLSA has been amended many times since its passage; the national minimum
wage in 1938 was $0.25 per hour (25 cents), but it was $7.25 in 2014. States can,
and many do, set a minimum wage above the national minimum. The State of
Washington had a minimum wage of $9.32 in 2014. Some states allow their cities
to have minimum wage rates higher than the state minimum; although not common,
some city minimum wage rates are much higher than state rates such as the
City of Seattle, which will phase in a minimum wage rate of $15 per hour by 2021.
The federal contractor minimum wage rate is $10.10.
Occupational Health and Safety
During the industrial revolution in the US, the number of workers in factory jobs
increased exponentially as people went from working in agriculture to working in
more urban settings. Despite the sophistication of production methods, industry
continued to focus on gaining wealth and not on workplace safety, which went
largely unregulated. However, since the 1970s, cultural changes have caused less
of a tolerance of risk (Bardach 2002). Decreased tolerance for possible injuries,
combined with a greater concern for employee well-being, created a political
environment where workplace safety could be more greatly regulated.
In 1970, Congress enacted the Occupational Safety and Health Act to ensure
that employers provide their employees with a working environment free from
Consumer, Employee, and Environment 151
152 Business–Government Relations in the Sociopolitical Arena
recognized hazards such as toxic chemicals, unsanitary conditions, mechanical
dangers, and excessive noise, heat, or cold. Under the Act, the Occupational Safety
and Health Administration (OSHA) was established in the US Department of Labor
and was charged with the authority to administer the Act.
OSHA is designed to prevent harm to the safety and health of workers. Safety
regulations govern standard setting and industrial codes, whereas health issues
address whether exposure to a particular chemical is a contributing factor for
disease. Risk assessment of conditions that may cause injury or disease is particularly
difficult. There is a balance in the burden between employers and employees
(Eisner, Worsham, and Ringquist 2006). This balance can be a contested area and
special interests and industry may lobby against certain regulations. Passing
workplace safety standards is a politically salient practice. The government may
announce mandates for a workplace safety practice. However, employers, industry,
and other stakeholders may also lobby to advocate for their position.
Although the federal OSHA regulatory workplace safety framework provides a
floor for minimum workplace safety standards, many states have agencies that
EXHIBIT 5.2
Walmart FLSA litigations
The Fair Labor Standards Act of 1938 (as amended) provides standards for
both minimum wages and overtime entitlement, and specifies administrative
procedures by which covered work-time must be compensated. The Act also
provides an exemption for individuals who are employed in executive,
administrative, professional, and outside sales, as well as certain technical
positions. To qualify for an exemption, employees need to meet certain tests
regarding their job duties and be paid on a salary basis at not less than
$455 per week; job titles alone cannot determine the exempt status.
Walmart has been a prime target for this type of violation in recent years
and has suffered a number of adverse court decisions. For example, on
December 23, 2008, the company announced that it settled 63 wage and hour
lawsuits in 43 states, which cost the company between $352 and $640 million
(Smith 2008).
In 2012, the DOL released another new violation that cost the company
$4.83 million in back wages. The violations affected 4,500 Walmart workers.
Walmart failed to compensate these employees with overtime pay, considering
them to be exempt from the FLSA’s overtime requirements. DOL investigation
found that these employees were non-exempt and consequently due overtime
pay for any hours worked beyond 40 in a week. In its settlement, Walmart
agreed to pay back wages to its affected employees nationwide. Additionally,
the company was subjected to $463,815 in penalties due to the repeat nature
of the violation.
Sources: Smith 2008; Department of Labor 2012.
Consumer, Employee, and Environment 153
actively monitor workplace safety. As with most federal relationships, federal law
is a base, and state laws may provide for an additional level of oversight. The federal
and state governments work in conjunction where the states may pass their own
initiatives, but states must receive approval from OSHA (Bernardin 2007).
Currently, 22 states have their own complete plans (US Department of Labor
2013a). Other states have a partial framework, and OSHA may provide up to half
the costs to assist these states (US Department of Labor 2013a).
Although OSHA is an organization that ensures compliance with and enforcement
of safety regulations, OSHA consults with and advises employers who need
assistance (US Department of Labor 2013b). This information and these resources
may be particularly important for small businesses that may not have in house
counsel or human resource specialists (US Department of Labor 2013c).
Modern conditions have required increased technical understanding and guidance
for employers regarding dangerous levels of exposure to hazardous materials and
how to mitigate the effects. Businesses can take steps to ensure the safety of their
employees and receive assistance with developing strategies to prevent harm. This
is particularly true for small firms. For example, in 2011 and 2012, deaths occurred
from methylene chloride used in refinishing bathtubs (US Department of Labor
2013d). However, the health hazard may be reduced by using alternative chemicals
or improving ventilation (US Department of Labor 2013d).
The way we worked
EXHIBIT 5.3
Source: www.archives.gov.
http://www.archives.gov
Family and Medical Leave
In 1993, the Family and Medical Leave Act was signed into law by President Bill
Clinton. The law was intended to “balance the demands of the workplace with the
needs of the families” (29 US C. § 2601). The US Department of Labor Wage and
Hour Division was empowered to administer the Act.
The FMLA requires employers with 50 or more employees to allow leave for
up to 12 weeks during a one-year period for an illness, to care for a child (after
birth or adoption), or to care for a sick immediate family member (children, parents,
or spouse) (US Department of Labor 2013e). The definition of family members has
been extended to include grandparents and other relatives where these relatives
served the role of a parent. The FMLA applies to schools, public employers, and
private schools with more than 50 students. Firms with fewer than 50 employees
at a particular site must comply with the FMLA if the sites are less than 75 miles
from each other and the number of employees totals 50 or greater. This provision
is for businesses that can move employees around without any great inconvenience.
Employees must provide employers with 30 days’ advance notice if the need for
leave is foreseeable. If the need for leave is not foreseeable, then the employee must
provide notice as soon as practicable. Although the same position may no longer
be available at the end of the employee’s leave, when employees return to work,
the employer must allow them to return to a job that is substantially similar in terms
of duties and salary (Klienman 2007).
In addition to providing for a more balanced lifestyle for workers, the FMLA
has provisions to protect businesses as well. An employer may also have an
affirmative defense if the employee was about to be terminated, regardless of the
employee taking leave. Thus, if an employee is performing in an unsatisfactory
manner, the FMLA does not require a position to be held at the end of the
employee’s leave. Employers may exempt employees who are in the highest
10 percent of the income range or if the employee’s absence will cause the firm to
have a serious financial loss (Klienman 2007).
The FMLA provides flexibility for employers if their business would incur a
serious financial hardship and the company may request that employees pay their
own portion of the health insurance premium (Klienman 2007). Employees may be
required to pay their own health insurance benefits, but must not be denied the same
health insurance benefits as if they were not on leave. Employees may be required
to reimburse the employer for insurance if the employee is able to return to work
and does not do so.
Anti-Discrimination
Another area of government intervention in employee protection is through a series
of anti-discrimination regulations. The rationale for those regulations is to create
equal employment opportunity, which is considered a basic right of the US citizen
(see Exhibit 5.4 for a brief discussion about Affirmative Action). Yet discrimination
on the basis of gender, ethnicity, age, religion, disability, or any non-professional
qualification criterion impedes the realization of true equality of employment
opportunity.
154 Business–Government Relations in the Sociopolitical Arena
Consumer, Employee, and Environment 155
US anti-discrimination regulations were largely driven by the nationwide civil
rights movement. The first civil rights law, the Civil Rights Act of 1866, was
signed by President Lincoln after the Civil War to protect blacks from employ-
ment discrimination. The law had very little impact on improving the employment
conditions of black people, especially in the South.
EXHIBIT 5.4
Affirmative Action
Affirmative Action refers to government policies that provide special
opportunities for, or that are in favor of, disadvantaged groups who have
suffered from discrimination.
In the United States, Affirmative Action was initially taken in the form of
Executive Orders, which, having the full force of law, are government regulations
issued by the President to help officers and agencies of the executive branch
manage the operations within the federal government.
As early as 1961, President Kennedy issued Executive Order 10925, requiring
government contractors to “take affirmative actions” to ensure equal em ploy –
ment. In 1965, President Lyndon B. Johnson signed Executive Order 11246,
which banned employment discrimination based on race, color, religion, and
national origin by organizations receiving federal contracts and sub contracts.
In 1967, President Johnson issued Executive Order 11375, prohibiting hiring
discrimination on the basis of gender in the federal workforce as well as among
government contractors.
The Philadelphia Order (or the Philadelphia Plan) was the major Affirmative
Action initiative under the Nixon Administration. The Order required government
contractors in Philadelphia to hire minority workers under the powers of
Executive Order 11246. The Order was extended to other cities. President Nixon
also signed the Vocational Rehabilitation Act in 1973 to correct the problem of
discrimination against people with disabilities. The Title 5 of the Act required
private employers with federal contracts over $2,500 to take affirmative action
to hire individuals with a mental or physical disability.
As a result of these efforts, in addition to federal agencies and govern-
ment contractors, Affirmative Action was extended to universities and schools
with federal contracts. They are all required to develop their own affirmative
action plans and set up specific goals to increase the hiring of women and
minorities.
In 1995 President Clinton, while reaffirming the need for affirmative action,
issued a White House memorandum (Memorandum on Affirmative Action, July
19, 1995) calling for the elimination of any program that “(a) creates a quota;
(b) creates preferences for unqualified individuals; (c) creates reverse discrim –
ination; or (d) continues even after its equal opportunity purposes have been
achieved.”
Civil Rights Laws
In the late 1950s and 1960s, the African-American civil rights movement reached
new heights that were characterized by major campaigns of civil resistance.
Acts of non-violent protest and civil disobedience led to emergent situations between
activists and governmental authorities, demanding policy-makers’ immediate
response to address the inequalities faced by black Americans. One of the most
notable protests was the Birmingham campaign in 1963, in which students and
children, when protesting against racial segregation, were attacked by high-pressure
fire hoses and police dogs. On June 11, 1963, President John F. Kennedy delivered
his civil rights speech, urging legislative action to end racial segregation.
The Civil Rights Act was signed into law in 1964, and outlawed discrimination
based on race, color, religion, sex, or national origin. Title 7 of the Act deals with
discrimination in employment. It prohibits discrimination with respect to privileges
of employment, compensation, contract terms, and conditions of employment. The
Act also created the Equal Employment Opportunity Commission (EEOC), an
independent agency, to enforce laws against workplace discrimination. In 2011 and
2012, the EEOC extended discrimination to include sex-stereotyping (of lesbian,
gay, and bisexual individuals) as well as protection to transgender status and gender
identity, respectively.
The Act was amended in 1991 to strengthen some provisions as well as broaden
the scope of protection. The amendment was in response to a series of ambiguous
Supreme Court rulings that limited the rights of employees who had sued their
employers. In addition to modifying some procedural requirements, the amendment
authorizes jury trials on discrimination claims and allows plaintiffs to recover
emotional distress and punitive damages.
Other Anti-Discrimination Regulations
There are several other anti-discrimination laws that fall under the authority of the
EEOC. The Equal Pay Act of 1963, amending the FLSA, requires equal pay for
men and women doing the same job. The Pregnancy Discrimination Act of 1978
bans employment discrimination against pregnant women. The Americans with
Disabilities Act (ADA) enacted in 1990 prohibited employers (with more than
15 employees) from discriminating against disabled employees in hiring practices,
promotions, and benefits, and must provide reasonable accommodations in the
workplace for employees who are able to perform the essential functions of the job,
where these accommodations do not create an undue burden on the employer, and
where the modification may not create a significant expense. Some accommodations
may include modifying a work schedule, obtaining modified work equipment
and training materials, or increasing accessibility (Dalton, Hoyle, and Watts 2006).
The Job Accommodation Network offers a good resource to clarify information
regarding the complex issues of ADA (see Job Accommodation Network website’s
ADA library).
156 Business–Government Relations in the Sociopolitical Arena
Employee Protection in States
State regulations vary greatly regarding employee protection. Some states have
higher and some have lower minimum wage requirements than the federal
government. If the state and federal laws regarding minimum wage differ, the higher
of the two applies. Five states including Louisiana, Mississippi, Alabama, South
Carolina, and Tennessee currently have no minimum wage laws (US Department
of Labor, WHD 2014).
Many states passed right-to-work laws (Dalton, Hoyle, and Watts 2006),
which prohibit union security agreements, or agreements between labor unions
and employers that govern the extent to which an established union can require
employees’ membership, payment of union dues, or fees as a condition of employ –
ment, either before or after hiring. Unions may operate in these states, but employees
cannot be compelled to be part of the bargaining unit. Currently, according to
National Conference of State Legislatures’ Right-to-Work Resources, there are
24 right-to-work states.
Some states, such as California, have passed their own Family Medical Leave
Acts. The California Department of Fair Employment and Housing (DFEH) is
responsible for administering these laws.
States generally prohibit discrimination, unless it involves a necessary occupa –
tional or professional requirement. For example, California enacted Proposition 209
to bar public institutions from discrimination on the basis of race, sex, color,
ethnicity, or national origin in 1997. The state of Michigan enacted a similar law
in 2006.
Environmental Protection
Rationale for Environmental Protection
Climate change has recently been a point of major concern and discussion in media
outlets (Davenport 2014). Although natural causes may contribute to climate change,
industrial and population growth have been cited as major contributors (EPA).
Wealthy countries consume and are responsible for more than their share of
pollution. Wealthy countries also have more resources for change.
Pollution will be, and has historically been, a byproduct of development (Baron
2013). The goal is not to rid the earth of pollution entirely, but to abate or lessen
the problems of pollution where possible (Scheingold 2011). The question is to what
degree development need occur in a sustainable manner. Environmental sustain –
ability requires looking at the future. The positive effects of a clean environment
on human health and the need for sustainability are not usually in dispute. The more
contested questions include how to mitigate any negative effects on the environment,
how to assess the cost of that mitigation, and how firms can still be economically
viable while maintaining environmentally sustainable practices. Thus, creating
business practices in the most cost-effective and sustainable manner is the critical
challenge for the private sector. Consequently, firms need to be concerned about
efficiency. Although the use of certain products may save energy or generally reduce
Consumer, Employee, and Environment 157
the amount of pollutants released into the air or water, firms may need to
determine whether selling a certain product or providing a service is cost-effective
(Baron 2013).
Cap and Trade versus Command and Control
Government can use different methods to ensure that the private sector follows
environmentally friendly practices, depending on the industry and the danger of the
pollutant. Some of the ways that the government uses to regulate firms in an effort
to reduce pollution include taxes on certain types of emissions, “command and
control” of the design of manufacturing equipment to create fewer pollutants,
and the “cap and trade system” where the government places an overall limit on a
particular pollutant and businesses decide how to reduce emissions in a way that
is most cost effective (Baron 2013).
The practice of cap and trade falls under the incentives method of compliance
with government mandates for sustainable practices. The cap and trade approach
assumes that the amount of pollution created from the process of producing a
particular product or service can be known or determined before it occurs. Thus
the government sets an overall limit or “cap” on a pollutant (Baron 2013). How to
accomplish abatement of these substances is delegated to the individual firms. Cap
and trade compels businesses to use the most efficient means possible to reduce
pollution. A certain number of “permits” to emit a certain amount of a pollutant
are issued in an industry, so the amount of overall pollution is controlled. Cap and
trade can also be less burdensome on the government because it does not have to
formulate and monitor engineering designs for each firm. These permits to emit a
particular pollutant are distributed and can also be bought, sold, or traded among
firms. The permits can also be used immediately or at a later time. Thus, the amount
of emissions for a particular industry is capped and limited overall under this system.
Firms find the most efficient engineering design for what they are producing and
determine the best methods for limiting pollutants (Baron 2013). See Exhibit 5.5
for examples of cap and trade practices.
Role of Government and Legal Uncertainties
Technological change and the increased knowledge of health and ecological damage
of pollutants requires a larger role in environmental protection. These changes
require a more developed system of regulation. Until relatively recently, environ –
mental law did not exist in the form we currently know, but was instead guided by
advocacy groups and enforced by government regulators. Actions involving
pollution were often brought into court as nuisance cases. The legal theory was that
because landowners experienced harm to their property due to the actions of another
property owner, as private citizens they could bring a civil case to court. Thus, the
lawsuits were based on reduction of specific land values (Scheingold 2011).
Environmental law is a relatively new area and has some unique challenges
beyond those of other administrative areas. First, the US Constitution is based on
the rights of the individual, and not the rights of the collective or the greater good
158 Business–Government Relations in the Sociopolitical Arena
Consumer, Employee, and Environment 159
EXHIBIT 5.5
Examples of cap and trade
Chlorofluorocarbons (CFCs) were invented in 1928 by a scientist working
at General Motors. It was a breakthrough for everyday life because CFCs
allowed for effective refrigeration. This technology made foods become more
transportable and have a longer shelf life. Air-conditioning made housing
possible in previously uninhabitable locations. CFCs were widely used through
the 1950s (Dray and Cagan 1993). In the 1970s, researchers began to question
whether the particular composition of CFCs was connected to depletion of the
ozone layer. The “Ozone Depletion Theory” proposed that the use of CFCs
created a hole in the ozone layer, causing a loss of protection from the sunlight,
damaging food, and increasing the risk of skin cancer (Dray and Cagan 1993).
Sources of Chlorofluorocarbons (CFCs)
Insulation
Materials
Refrigeration
Air Conditioning
Aerosols
160 Business–Government Relations in the Sociopolitical Arena
of society. Thus, concepts like “standing” (proving that the law will have an effect
on the party bringing suit) can be problematic for environmental advocacy groups,
whereas the rights to real property (land) and personal property are well defined in
the US Constitution (Scheingold 2011). Other areas of ambiguity in the law that
have increasingly been settled by litigation include “jurisdiction” (which court
legally has control over the case), “standing” (discussed below), and “ripeness”
(if the case is ready to be heard) (Scheingold 2011). Thus, in the environmental
arena, the judges have interpreted the law to make it more predictable for the parties
bringing and defending lawsuits.
For example, the US Constitution requires a “case or controversy” (Article 3,
section 2) exist, to establish that a plaintiff has standing to bring a grievance to
the court system. An actual injury shown to the person or entity bringing forth the
lawsuit must be demonstrated. In the case of Massachusetts v. EPA (2007:533),
Industry questioned the validity of the science. The first debate argued the
validity of this theory itself. The second was concerned, assuming the theory
was valid, with what should be done about it. The idea of building similar
products using other materials that did not hurt the ozone layer was thought
to be inefficient for manufacturing and prompted concerns about the market
(Dray and Cagan 1993). Eventually, the government used cap and trade to
restrict the level of CFCs, with a goal of eventually eliminating the cap and
trade system (Dray and Cagan 1993).
Another example of how cap and trade has been used as a tool to reduce
toxic emissions involves the acid rain issue. Acid rain occurs when emissions
such as sulfur dioxide (SO2) and nitrogen oxides (NOx), often the result of
coal-fired electric power plants, are released into the atmosphere and mix
with water. States in the Eastern US and the Great Lakes Region including
Illinois, Pennsylvania, Ohio, and New York were major producers of these
emissions. These practices effected nearby states where emissions from
power plants would get into the air, travel with the wind, and cause damage
in other states. This mixture is called acid rain, and it damages and kills off
vegetation when it lands on the ground. As a result of the 1989 amendments
to the Clean Air Act, the amount of SO2 is limited to 8.95 million tons
annually.
The mitigation of pollution in the atmosphere falls under the Federal Clean
Air Act (CAA). Because there is a general cap, businesses working to comply
with the CAA have options for how to reduce pollutants causing acid rain,
while still maintaining production of energy. Some of these options include using
coal with less sulfur, a process called “washing the coal” or “using devices
called ‘scrubbers’ to chemically remove the SO2 from the gases leaving the
smokestack” (US Environmental Protection Agency 2012).
the issue of which situations qualify as a “case or controversy” to establish standing
was clarified. In this case, several parties jointly brought an action against the
government to enforce environmental regulations. However, although several parties
brought suit, the US Supreme Court found that only one plaintiff, the state of
Massachusetts, needed to show standing. In this case, the court determined that the
state of Massachusetts had standing because the state would be subjected to harm
if sea levels rose as a result of greenhouse gases.
Although many legal issues remain unclear, advocacy groups have been
successful in establishing legal precedents that can help their cause. The National
Resources Defense Council (NRDC) brought litigation against the EPA to get the
agency to enforce the Delaney Amendment, a law banning certain pesticides in food
(Baron 2013). The courts found in favor of the NRDC (Baron 2013). (This principle
is also demonstrated in the case of the Endangered Species Act.)
In some cases, the courts will push the agency to act. In 1998, the Kyoto Protocol
required nations to reduce carbon emissions. Although a signatory to the Kyoto
Protocol (without ratifying), the US volunteered to reduce carbon emissions.
In Mass. v. EPA (2007), the Supreme Court ruled that under the Clean Air Act, the
EPA had to list whether CO2 (carbon dioxide) was a pollutant (Baron 2013). Under
the Obama Administration, CO2 is indeed listed as a pollutant (Baron 2013).
President George W. Bush’s Administration did not regulate CO2 as a pollutant
(Baron 2013).
Environment Protection Regulatory Framework
Widespread government regulation of the effects of pollution on the environment
is a relatively recent development. In the early 1900s, President Theodore Roosevelt
established the National Park System and relied heavily on the power given to him
under the Antiquities Act allowing the executive to preserve land and sites of
historical or scientific value. As an avid outdoorsman, Teddy Roosevelt also created
the US Forest Service. In this tradition, Franklin D. Roosevelt expanded the national
parks with his Great Depression era program, the Civilian Conservation Corporation
(CCC). This program flourished until the United States’ entry into World War II
after the attack on Pearl Harbor (Franklin D. Roosevelt Library and Museum).
However, in the first part of the twentieth century, land was still viewed as for the
enjoyment of people rather than in terms of overall sustainability.
In the post-World War II era, ecology became a larger part of the public discourse
as the population grew with the baby boomer generation and new housing was built
for veterans returning home. Some began looking at the environment as a “public
good” rather than just an economic resource. Most importantly, in the 1970s, public
concern for the environment was running particularly high, affecting the political
climate and making change possible that may not otherwise have happened. Some
major events occurred during this era, altering public consciousness and leading up
to the changes of the 1970s. In 1962, Rachael Carson wrote Silent Spring (Carson
1990), a book that raised public awareness of the dangers of DDT pesticides
(a chemical pest control used as an insecticide from the 1940s and eventually banned
Consumer, Employee, and Environment 161
from the US in 1972) (US Environmental Protection Agency 2012). The Cuyahoga
River near Cleveland, Ohio caught fire in 1969 from a spark from a rail car, igniting
flammable materials floating on the river. This event was well covered by the media
locally and nationally, causing a discussion regarding the value of natural resources
and modern industrial developments (US Environmental Protection Agency 2013).
Although the river had caught fire several times before, this fire sparked the interest
of the nation. These issues stirred the public’s interest and illustrated the fact that
environmental resources are not unlimited. Conservation advocacy for protection
of federally owned lands became an issue in the forefront during this time (Bates
and MacDonnell 2010). As a result, in 1969 Congress passed the National
Environmental Protection Act (NEPA), mandating that negative environmental
impacts of potential federal agency actions needed to be listed on environmental
impact statements (EIS) (US Environmental Protection Agency 2013).
Formation of the EPA
Although environmental matters were addressed by different entities in the
federal government in 1970, some thought that these older agencies were acting in
the interest of those they were intended to regulate (Lehne 2006). Ultimately, these
functions were to be gathered under a single umbrella, the US Environmental
Protection Agency. President Nixon issued an executive order, Reorganization
Plan No. 3 of 1970 (an order codified as 5 U.S.C. App. at 1132–1137, 1982) causing
structural reform, and the creation of the EPA. The agency was to be a single,
inde pendent, executive agency not at the cabinet level, and unique inasmuch as it
was not created by Congress. Born in the wake of elevated concern about environ –
mental pollution, the agency was established on December 2, 1970 to consolidate
a variety of federal research, monitoring, standard-setting, and enforcement
activities to ensure environmental protection (Connelly, Smith, Benson, and
Saunders 2003).
However, this formation structure created unusual regulatory challenges. Since
agencies had their “own traditions and styles” (Connelly et al. 2003, p. 307), after
the EPA was formed from different area agencies, legislation in single issue
areas occurred (Connelly et al. 2003). “The fragmented structure of the EPA was
reinforced by legislation, such as the Clean Air and Water Acts, which tended to
focus on specific media” (Connelly et al. 2003, p. 307). This piecemeal policy-
making occurred in part because of the political importance of environmental issues
being dealt with individually as they appeared on the public’s radar screen, rather
than reconstructing a framework altogether; for example, having separate
departments take on different tasks. Instead of monitoring enforcement and research,
Congress set out legal areas separately, like air, water, and pesticides (Marcus 1991).
Legislation
The US Code lays down different government subjects of authority by title. Most
environmental statutes are under Title 42 of the US Code, which covers “public
health.” Numerous environmental laws cover a broad range of relatively diverse
162 Business–Government Relations in the Sociopolitical Arena
Consumer, Employee, and Environment 163
environmental issues. A complete list of environmental laws and executive orders
can be found in Laws and Regulations at the EPA official website (http://www.epa.
gov). In the following, we introduce a few important pieces with regard to water
pollution, air quality, endangered species, and oil pollution.
WATER POLLUTION
The Refuse Act of 1899 is considered the first environmental law passed by Con –
gress. The Act prohibited “dumping of refuse” into navigable waters. In the absence
of the EPA, the Act was administered by the Army Corps of Engineers, focusing
on controlling debris that obstructed navigation.
Subsequently in 1948, 1956, and 1972, the Federal Water Pollution Control
Act, commonly referred to as the Clean Water Act (CWA), and a number of other
amendments were enacted to regulate the various aspects of water pollution.
The principal body of the CWA in effect is based on the Federal Water Pollution
Control Act Amendments of 1972. The CWA’s primary goal is to prevent water
pollution and maintain the integrity of the nation’s waters and wetlands, as well
as to provide public assistance for the improvement of wastewater treatment. The
CWA established the structure for regulating pollutants discharged into waters.
It also gave the EPA the authority to implement pollution control programs, such
as setting wastewater standards for industry.
EXHIBIT 5.6
EPA’s Superfund
In the 1980s, the EPA developed the Superfund program to clean up sites where
toxic dumping had already occurred. The Superfund project includes 2,000 sites
and has cost $600 billion. So that taxpayers are not overly burdened, parties
that are responsible for the pollution are liable for paying for the clean-up (Baron
2013). More than 60 percent of toxic clean-up has been paid for by polluters
(Baron 2013). If the party does not agree to finance clean-up of the pollution
it has created, the EPA can pursue action in federal court to compel the
companies to pay (US Environmental Protection Agency 2013).
The Superfund has lost popularity over time. Firms argued that at the time
they dumped the waste it may have been legal. Also, all sites have to be cleaned
to the same standards, when the levels of pollution dumped may differ. Initially,
there was a tax on firms in general to pay for the Superfund clean-up projects
(Baron 2013). Congress removed the tax on firms charged with site clean-up.
This money now comes from the federal government and those firms that have
caused the toxic dumping are responsible to pay for the clean-up from their
own pollution (Baron 2013).
http://www.epa.gov
http://www.epa.gov
The CWA does not directly address groundwater contamination, which is
covered by the Safe Drinking Water Act, Resource Conservation and Recovery Act,
and the Superfund program. The Safe Drinking Water Act of 1974 gave the EPA
the authority to set standards for drinking water quality and oversee the
implementation of standards by state and local water suppliers. The Act was
amended in 1992 to regulate more contaminants and was also renewed in 1996.
The renewed Act requires all community water systems to provide consumer
information (i.e., consumer confidence reports) about any significant contaminants
in their water supply. The Resource Conservation and Recovery Act of 1976, which
amended the Solid Waste Disposal Act of 1965, regulates the disposal of solid waste
and hazardous waste and sets standards for groundwater monitoring. Exhibit 5.6
discusses one way the EPA has tried to address the problem of toxic clean-up
of pollution.
OIL POLLUTION
The Oil Pollution Act of 1924, under the authority of the Public Health Service,
prohibited the discharge of oil into coastal waters. In later decades, a number of
oil pollution Acts were enacted. The Oil Pollution Act of 1961, mirroring the
International Convention for the Prevention of the Pollution of the Sea by Oil
(OILPOL) of 1954, prohibited the discharge of fossil fuel pollutants from nautical
vessels along the US coastline. The OILPOL was an international environmental
protocol evoked to restrict the disposal of hazardous waste that could potentially
contaminate marine ecosystems. The 1973 Amendments of the Oil Pollution Act
accentuated the OILPOL and acknowledged the embargo of coastal zones in
trans-boundary waters. In 1990, as a response to the Exxon Valdez oil spill (see
Exhibit 5.7), Congress enacted the Oil Pollution Act to mitigate and prevent civil
liability from future oil spills off the US coast. The Act requires oil firms to have
a plan to prevent potential future spills as well as a detailed containment and clean-
up plan. The Act significantly improved oil spill governance in the United States.
164 Business–Government Relations in the Sociopolitical Arena
EXHIBIT 5.7
Exxon Valdez, Deepwater oil spill
Although environmental harm may not be a result of intentional decisions
made by a corporation, firms are financially responsible for employee
negligence or human error and mechanical malfunctions. The 1989 Exxon
Valdez oil spill along the coast of Alaska and the more recent BP oil spill in the
Gulf of Mexico are major examples of environmental disasters for which
companies were held financially responsible for the error as well as the clean-
up. In the case of the Exxon Valdez oil spill, the oil tanker ran aground, and
although all of the circumstances were not clear, it was known that the ship’s
Consumer, Employee, and Environment 165
captain had been consuming alcohol and that another ship member made
a navigation mistake (State of Alaska 1990). The Exxon Valdez disaster is
particularly well known for the amount of wildlife harmed in Prince William
Sound.
As a result of a guilty plea to criminal charges, the oil company agreed to
pay a fine of $150 million. However, due to the company’s compliance with
clean-up efforts, the fine was reduced to $25 million. Exxon agreed to pay $100
million in restitution and a settlement of $900 million over a period of ten years
(US Environmental Protection Agency 2013). The EPA coordinated clean-up
efforts between Exxon and the state and federal governments (Memorandum
of Agreement and Consent Degree, 1991). These agreements fell under the
Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
S 9601 et seq. and the Clean Water Act or Federal Water Pollution Control Act,
33 U.S.C. SS 1251–1376, as amended. As a result of the Exxon Valdez oil spill,
Congress passed the Oil Pollution Act of 1990, increasing the safety measures
for oil tankers (US Environmental Protection Agency 2013).
The Deepwater oil spill in the Gulf of Mexico by British Petroleum in 2010
was the largest oil spill in US history. On April 20, 2010, the Deepwater Horizon
rig exploded, killing 11 people. Much of the reason that the oil spill was so
damaging was because BP was unable to close the Macondo well at the bottom
of the ocean for 87 days. The spill was devastating to marine wildlife and to
the tourist industry in the states bordering the Gulf. BP paid $25 billion to clean
up the damage (Barrett 2013).
Birds killed as a result of oil from the Exxon Valdez spill.
Source: Wikimedia Commons.
166 Business–Government Relations in the Sociopolitical Arena
AIR QUALITY
In 1963, the United States enacted its first law, the Clean Air Act, addressing the
issue of air pollution. The Act designated the EPA as the authority to develop
and enforce regulations to protect the public from airborne contaminants. Later, the
1967 Air Quality Act mandated enforcement of interstate air pollution standards.
A series of amendments to the Clean Air Act were passed in 1970, 1977, and
1990, enhancing and expanding the regulatory controls for air pollution. The 1970
amendments largely expanded the regulatory power to require comprehensive
federal, as well as state, regulations for both stationary and mobile pollution sources.
The 1990 amendments extended the coverage to acid rain, ozone depletion, and
toxic air pollution. Most noticeably, the amendments mandated new auto gasoline
reformulation, established standards for Reid vapor pressure (a measure of the
volatility of gasoline) and leveled controls on evaporative emissions from gasoline.
These standards have been extended to, and implemented by, many states.
ENDANGERED SPECIES
The Endangered Species Act of 1973 addresses how to protect species from
extinction as a consequence of economic growth and development. The predecessor
of the Act was the Endangered Species Preservation Act of 1966, which authorized
the Secretary of the Interior to list and protect endangered native fish and wildlife
species. The Endangered Species Conservation Act of 1969 amended the 1966 law
to prohibit the importation and subsequent sale of species in danger of worldwide
extinction in the United States. See Exhibit 5.8 below for an example of the
Endangered Species Act in action.
EXHIBIT 5.8
The Spotted Owl issue
The purpose of the 1973 Endangered Species Act became controversial with
the Spotted Owl issue. Old growth forests in the Pacific Northwest were being
logged in a clear-cutting style, where trees are not selectively cut to avoid soil
run off and not otherwise protected by legislation, state, or federal laws.
Particular wildlife species, whose numbers were low, lived in these old growth
forests. One of the species for which the forests serve as a habitat is the
Northern Spotted Owl. In the case of the Spotted Owl, the Sierra Club Legal
Defense Fund (SCLDF) became involved and strove to use laws as tools in the
hope that federal courts would interpret those laws in a positive way to
accomplish their objective of environmental protection. The timber companies
strove to achieve the results they wanted through Congress.
The Northern Spotted Owl was not listed as an endangered or threatened
species in 1989. When the case initially was brought to federal district
court by the SCLDF, the court ordered the US Fish and Wildlife Service to
Consumer, Employee, and Environment 167
list the Spotted Owl as threatened or endangered. Although the USFWS listed
the Spotted Owl as endangered in 1990, it did not designate a critical habitat
to protect the owl from losing its home and avoid endangerment. The US
Federal District Court for the District of Oregon ordered the agency to do this
also (Kagan 2004).
The SCLDF also sued the National Forest Service. The court held that there
was a need to preserve the entire biological community. US District Court for
the District of Oregon found that the Northern Spotted Owl was “now
threatened with extinction.” This ruling was appealed to the Ninth Circuit
Court of Appeals and upheld. Part of the significance of this ruling is that it
was “rejecting the agency’s scientific and legal counterarguments” (Barnes
2004, p. 16).
Spotted Owls.
Source: Wikimedia Commons.
Implementation and Enforcement at Federal and State Level
As opposed to many other federal agencies that operate out of Washington, DC, where
the vast majority of decisions are made at headquarters, the EPA has ten regional
districts dividing up the states and territories. Regional offices are largely responsible
for compliance with, and as with many regulatory agencies, settling with industry
actors. Like many regulatory agencies, legal settlements are far more common than
litigation, which tends to be used in only cases of clear criminality or significant
corporate–government disputes (Eisner, Worsham, and Ringquist 2006).
Some states choose to depart from the federal government by increasing
protection due to physical, political, and economic environments in varying regions.
These differences from federal practices occurred in the two most populous states
of the US, California and New York, with two major pieces of federal legislation—
the Clean Air Act and the Clean Water Act.
Although the CAA mandates minimum standards for air quality, California has
determined that due to the smog level and particular circumstances of the state, it
needed more stringent standards for automobiles. The California Air Resources
Board passed “clean car” rules regulating the production, transportation, and
emission of fossil fuels from cars creating greenhouse gases (Rogers 2013). These
rules will require the auto industry selling new cars in the state to have almost no
emissions by 2025, forcing the automakers that market in the state of California to
adapt (Rogers 2013).
Similarly, certain states question whether the CWA is adequate to protect water
quality. As natural gas is more relied on as an energy source, the effects of the
hydrofracking style of drilling become a greater concern. Hydrofracking, or more
commonly ‘“fracking,” is the practice of drilling through bedrock using water
pressure, to reach any underlying fossil fuels. Afterward, the water needs to be
disposed of in such a way as to not pollute the drinking water supply. Although
many states, including Wyoming and Pennsylvania, have allowed fracking, the issue
has been particularly contentious in New York. Upstate New York has suffered from
the post-industrial economy (DeWitt 2013). The Marcellus Shale deposit is located
below the surface of many northeastern states, including New York, and covers a
large deposit of natural gas (Hobson 2013). However, the New York legislature is
unconvinced that the practice of fracking is safe for groundwater, and, for now, the
practice is prohibited (DeWitt 2013).
Further, the state of California has numerous types of ecosystems. Therefore, as
a state with a population over 38 million that is continuing to grow, California has
specific guidance for what types of chemicals can be used in various landscaping
practices (University of California Agricultural and Natural Resources 2006). There
has been encouragement by groups to add more natively grown plants to the
landscape (Matzge 2013). A list of approved chemicals that are less likely to hurt
the water table is available at the California Cal/Ecotox Website (http://www.oehha.
ca.gov/cal_ecotox/).
The Debate about Social Regulation
Social regulation, like any other government intervention, is not free from political
controversy. Whereas most people admit the need for social regulation, the degree
to which government regulates a particular industry for a specific protective purpose
tends to be a target of debate. Those in support of social regulation point out that
it can enhance economic efficiency and improve people’s well-being by eliminating
unsafe and unhealthy products, by improving working conditions, and by reducing
pollution. Consumer groups, civil rights groups, unions, and environmentalists are
general advocates of social regulation.
168 Business–Government Relations in the Sociopolitical Arena
http://www.oehha.ca.gov/cal_ecotox/
http://www.oehha.ca.gov/cal_ecotox/
Critics of social regulation are often represented by business interest groups
as well as neoliberal economists. As the cost of social regulation is high, critics
of social regulation often argue that many standards are not economically sound,
in that costs may exceed benefits, leading to overregulation. Many regulations are
rather rigid and ineffective, often stifling or reducing competition. They also
point out that many rules and standards have unintended consequences, such as
over burdening, market distortion, and tradeoff. For example, energy conservation
and emission control regulations (e.g., the Energy Policy and Conservation Act of
1975) led to the production of lighter and more fuel-efficient cars, which may be
less safe and contribute to higher fatality rates. In addition, many standards and
regulations are considerably vague or poorly written, causing significant imple –
mentation obstacles and resulting in regulation apart from the original purpose
and scope.
Although most policy-makers and economists agree that cost–benefit analysis
helps in determining the optimal level of social regulation, there is disagreement
on how to measure the cost and benefit of a particular regulation. The benefits of
social regulation are difficult to measure and often realized only after the regulation
has been passed and implemented. Some social values, such as equity, fairness, and
humanity, are hard to quantify in economic terms. Although some studies have been
conducted in this area, data on the impact of regulations was weak, sparse, and
incomplete (Boyne 2003).
Despite these arguments, there are continuing problems in demanding additional
social regulation. In reviewing US regulatory history, it is evident that most social
regulations were enacted as a response to tragedies or crises resulting from
irresponsible business practices. One cannot help but think that if corporations were
more socially responsible, many social problems could be avoided and the need for
government intervention would diminish.
ANALYTICAL CASE: EMPLOYEES WITH DISABILITIES
James Carson is the owner of Kaber Corporation (KC), which manufactures garments
for weddings and other unique occasions. Because of increased demand, Carson
has realized that KC can hire two new employees in addition to the 48 employees
who currently work for KC. Twenty people applied, with varying levels of experience
in the garment industry. These new employees must be able to sew detailing into
the garments. Although KC has continued accepting and filling small regular orders,
weekend events are where it makes the majority of its revenue. Among the pool of
applicants are Mike Harvey and Jennifer Johnson. Both job candidates passed a
basic sewing skills test in the management office prior to their interviews.
Harvey is in a wheelchair and unable to stand. Generally, employees need to stand
when putting the details on garments because the garments are so long.
Jennifer Johnson has a documented panic disorder. Johnson is a competent
seamstress but becomes agitated when put in stressful situations. Carson is
concerned about Jennifer because they often do not have much time to fill work
orders.
Consumer, Employee, and Environment 169
170 Business–Government Relations in the Sociopolitical Arena
Questions for Discussion and Analysis:
1. How are the job obligations similar and different for Harvey and Johnson?
Can the employees fulfill the “essential functions” of the job?
2. What reasonable accommodations could be made?
3. Does it matter that the applicant passes the sewing test?
4. Do the large-scale orders that are the basis for the firm’s income matter in this
question?
PRACTICAL SKILL
Complying with government regulation
It is critical for business to comply with government regulations, as
violations always incur not only damages to society, but also costs to firms,
such as the Walmart case indicates. Compliance with various laws can be
onerous and complicated without effective planning and management. Here
we use Trujillo Landscaping, Inc. as an example in our case scenario at
the beginning of the chapter and offer a few tips about how to comply with
environmental regulations.
Tip 1
Determine whether the legislation applies to your business. If you are not
an independent business owner, ensure the competencies of other
companies with whom you are contracting to do business. Have several
checks on management and on design. Environmental legislation applies
to businesses of all sizes and many sectors, such as food, agriculture, and
construction, which is subject to specific laws and regulations.
Tip 2
Find out which laws are likely to affect your business and who enforce the
laws. Know which level of government regulates your business or if it is
regulated at more than one level.
Tip 3
Know where to find the relevant information. A good starting point will be
the regulatory agency’s official website. For example, the EPA website
offers complete compliance guidance as well as compliance assistance
training. In addition, the Small Business Administration also offers assist –
ance for legal compliance for a variety of legislation. For example, the EPA
Office of the Small Business Program offers information on how businesses
may comply with environmental standards at the state and federal levels.
SUMMARY AND CONCLUSION
1. The historical evolution of government indicates that social regulation was largely
expanded during the Big Government Era. This chapter introduces government’s
regulatory role in terms of protecting the consumer, employee, and environment.
2. Public interest theory, public choice theory, and self-regulation theory offer
different lenses through which to see the rationale for regulation. Regardless of
which theoretical framework seems the most accurate, social regulations have
become increasingly intricate, and it is crucial that firms are aware of when their
business practices involve an area that is covered by these social regulations.
3. The US Constitution provides the authority for regulation. Regulatory agencies
assume the responsibility to promulgate rules, make policies, and resolve disputes.
4. US social protective regulation generally covers three areas, namely consumer
protection, employee protection, and environmental protection.
5. Consumer protection laws and regulations are comprised of three major areas—
prevention of fraud and misrepresentation of food, drugs, and cosmetics,
protection of consumers from unfair competition and deceptive practices, and
consumer product safety.
6. Employee protection regulations protect the welfare of employee, including wages,
working hours, health, safety, and working conditions, as well as rights to equal
employment opportunities.
7. Environment protection is enabled through both cap and trade and command and
control. The EPA assumes the authority to regulate a variety of environmental
issues, such as air quality, water quality, oil pollution, and endangered species.
8. Despite various arguments against social regulation, such as high cost, unintended
effects, market distortion, and ineffective regulation, social regulation is deemed
necessary and will continuously correct irresponsible business practices.
Consumer, Employee, and Environment 171
Tip 4
Develop a corporate compliance policy. If resources allow, it is best to
develop a written compliance policy in consultation with relevant legal
experts. The policy should be regularly reviewed and updated, routinely
communicated to relevant staff, and supported by records of review and
implementation.
Skills Exercise
Please brief Tomas Trujillo on the regulatory framework of the US and
advise Tomas where and how to find relevant groundwater regulations for
the Trujillo Landscaping business.
172 Business–Government Relations in the Sociopolitical Arena
STUDY QUESTIONS
1. Discuss the US regulatory framework. In your discussion, highlight the roles of
the Constitution, federal regulatory agencies, the court, and state governments.
2. What are the three areas of consumer protection? Discuss fully and offer legislation
examples.
3. Why is consumer protection necessary? What are the costs and benefits of
consumer protection?
4. What are the two major aspects of employee protection? Discuss fully and offer
legislation examples.
5. Why is employee protection necessary? What are the costs and benefits of
employee protection?
6. Why is environmental protection necessary? What are the costs and benefits
of environmental protection?
7. What are the arguments for and against social regulation?
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alert.html.
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States. URL: http://www.dol.gov/whd/minwage/america.htm.
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174 Business–Government Relations in the Sociopolitical Arena
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https://www.osha.gov/dts/hazardalerts/methylene_chloride_hazard_alert.html
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https://www.osha.gov/dcsp/smallbusiness/index.html
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https://www.osha.gov/employers/index.html
PA 315
GOVERNMENT BUSINESS RELATIONS
CHAPTER 5
California State University San Bernardino
College of Business & Public Administration
Professor Sharon Pierce
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REGULATION – WHAT DOES IT MEAN?
Regulation –
The act of governing, directing according to rule, or bringing under the control of law or constituted authority.
A federal regulatory agency –
Has decision-making authority
Establishes standards
Operates principally on domestic business
Has members appointed by the President subject to Senate confirmation
Has its legal procedures governed by the Administrative Procedures Act – governs they way an agency may propose and establish regulations
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Checks and balances in place.
The Administrative Procedure Act (APA) enacted June 11, 1946, is the United States federal statute that governs the way in which administrative agencies of the federal government of the United States may propose and establish regulations.
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MAJOR U.S. FEDERAL REGULATORY AGENCIES
Consumer Product Safety Commission (CPSC): enforces federal safety standards
Environmental Protection Agency (EPA): establishes and enforces pollution standards
Equal Employment Opportunity Commission (EEOC): administers and enforces Title VIII (8) or the Civil Rights Act of 1964 (fair employment)
Federal Aviation Administration (FAA): regulates and promotes air transportation safety, including airports and pilot licensing
Federal Communications Commission (FCC): regulates interstate/foreign communication by radio, telephone, telegraph, and television
Federal Deposit Insurance Corporation (FDIC): insures bank deposits, approves mergers, and audits banking practices
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Federal Reserve System (the FED): regulates banking; manages the money supply
Federal Trade Commission (FTC): ensures free and fair competition and protects consumers from unfair or deceptive practices
Food and Drug Administration (FDA): administers federal food purity laws, drug testing and safety, and cosmetics
Interstate Commerce Commission (ICC): enforces federal laws concerning transportation that crosses state lines
National Labor Relations Board (NLRB): prevents or corrects unfair labor practices by either employers or unions
Occupational Safety and Health Administration (OSHA): develops and enforces federal standards and regulations ensuring working conditions
Securities and Exchange Commission (SEC): administers federal laws concerning the buying and selling of securities
BUSINESS, GOVERNMENT, AND REGULATION
The government tends to become involved in business after serious problems arise, and there has been no shortage of problems.
Women and children working long hours – Massachusetts passed the nation’s first law to limit work days to 10 hours for women and children in 1874
Railroad prices were out of control – regulation of railroad rates in 1887 (Interstate Commerce Commission)
Crash of 1929 – regulation of stock market in 1934 (US Securities and Exchange Commission)
Industrial revolution brought workforce issues 1930’s and up
Airline industry in the 1980’s
Financial crisis late 2000’s
Manmade environmental disasters such as Deepwater Horizon oil spill in 2010
Government needed to step in
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GOVERNMENT’S
REGULATORY INFLUENCE ON BUSINESS
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Government Regulation can be controversial in the business-government relationship as it affects every aspect of business.
Some regulation necessary –
consumers and employees are treated fairly
consumers and employees are not exposed to hazards
to protect the environment
Would you agree?
Regulations can be too extensive in scope, too costly, and burdensome in terms of red tape.
ISSUES RELATED TO REGULATION –
Innovation may be affected –
When corporate budgets must focus on “defensive research” certain types of innovation are less likely to take place.
New investments in plant and equipment may be affected –
To the extent that corporate funds must be used for regulatory compliance, they are diverted from more productive uses.
Small business may be adversely affected –
Federal regulations can have a disproportionately adverse effect on small firms because of the cannot compete with larger firms
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THE ROLES OF
GOVERNMENT AND BUSINESS
What should be the role of government when it comes to regulating business?
If the role of business were simply production and distribution of goods and services, business would need little regulation.
What is their bottom line?
Important factors to consider – business does not automatically factor into the business decision making process.
safe working environment
equal employment opportunities
fair pay
clean air
safe products
As a result, it falls to government to ensure those goals are achieved.
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EXAMPLES OF GOVERNMENT REGULATION IN OUR LIVES…
Going to school –
local, state, and federal government regulate and funds schools we have an educated workforce
Take a shower –
water that flows from your showerhead has been analyzed by your local water department to ensure safety
Brushing your teeth –
a government agency assured that the ingredients in your toothpaste are safe and it was packaged safely
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Driving –
traffic laws that allowed you to get to school safety have been created and enforced by local government and police departments.
Listening to the radio –
you can enjoy music because a government agency assigns a separate frequency to each competing station.
Going to work –
government agencies assure that your workplace is safe and protect you from discrimination.
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GOVERNMENT AS A PROTECTIVE REGULATOR
Regulations falls into two categories
Economic regulations – sets prices or conditions on entry of firms into an industry
Federal Communications Commission (FCC)
Civil Aeronautics Board (CAB)
Social regulations – involves the correction of externalities and in largely protective in nature
Environmental Protection Agency (EPA)
Occupational Safety and Health Administration (OSHA)
Concerned with the qualities of the goods and services produced, the conditions under which production occurs, and impact of production on society
COMPARISON OF
ECONOMIC AND SOCIAL REGULATION
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TYPES OF REGULATION (1 OF 2)
FTC – main goals are to protect consumers and to ensure a strong competitive market by enforcing a variety of consumer protection and antitrust laws. These laws guard against harmful business practices and protect the market from anti-competitive practices such as large mergers and price-fixing conspiracies.
FCC – regulates interstate and international communications by radio, television, wire, satellite and cable –
Federal Communications Commission (FCC) – The FCC regulates interstate and international communications by radio, television, wire, satellite and cable in all 50 states, the District of Columbia and U.S. territories. The FCC is an independent government agency overseen by Congress. The FCC is primary authority for communications law, regulation and technological innovation.
NET NEUTRALITY –
While the removal of net neutrality restrictions on internet service providers will allow ISPs to charge more or less for user-access to individual websites,
the Federal Trade Commission will monitor ISP activities to provide against monopoly formation and unfair trade practices.
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FEDERAL TRADE COMMISSION
Mission:
To prevent business practices that are anticompetitive, deceptive, or unfair to consumers
Consumer Protection:
The Federal Trade Commission Act provides that “unfair or deceptive acts or practices in or affecting commerce…are…declared unlawful.”
(15 U.S.C. Sec. 45(a)(1))
Competition:
The FTC Act also prohibits “unfair methods of competition.”
(15 U.S.C. Sec. 45(a))
Including any conduct that violates the Sherman Antitrust Act or the Clayton Act
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ANTITRUST LAWS
SHERMAN ACT
Passed by Congress in 1890.
Regarded as a way to reduce concerns that large business interests dominated industry.
Private parties may sue.
The major sections of the Act are so broad that one could find almost any business activity to be illegal.
No restraint of trade
Cannot monopolize or attempt to monopolize
CLAYTON ACT
Enacted in 1914
Wanted government to have the ability to attack a business practice early in its use to prevent a firm from becoming a monopoly.
Practices are illegal that “substantially lessen competition or tend to create a monopoly.”
Private parties may sue
Clayton Act exempts some activities of nonprofit and certain agricultural, fishing and some other cooperatives.
WHAT DOES THE FTC DO…
Challenges deceptive advertising and marketing
Consumers should get what they pay for. The FTC works to ensure that national advertisers can back up the claims they make for their products, especially health and safety claims. (Sketchers)
Protects consumer in the tech industry
Applies antitrust/consumer protection principles to technology markets, focusing on the facts as they develop in real time to asses when to best protect consumers and how to encourage competition. (Apple – $32.5m settlement for in-app purchases)
Safeguards children
The Children’s Online Privacy Protection Act (COPPA) and the FTC’s COPPA Rule protect children’s privacy when they’re online by putting their parents in charge of who gets to collect personal information about their preteen kids. The FTC enforces COPPA by ensuring that parents have the tools they need to protect their children’s privacy.
Protects consumers in economy
Takes effective actions to ensure that consumers are protected from abusive credit practices and get the information they need to make informed financial choices.
www.ftc.gov
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WHAT DOES THE FTC DO…
Protects consumer privacy
Makes sure companies keep their privacy promises to consumers, and ensure that consumers have confidence to take advantage of the benefits that a dynamic marketplace offers.
Accuracy and transparency in Credit Reporting
Ensure consumers have tools to keep credit information accurate.
Stopping Fraud
Law enforcement to prevent consumer fraud continues as a high priority for the agency.
Health Industry
The FTC is engaged in ongoing efforts to stop (1) bogus claims that unproven remedies can be used to prevent and treat serious diseases and (2) misleading claims for products promoting easy weight loss and slimmer bodies. Finally, the FTC is committed to ensuring that firms who collect that data use reasonable and appropriate security measures to prevent it from falling into the hands of identity thieves and other unauthorized users.
Wellness Support Network – $2.2 m phony claims regarding diabetes
Energy and Environmental Products
Devotes significant resources to ensure that competition to produce these items remains robust and that consumers are protected.
TYPES OF REGULATION
EEOC – responsible for enforcing federal laws regarding discrimination against a job applicant or an employee in the United States of America.
OSHA – responsibility of ensuring safety at work and a healthful work environment.
EPA – the purpose of protecting human health and the environment by writing and enforcing regulations based on laws passed by Congress.
CONSUMER PROTECTION
Refers to the regulatory framework designed to ensure right of consumers, as well as fair competition and accurate information in the marketplace.
Consumers have the freedom of choice – free to accept or reject a product
Producers have to effectively respond to the needs of consumer in order to pursue a profit
In the past, the relationship with buyer and seller was “buyer beware” – both parties were responsible for knowing their product
Too many products in the marketplace
Increased demand for protecting the rights of consumers came into play
The first industrial revolution was the result of the war of 1812
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CONSUMER PROTECTION
Prevention of fraud and misrepresentation of food, drugs, and cosmetics.
Protect consumers from –
Contamination
Misbranding
Mislabeling
FDA – Food and Drug Administration –
The Food and Drug Administration is responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices; and by ensuring the safety of our nation’s food supply, cosmetics, and products that emit radiation.
https://www.fda.gov/
EMPLOYEE PROTECTION
Employee protection refers to the legal framework that protects the welfare of employees, including wages, working hours, health, safety, and working conditions, as well as the right for equal employment opportunities.
EMPLOYEE PROTECTION
Factory Act – 1833 – to improve conditions for
children working in factories.
no child workers under nine years of age
employers must have an age certificate for their child workers
children of 9-13 years to work no more than nine hours a day
children of 13-18 years to work no more than 12 hours a day
children are not to work at night
two hours schooling each day for children
four factory inspectors appointed to enforce the law
However, the passing of this act did not mean that the mistreatment of children stopped overnight.
In 1833 the Government passed a Factory Act
Young children were working very long hours in workplaces where conditions were often terrible.
The basic act was as follows:
no child workers under nine years of age
employers must have an age certificate for their child workers
children of 9-13 years to work no more than nine hours a day
children of 13-18 years to work no more than 12 hours a day
children are not to work at night
two hours schooling each day for children
four factory inspectors appointed to enforce the law
However, the passing of this act did not mean that the mistreatment of children stopped overnight. Using these sources, investigate how the far the act had solved the problems of child labour.
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EMPLOYEE PROTECTION
Industrial revolution – 1874 Massachusetts passed the nation’s first law to limit the working hours of women and children employed in factories
Fair Labor Standards – 1938 – introduced a maximum 44 hour, seven day work week and established a minimum wage
Occupational Health and Safety – 1970 Occupational Safety and Health Act to ensure employers provided their employees with a working environment free from recognized hazards such as toxic chemicals, unsanitary conditions, mechanical dangers, etc. OSHA was established in the US Department of Labor – April 28, 1971.
Family Medical Leave Act – 1993 – balance the demands of the workplace with the needs of family.
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ENVIRONMENTAL PROTECTION
In the 1900’s, President Theodore Roosevelt established the National Park System – preserve land and sites of historical or scientific value.
Post WWII, environment became a larger part of the public discourse – viewed as a public good
In 1969, the Cuyahoga River near Cleveland, Ohio caught fire from a spark from a rail car, igniting flammable materials floating on the river. As a result, in 1969 Congress passed the National Environmental Protection Act (NEPA) – which mandates that negative environmental impacts of potential federal agency actions needed to listed on environmental impact statements (EIS).
FORMATION OF THE EPA
ENVIRONMENTAL PROTECTION AGENCY
Born in the wake of elevated concern about environmental pollution, EPA was established on December 2, 1970.
To protect from significant risks to human health and the environment where they live, learn, and work
National efforts to reduce environmental risk
Protect natural resources, human health, economic growth, energy, transportation, agriculture, industry, and international trade
ENVIRONMENTAL PROTECTION
Reasons why –
Climate change
Wealthy countries consume and are responsible for more than their share of pollution
Ensure the air we breath is free of contaminants
Clean water
Create a healthy environment
GOVERNMENT AS A REGULATOR OF BUSINESS
Regulation is a type of government intervention in economic activity through commands and controls enforced with coercive power.
Deregulation is the reduction or removal of government intervention in a particular industry – usually enacted to create competition.
DEREGULATION
Deregulation has been a priority for President Trump –
Shortly after being elected president, Donald Trump signed an executive order directing all federal agencies to find two regulations to cut for every new one issued.
Agencies also were asked to pay for new regulatory costs by eliminating existing rules.
Regulations that have been eliminated – 22 for every 1 that has been put into place.
Neomi Rao, the administrator of the Office of Information and Regulatory Affairs, said the administration had completed 67 deregulatory actions and taken three regulatory actions through the end of September that would result in a cost savings of $570 million a year.
Those deregulatory actions include a wide range of actions, including the withdrawal of guidance documents and reductions in paperwork burdens, and a dozen regulations killed by Congress, Rao said.
More than 1,500 regulations other rules and regulations have been withdrawn, delayed, or are under reconsideration, officials said.
Administration believes By amending and eliminating regulations that are ineffective, duplicative, and obsolete, the Administration can promote economic growth and innovation and protect individual liberty.
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CURRENT STATE OF DEREGULATION
Deregulation has been a priority for President Trump
Shortly after being elected president, Donald Trump signed an executive order directing all federal agencies to find two regulations to cut for every new one issued.
Agencies also were asked to pay for new regulatory costs by eliminating existing rules.
Regulations that have been eliminated – 22 for every 1 that has been put into place.
Administration believes by amending and eliminating regulations that are ineffective, duplicative, and obsolete, the Administration can promote economic growth and innovation and protect individual liberty.
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AIRLINE INDUSTRY
DEREGULATION OF THE AIRLINE INDUSTRY
Economy was poor: high prices, high unemployment
Airlines: regulated since the 1930’s
No new competition
Civil Aeronautics Board (CAB) regulated aviation services, included scheduled airline services, fare pricing, discounting, controlled market entry,
Freddy Laker: Cheaper alternative
PanAm couldn’t compete with his prices
Alfred Kahn, former chair of the CAB: Assigned to investigate effectiveness of CAB by President Jimmy Carter
CAB closed
Competition in industry went UP
Prices of air travel went DOWN
Demand went UP
Airline Deregulation Act of 1978 – deregulated the airline industry removing US federal government control over fares, routes, and market entry of new airlines – free market in the commercial airline industry
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