The Importance of Regulation - Essay Example

The business world operates in global arena in which many market forces affect the operation of its participants. Free trade and globalization movement have helped spur business growth across the world. Operating in an open economy has helped provide business flexibility and created new opportunities. Despite the success of the open markets there is need for laws and governmental agencies to protect the best interest of the participants of marketplaces in different industries. Regulations have served the purpose of protecting business entities and other stakeholders.

This paper discusses the role different regulations play in helping or inhibiting business growth. One of the oldest business regulations which has protected businesses from abuse of power by larger dominant players is the Sherman Act of 1890. The Sherman Act is an antitrust regulation which outlaws contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade (Classbrain). One of the primary things that the Act attempts to prohibit is the manifestation of monopolies, particularly those that are achieved by suppressing the competition with unethical anticompetitive conduct.

The powers of this act were extended in 1914 with the creation of the Clayton Act along with creation of the Federal Trade Commission. In 1982 the Sherman Act was instrumental in the breakup of the AT&T monopoly in the telecommunication industry (Infoplease). Today due to these regulations there is a lot of competition in the telecommunication industry which helped the general public because telephony services have drastically gone down. At the beginning of the 21st century the financial services industry which is home to Wall Street and the NYSE underwent a crisis due to the high number of corporate financial scandals associated with mismanagement of funds and fraudulent accounting activity.

Some of the biggest bankruptcy in US history took place with high profile companies such as Enron, WorldCom and Adelphia. The Enron case was possible the worst of them all because the firm had hidden for years the fact that their financial statements had been completely cooked and the high value of the company stock was a fantasy. When the company crashed everyone was hurt especially the employees who had been con into accepting a majority share of their retirement plans in the form of worthless Enron stocks.

The public confidence in the credibility of the financial markets was at an all time low which put at risk the liquidity of a financial infrastructure worth trillions of dollars. The US congress in alliance with the Security and Exchange Commission went to work to create new regulations to attend the problem. In 2002 the Sarbanes-Oxley Act was created. The Sarbanes-Oxley Act (SOX) is a public company accounting reform and investor protection act that improves the accuracy and reliability of corporate disclosure (Aicpa).

Regulations serve the important purpose of protecting the consumers in a marketplace. In the food industry safety is of utter importance and the quality of the food item produced have to comply with certain regulation to guaranteed consumer they will not endure any bodily harm as a result of consumption. The Food and Drug Administration (FDA) is the leading institution which regulates food production in the United States. The FDA also monitors the quality of imported food and can food goods from entering the United States if they not comply with their basic safety guidelines.

The FDA’s presence provides accountability and assures the consumer about the quality of the food items produced in the US. This has helped this industry gain acceptance in global marketplaces and allows exporting of US food products into foreign markets. One of the most important stakeholder groups in any business industry is the employees of firms. Employees have rights and there are regulations in place that protect the rights of the employees in different ways. The labor movement in the 20th century greatly benefit from creation of the Wagner Act in 1935.

The Wagner Act of 1935 was created by congress to protect the right of unionization (Bain). Unions have served an important role for employees in the corporate world because they have the power to negotiate directly with upper management better working condition and compensation for the entire workforce in an organization. Another regulation that affects the workers in the United States by providing important social privileges is the Family and Medical Leave Act. This Act provides workers up to 12 workweeks of unpaid leave per year to take care of a sick family member, when a new child is born in the family, or if the employee is unable to work due to sickness (Dol).

A country with a solid worker protection and human rights framework is a location that is attractive for potential investors. Regulations are important in order to bring order and protect the interest of different stakeholder groups. A regulation can completely change the fate of an industry by creating protective measures. The financial service industry in the United States was positively affected by the creation of SOX which raised the consumer confidence in the financial markets. Regulation can raise the cost doing business, but these costs typically are instilled to protect a social cause.

In the air travel industry there are lots of new regulations which raised operation cost after 9/11 in order to raise the safety standards to prevent terrorist attacks and protect human lives. These regulations had a similar positive long term affect of raising consumer confidence as the Sarbanes-Oxley Act had in the financial sector. Regulations raise the complexity of doing business, but they are necessary to protect the general public and to bring balance and equilibrium to the business world.

Works Cited Page Aicpa.org. 2008. “Sarbanes-Oxley.” 15 November 2008. Bain, B. “The NLRB: The Wagner Act of 1935.” 14 November 2008. Classbrain.com. 9 November 2008. “Sherman Act, 1890.” 15 November 2008. Dol.gov. 2008. “Family and Medical Leave Act.” 13 November 2008. Infoplease.com. 2008. “Sherman Antitrust Act.” 15 November 2008.