Business environment and public policy are inseparable concepts. Businesses need public policy to legitimize their existence and regulate their operations, and the subject of public policies is profoundly shaped by businesses and their operations. The contemporary emergence of the notion of both corporate and environmental sustainability has thrown into the limelight the two concepts. Both modern-day business environment and public policies are aimed at achieving sustainability, which is the only way of tackling deleterious environmental issues such as global warming and pollution and ensuring the continuity of corporate operations.
Definition and Relationship Between Business Environment and Public Policy
Business environment and public policy are two distinct fields that combine in numerous intricate ways to shape and influence each other’s operations. Enterprises are established for the main purpose of profit-making (Bell 217). They are creations of the government as they are legal entities established under the laws and policies that the government creates, and the government shapes them as it is a key stakeholder in the corporate environment. Public policies are also formations of the government, although they provide a legal mechanism and framework for the regulation of the business environment (Farnsworth 100). Bell argues that businesses have to understand the political and public policy context on which they operate to be strategic in their interactions with the government (218). Government, through the use of public policies, exerts considerable influence on the activities businesses, for example, through taxes and subsidies, and this impacts the general performance of businesses. To ensure that their operations remain profitable businesses rely on the government to enact public policies that ensure economic stability. The concepts of the business environment and public policies are concerned with how public policy influences business strategy, operations, and governance and how businesses influence policy institutions and policy processes. Therefore, there is a mutual inter-relationship that exists between businesses and public policies.
History and Development
The relationship between businesses and government has been in existence since the development of trade in the pre-historic times. Businesses have always relied on the government for security with the government benefitting by imposing taxes on the corporations. Despite the long history of the relationship between business and government, a studious study of the two concepts was first done in the early 17th century (Draper 47). Scottish economists led by John Law, David Hume, James Mill, and Adam Smith researched the then existing relationship between the business environment and government public policies. Adam Smith, an eighteenth-century philosopher and political economy professor, in his 1776 seminal work The Wealth of Nations provides an in-depth analysis of how business and public policies relate in a capitalist system (Draper 53). Adam smith in his book the Wealth of Nations argue that the government through public policies play an essential role in regulating business transactions and therefore limit the excesses of capitalism (Draper 53). Smith also looked into the negative consequences of government regulations on business, and he, being pro-capitalist, argued that the government should not regulate business but facilitate their operations through the creation of public goods and infrastructure that enable commercial transactions. Smith’s arguments were later challenged by Karl Marx, a communist philosopher, and political economist, who held the view that the government should have complete control over the business environment by imposing stringent regulations (Draper 57). In his seminal work, The Communist Manifesto, Karl Marx, posits that the government should impose numerous restrictions on businesses to minimize workers’ exploitation and alienation (Draper 57). Indeed, the two philosophers, Adam Smith, and Karl Marx viewed the concepts of business and public policy through diametrical perspectives of capitalism and communism, respectively.
Capitalism and communism economics evolved into embrace globalization in the 19th century. In the late 19th century, political economists led by Prof. Ronald MacDonald moved past the capitalism and socialism divide and focused on the impact of globalization on business and public policy (Draper 61). Globalization is concerned with the rapid proliferation of multinational corporations and how they should be regulated. The regulation of multinational corporations brought a big challenge in the domain of business regulation as multinational corporations existed and operated in numerous countries (Draper 61). The development of the internet and its incorporation into the corporate world in the 20th century further brought into focus the relationship between government and businesses since E-commerce made the government come up with policies to regulate online enterprises (Draper 64). The modern relations between the business environment and public policy is based on the concept of sustainability. Both businesses and government public policies are concerned with how businesses can incorporate corporate and environmental sustainability.
Public Policy Influence on the Business Environment
Public policies impact business operations, organization, and management in numerous intricate ways. For example, these policies provide legal limitations and regulations to the operations and activities of businesses, and they regulate the establishment enterprises to minimize the establishment and proliferation of illegal businesses. More so, the government controls businesses to protect consumers and workers from exploitation by unscrupulous businessmen since public policy informs the formation of industry and business ethics that are used to regulate the morality of a firms’ operations (Farnsworth 103). Businesses are then mandated to come up with their code of ethics to ensure that their employees conduct themselves in accordance with the government provisions. Public policies, such as those dealing with employment, shape how business organize their operations and management. For instance, as Zadek argues, public policy on inclusive leadership in the United States has led to a gradual increase in the number of women holding key positions in the contemporary corporate environment (294). In the contemporary corporate field, most of the public policies targeted at companies focus on sustainability and are aimed at restricting corporate management and processes to practices that are not harmful to both the environment and society. According to Zadek, modern public policies in the United States are aimed at making companies use green and renewable sources of energy (295). This is a vital step in the movement towards developing a culture of expansive corporate sustainability.
Government policy towards infrastructure also affects business operations and performance. Public policies that seek to improve public goods or infrastructures, such as roads and communication services, facilitate corporate activities, and, as political economist Adam Smith argues, the government plays a key role in providing for the public goods that are essential for all businesses (Draper 55). Public goods are built using proceeds from the collective taxation of all businesses, which finance the construction projects. According to Draper, public infrastructures such as roads not only serve businesses but also members of the public and therefore their construction is an obligation of the government (55). Through the construction of public infrastructure, the government reduces transportation costs for businesses, which translates to low production costs, ultimately leading to increased output and business performance. Government policies on taxation and subsidies affect overall business performance and management. Taxation refers to levies that a company is obliged to pay to the government to operate legally. Though taxation is a good idea as it helps the government to finance the construction and maintenance of capital goods, over-taxation is quite dangerous to the business environment (Farnsworth 106). Over taxation increases the operational costs of businesses and therefore impedes the hiring of adequate staff and production processes of companies. A public policy that fosters high taxation of business directly leads to an increase in the prices of products and services as businesses push the tax cost to the consumers to make profits (Farnsworth 107). Taxation policies should, therefore, be moderated to ensure that prices are maintained within reach of customers.
Subsidies are the opposite of taxes as they are government incentives in the form of financial aid. Subsidies are financial aid that is advanced to businesses to reduce their production costs and promote their general performance (Draper 57). Since subsidies reduce production costs, they positively impact businesses, for instance, reduce operation costs, thus foster the growth of industries. Nevertheless, in the contemporary corporate world, most businesses are only granted subsidies upon attaining certain levels of both corporate and environmental sustainability in their practices (Zadek 297). Public policies that advance subsidies to businesses enable companies to hire more workers; therefore, positively impacting the economy by reducing unemployment.
Public policy on price stability also affects the organization, operations, and management of businesses. High inflation rates are not good for businesses as it interferes with the market forces of demand and supply by raising the market price above the equilibrium point. Though inflation is caused by several factors, such as the national money supply and debt levels, expansionary government policies are a major contributor to inflation since they increase the amount of discretionary income for both businesses and consumers, which increases the demand for goods and pushes up the market prices (Farnsworth 110). As such, the government should enact public policies that check and balance expansionary policies to ensure that price stability is achieved even during economic expansion programs. A business environment with unstable prices strains both businesses and consumers as unstable prices impact both demand and supply. Stability should be achieved by enacting contractionary measures such as reducing government expenditure where necessary.
Government policies on education and training are important because they directly affect businesses and how they are managed. Proper education standards are essential for innovation and invention, which is the backbone of the modern business world (Draper 148). businesses that are run by properly educated and trained employees and managers operate efficiently, and therefore, both foreign and domestic investors prefer to work and invest in an environment where the majority of the labor force is well educated and trained (Draper 148). Low literacy levels are not good for the business environment due to the lack of the requisite skills required in production that impacts the productivity of labor negatively (Draper 149). For example, poorly trained workers averagely take more time to perform tasks compared to highly trained and skilled workers (Draper 149). Governments should work on enacting better public policies on education to advance the skills of the labor force since an increase in the marginal productivity of labor results in an increase in productivity, which results in a reduction in the unit cost of production. Public policies also act as market catalysts by changing prevalent social behavior in the business environment. Public policies affect how business stakeholders view and relate to businesses. For example, high taxes on imports may lead to a concerted focus on developing domestic industries and businesses. Currently, the public policies on sustainability have enabled business stakeholders to change their view in matters of corporate sustainability. According to Zadek, before governments worldwide started enacting policies requiring businesses to implement sustainable practices business, their stakeholders only cared about generating profits and getting their products and services delivered (298). However, things have changed: stakeholders, ranging from the government to the customers, are now more focused and more likely to promote sustainable businesses than ever before.
Business Influence on Public Policy
Businesses influence the policymaking process in numerous ways to ensure that public policies favor their existence, activities, and performance. Since the business environment is heavily impacted by public policies, businesses have to be strategic in how they deal with the government. Thus, corporations involve themselves in the policymaking process to advance their interests (Friedman 12). The making and enactment of public policies is a complex political process that involves the interplay of numerous parties, including businesses, interest groups, human rights activists, and citizens, and these parties are involved to ensure that enacted policies are fair, progressive, and democratic (Friedman 12). Numerous parties utilize distinct tactics to influence the policymaking process to their favor. For example, enterprises use political lobbying, public advocacy of their positions and interests, civic education and training, and mobilization of allies among many others to ensure that enacted public policies favor their operations (Friedman 14). Since the political process of making policies is influenced heavily by various groups and interests, policymakers rarely enact perfect policies (Zadek 300). Public policy making being a political process is mainly done through negotiations and mutual agreement between the parties involved.
The policymaking process is expensive for both the government and the interested parties. Businesses engage in the policymaking process when they know that the policy being made is highly likely to promote their operations and profitability (Friedman 16). Other factors that are considered by businesses before they join any policymaking process include the political feasibility of the intended policy and the costs involved in the enactment and implementation of the policy. Businesses will never support a policy that lacks political backing and have minimal chances of becoming laws (Bell 222). Enterprises also support and are involved in the implementation of public policies that are cost-effective and efficient to enact and to implement (Zadek 302). A good example is the current public policy issue of sustainability, which, at first, received minimal support from businesses due to the high costs involved in the implementation of sustainable practices. According to Zadek (304), at first, American businesses poorly implemented corporate sustainability policies due to the high costs of putting in place maintainable practices such as zero-carbon emissions. This shows that it would be impossible for businesses to support public policies that impose high economic costs on the part of businesses. In the end, businesses in America only ended up supporting a phased public policy that aimed at reducing the amount of carbon emissions by ten percent in ten years as it was reasonable and cost-effective (Friedman 23). Since public policies are enacted to serve the interests of a wide range of individuals and groups in society, the policies have to aim at achieving equality for them to be legitimate.
Business lobbying is the main tactic businesses use to strategically involve themselves in the policymaking process and influence the policies for their benefit. Business lobbying is done in numerous ways, such as petitioning Congress, which makes national policies, and state legislatures, who debate and pass the policies. Lobbying of the executive branch of government is also an option as it implements public policies. Businesses carry out petitioning through industry associations, consultants, or a combination of both lobbying consultants and industry associations (Friedman 9). Industry associations are made up of all businesses that operate in a certain industry and provide a better shot at business lobbying due to the financial and numerical strength of the association. Lobbying consultants, who are influential individuals who once held public office and still have much influence in the government, leverage their influence in the government to ensure that corporate interests are secured during the policymaking (Friedman 10). Businesses also involve grassroots lobbying, whereby they appeal to their own employees, stakeholders, and general members of the public to make their views known to policymakers (Bell 223). Businesses employ advertising campaigns on top-priority issues and purchase advertisements that target public policymakers or influential individuals in government for grassroots lobbying to be successful.
Business lobbying as a means of strategic positioning is employed extensively by business organizations in major capitalist nations, such as the United States and the United Kingdom, and it has been effective. Many businesses in the United States have a lobbying department that focuses on both federal and state public policies. Washington D.C which is the capital of the United States holds more than 1000 public affairs departments for the major corporations in the US (Bell 225). According to Friedman, more than 75 percent of large firms employ private lobbyists to advocate for their best interests during policymaking processes (32). Corporations also influence public policies through the use of campaign contributions to political parties, and this approach is a significant way of swaying the political processes in the United States (Draper 213). The oil industry are big spenders on matters political lobbying as they generate huge amounts of profits and revenue (Draper, 123). The huge amount of funds utilized by the oil companies for purposes of political contributions give them a significant voice in the American political system. Businesses make voluntary political contributions through political action committees (PAC) where the proceeds of companies are amassed and then issued to political parties (Draper 219). The legality of political contributions was confirmed by the American Supreme Court in the Citizens United v. Federal Election Commission case 2010 (Draper 220). The decision has made businesses invest heavily in matters of political contributions to ensure that their preferred candidates are elected in positions of power and influence.
Public policy and business environment are two concepts that cannot be separated from each other. Public policy influences business operations, organization, and management in various ways to ensure that enterprises are legal and ethical. Businesses also strategically interact with the policymaking processes to ensure that public policies favor their existence and objective of profit-making. The collaboration of public policy and business environment is particularly key in the enactment and implementation of both corporate and environmental sustainability, which is taunted as the best way of preserving the environment and the survival of the business sector.
Bell, Stephen. “Business Associations and Policy Analysis.” Policy Analysis in Australia, edited by Brian Head and Kate Crowley, 1st ed., Bristol University Press, Bristol, UK; Chicago, IL, USA, 2015, pp. 217–230. JSTOR, www.jstor.org/stable/j.ctt1t892r2.23
Draper, Theodore. American business and public policy: The politics of foreign trade. Routledge, 2017.
Farnsworth, Kevin. “Business, Power, Policy, and Politics.” Policy Reconsidered: Meanings, Politics and Practices, edited by Susan M. Hodgson and Zoë Irving, 1st ed., Bristol University Press, Bristol, 2007, pp. 99–116. JSTOR, www.jstor.org/stable/j.ctt9qgv6w.12
Friedman, Lee S. “Public Policy Making and Public Policy Analysis.” Does Policy Analysis Matter?: Exploring Its Effectiveness in Theory and Practice, edited by Lee S. Friedman, 1st ed., University of California Press, Oakland, California, 2017, pp. 1–43. JSTOR, www.jstor.org/stable/10.1525/j.ctt1kc6jxn.6
Zadek, Simon. “Third-generation corporate citizenship: public policy and business in society.” Tomorrow’s History. Routledge, 2017, 294-305., http://info.worldbank.org/etools/docs/library/57457/3rdGenCorpCitizenship.pdf