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My thoughts about government and the free market

Business decisions are influenced by a multitude of factors.  Globalism and domestic protectionism each have separate influences over the decisions made by international organizations seeking to do business across international borders.  From taxation, by way of tariffs, to regulation, by way of mandates, governments across the globe seek to assert their authority and influence over an ever-evolving and constantly changing landscape of global commerce, marked by the need to maintain a degree of national identity in an international environment.

Global economic interdependence plays a major role in the distribution of products across national borders.  Regulations and domestic import taxes, or tariffs can affect the flow of products from manufacturer to consumer by influencing the price of those goods in the domestic market.  Tariffs create a problem for the seller of goods because they artificially increase the price of a particular product that is brought in from abroad while destroying the competitive advantage the potentially cheaper international product had over the domestically created product (Perreault, Cannon, & McCarthy, 2009).  Tariffs can be viewed as a form of national protectionism; protecting domestic manufacturing at the expense of international imports by ensuring the price of domestically created goods is cheaper than the international imports.  This can cause a problem for the end consumer because tariffs and their subsequent government regulation favor the domestic good over the foreign good and without regard for the quality of either product.  Adam Smith opined in 1776,

“No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain.  It can only divert a part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord” (p. 397).

Cultural differences can also influence global and domestic marketing decisions.  Governments around the globe have sought to control, to some degree, the flow of foreign goods into their nations’ respective domestic markets.  Although regulation can facilitate a fairness and balance, to some degree, of how international goods compete with their domestic counterparts, the regulatory bodies would be remiss to exclude an individual’s natural desire to support her or his domestic industry.  Historically, conservative economic principles have asserted that most individuals prefer to trade domestically; as close to home as possible, so long as they can obtain the good or service they need without sacrificing an unreasonable amount of quality.  Following the logical procession of this assertion leads to the realization that dealing in domestic goods versus international counterparts is generally preferred by most because, “if [a person or entity] should happen to be deceived, [she or he] knows better the laws of the country from which [she or he] must seek redress,” according to Smith (p. 397).

Interestingly, while the government would be complacent to regulate and artificially control a free-trading market with tariffs that favor even inferior domestic goods over their potentially superior foreign counterparts, its ethical compass developed with the passage of the Foreign Corrupt Practices Act of 1977.  This law; one of consequence; sought to address and forbid the exchange of any type of monetary instrument or promise of intrinsic value between a business partner and an official of a foreign government for the sole purpose of garnering a more favorable business environment or activity for the business associate other than what natural market conditions and competition would necessitate (The United States Department of Justice, n.d.).  At first glance, this would seem to be a difficult law to enforce, lest the government audit every individual and business it suspected of performing such acts.  Written into the legislation, however, was a provision that requires any entity with a publicly traded security in the United States to disclose any transactions, foreign or domestic, and to do so in a fair and accurate manner (United States Department of Justice, 1988).

Ironically, while governments impose tariffs and laws intended to strengthen a domestic market’s position to a more advantageous level over its international competition as well as to insert integrity and trust into the market, they also attempt to regulate so-called fair trade practices by limiting the minimum price manufacturers and wholesalers can sell products for; to no less than the actual cost of producing the product.  Selling at a price that is below the cost of production is also known as “dumping,” (Perreault, Cannon, & McCarthy, 2009, p. 487).  A major problem with this type of regulation is that the government thwarts natural market movements when it seeks to regulate the price at which a company can sell something.  By removing potential downward pressures on price, the government, through these types of regulations, accomplishes the unremarked upon and unpopular task of  keeping prices artificially inflated.  After all, economic principles mandate that if an organization cannot maintain the affordability of “dumping,” then the entity will be forced out of business; through the natural economic means of bankruptcy as opposed to government intervention.

The aforementioned legal processes of effecting control of and influence over markets are, notably, minimum guidelines by which businesses should operate.  Much to the chagrin of the government, it cannot control individual perceptions of what is considered ethical or moral.  The same government officials who receive funds by way of campaign contributions or appointments to corporate boards of the organizations by which they are lobbied, cannot, at the end of their official tenures, possibly control the perceptions of the consumers affected by their regulatory activities.  In the free market, social responsibility can, and should be dictated by the voice of the consumers of the products for which the organization produces.  Should those requirements not be met, the organization risks losing credibility with its constituents: the customer.  While the government can promote social responsibility, it places its credibility on a precarious balance when it moves to force companies and entities to abide by a higher standard than that to which the government, itself, is beholden.

Cultural differences abound in the realm of marketing decision making.  Domestically, in the United States, the government exerts an inordinate amount of authority and pressure over businesses and individuals as that authority relates to “ethics” and “morals.”  While the United States government may officiate a “do as I say, not as I do” standard, the cultures within the nation determine what is acceptable to them.  Asian Americans, for example, tend more toward brand identity than many other ethnic groups, and also tend to be least loyal to a brand even if peer perception negates the intrinsic value of a particular product.  African Americans, on the other hand, tend to be more brand loyal and more strongly motivated by quality and selection (Kotler & Keller, 2009).  These differences in cultural expectations mandate organizational changes to fulfill the needs of various groups of culturally diverse groups of individuals.  Generally, these needs are met eagerly without regulatory influence to do so.

From cultural differences to regulatory influence, organizations constantly attempt to satisfy the needs of their constituents while meeting a seemingly insurmountable quantity of regulation.  While the regulatory environment, often a minimum standard, while overreaching in its authority, dictates the standards by which such decisions must be made, organizations would be reticent to adhere to only the minimum standard set before them by law.  In terms of profitability, ignoring the desires and needs, both physically and morally, of the constituents of an organization’s products would prove to be more detrimental than simply shirking governmental regulation.

 

 

Kotler, P. & Keller, K. L. (2009). Marketing management (13th ed.). Upper Saddle River, NJ: Prentice-Hall.

Perreault, W. D., Cannon, J. P., & McCarthy, E. J. Jr. (2009). Basic marketing: A marketing strategy planning approach (17th ed.). New York, NY: McGraw Hill.

Smith, A. (1776). The wealth of nations. New York, NY: Random House, Inc.

The United States Department of Justice. (n.d.). Foreign Corrupt Practices Act. Retrieved from http://www.justice.gov/criminal/fraud/fcpa/

United States Department of Justice. (1988). Foreign Corrupt Practices Act Antibribery Provisions. Retrieved from http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons- guide.pdf

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