Government: The Sixth Force

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Recently Professor Todd Saxton wrapped up class with a discussion of interesting strategy trends. Of course popular topics, such as expanding business into BRIC countries, made the list. Then one topic leaped out at me – government as the sixth force. My blogging inspiration came to life.

Porter’s Five Forces are familiar fare for business students (competitors, suppliers, customers, substitutes, and the threat of new entries). Government is increasingly just as powerful a force in shaping corporate strategy.

My own checkered past includes ten years of local and state government and campaign experience in Michigan. I have been attacked by dogs going door to door as a campaign manager, voted on zoning disputes as a planning commissioner, hosted raucous town hall meetings as a constituent relations director, and brokered deals with lobbyists on bills as a legislative director.

My husband’s career move to Indiana has meant I can fulfill a long-postponed dream – going back to Kelley for my MBA. Blogging will allow me to combine my passion for public policy with its implications for business.

I admit the timing of the federal government shutdown with starting to blog could not be more fortuitous for me. What drives the decision-making in legislatures and local councils may seem irrational to business scholars. But we ignore political machinations at our peril. Government is truly the elephant (and donkey) in the room. To start, here are a few principles of government for business students:

  • Government can’t help picking winners and losers in business. (It’s hard to be neutral!)
    • A push for tax breaks to incentivize businesses to locate in your community will naturally favor new firms at the expense of existing firms
    • Film tax credits sure are sexier than personal property tax breaks for manufacturing firms. (Who doesn’t want a movie star testifying in their committee?)
  • Government often underestimates the reaction businesses will have to their policies.
    • Policy makers were surprised when business responded to the Affordable Care Act by having more part-time and contract employees to avoid health care mandates
    • When considering a new service tax in Michigan at one point, proponents did not factor in the potential for these businesses with few physical assets to relocate to other states.
  • If it can move, it can be regulated (It’s hard not to add more rules!)
    • Trends have included more environmental regulation. Cummins capitalized on this trend by having more engines ready to meet upcoming regulations than its competitors.
    • New types of professional licensing requirements have proliferated.
    • Workforce-related regulations are increasingly expensive, such as ergonomics rules in factories.
  • Policy is less than half the battle – the war is won with enforcement of policy.
    • Laws regulating the safety of pharmaceutical products have been strictly enforced with traditional brand name products from companies like Lilly. Enforcement was selective or sometimes lacking with compounding pharmacies, leading to a recent bad batch of injectable back pain meds that caused deaths.
    • Federal laws prohibit the sale of toys with lead and other toxins, but inspection of foreign toy imports by Customs and Border Patrol in 2009 was averaging 5% of shipping containers. At a toy testing event I hosted, at least ¼ of toys tested positive for lead or other toxins.
  • Technology comes first, public policy comes later.
    • The burgeoning frontier of internet sales has stymied policy makers to craft new laws protecting privacy and tackling the issue of collection of state sales tax. Amazon has capitalized on the fact that states cannot require businesses without brick and mortar in the state to collect these taxes, and the federal government is slow to figure out a nationwide compact to compel sales tax collection. The loser: local stores that must collect sales tax.

I look forward to a journey of exploring the intersections between public policy and business strategy.