A Level Business
Chapter 1.6
External Influences on business ac2vity
6.1 Political and legal influences
These influences include privatisation, nationalisation and legal controls over
business activity.
1. Advantages and disadvantages of privatisation:
§ Privatisation transfers ownership of state-owned industries into the
private sector by creating public limited companies.
§ Shares in these newly formed public limited companies are sold through
the stock exchange.
§ Supporters of government-controlled economies stress the benefits of
nationalisation.
§ Supporters of free market economies stress the benefits of privatisation.
For Privatisation Against Privatisation
Lead to greater efficiency than when supported The state should take decisions about essential
by government industries. These decisions can be based on the
needs of society and not just the interests of
shareholders.
Decision making in state bodies are often slow Privately operated businesses that compete
and bureaucratic with each other are unlikely to achieve a
coherent and coordinated policy for the benefit
of the whole country
Gives responsibility for success to employees – Through state ownership an industry can be
motivation made accountable to the country. This is by
means of a responsible minister and direct
accountability to parliament.
Market forces operate: failing businesses will be Many strategic industries could be operated as
forced to change or die; successful ones can private monopolies if privatised and they could
expand exploit consumers with high prices.
Important business decisions are taken for Breaking up nationalised industries, perhaps
financial reasons not political reasons into several competing units, reduces the
opportunities for cost saving through
economies of scale.
, Sale of nationalised industries can raise finance
for government, which can be spent on other
state projects.
Private businesses will have access to the
private capital markets and this will lead to
increased investment in these industries.
2. Advantages and Disadvantages of nationalization
For Nationalisation Against Nationalisation
The government will have control of major There is less profit motive, so less incentive to
industries. operate the industry efficiently, and the
government may provide subsidies to loss-
making nationalised industries.
Integrated industrial policy should now be Government may intervene too much in
possible. business decision-making for political reasons.
It prevents private companies operating as The cost to the government of buying private
monopolies and exploiting consumers. companies could be very high.
Economies of scale can be achieved by merging It removes the ability of the industry to raise
all private businesses in an industry into one finance from private sources
nationalised corporation.
3. Legal constraints on business activity
• In most countries, governments have introduced laws that control
business decisions and activities:
• employment practices, conditions of work and wage levels
• marketing behaviour, consumer rights and controls over some products
• competition
• location of businesses
4. The law and employment practices
§ These laws control the relationship between employers and employees.
§ Differences globally with laws
The main objectives of these laws are to:
, 1. prevent exploitation of workers by employers by insisting on appropriate
levels of health and safety and minimum wage rates
2. control excessive use of trade union collective action.
Legal constraints usually cover the following areas of employment practices:
• recruitment, employment contracts and termination of employment
• health and safety at work
• minimum wages.
5. Recruitment, employment contracts and termination of employment
§ In many countries, legally protecting the rights of workers takes the
following forms:
a. a written contract of employment so that the employee is fully
aware of the pay, working conditions and disciplinary procedures
to be followed
b. minimum ages
c. maximum length of the working week
d. holiday and pension entitlements
e. no discrimination against people during recruitment and selection
f. protection against unfair dismissal.
6. Health and safety at work
§ These requirements aim to protect workers from discomfort and
physical injury at work.
§ Providing a healthy and safe environment in which to work is now a
legal requirement in most countries.
§ Health and safety laws usually require businesses to:
a. equip factories and offices with safety equipment and train staff to
use it
b. provide adequate washing and toilet facilities
c. provide protection from dangerous machinery and materials
d. give adequate breaks and maintain certain workplace
temperatures.
7. Minimum wages
§ Minimum wage rates are legally binding on businesses.
§ The two main aims of the minimum wage are to:
Chapter 1.6
External Influences on business ac2vity
6.1 Political and legal influences
These influences include privatisation, nationalisation and legal controls over
business activity.
1. Advantages and disadvantages of privatisation:
§ Privatisation transfers ownership of state-owned industries into the
private sector by creating public limited companies.
§ Shares in these newly formed public limited companies are sold through
the stock exchange.
§ Supporters of government-controlled economies stress the benefits of
nationalisation.
§ Supporters of free market economies stress the benefits of privatisation.
For Privatisation Against Privatisation
Lead to greater efficiency than when supported The state should take decisions about essential
by government industries. These decisions can be based on the
needs of society and not just the interests of
shareholders.
Decision making in state bodies are often slow Privately operated businesses that compete
and bureaucratic with each other are unlikely to achieve a
coherent and coordinated policy for the benefit
of the whole country
Gives responsibility for success to employees – Through state ownership an industry can be
motivation made accountable to the country. This is by
means of a responsible minister and direct
accountability to parliament.
Market forces operate: failing businesses will be Many strategic industries could be operated as
forced to change or die; successful ones can private monopolies if privatised and they could
expand exploit consumers with high prices.
Important business decisions are taken for Breaking up nationalised industries, perhaps
financial reasons not political reasons into several competing units, reduces the
opportunities for cost saving through
economies of scale.
, Sale of nationalised industries can raise finance
for government, which can be spent on other
state projects.
Private businesses will have access to the
private capital markets and this will lead to
increased investment in these industries.
2. Advantages and Disadvantages of nationalization
For Nationalisation Against Nationalisation
The government will have control of major There is less profit motive, so less incentive to
industries. operate the industry efficiently, and the
government may provide subsidies to loss-
making nationalised industries.
Integrated industrial policy should now be Government may intervene too much in
possible. business decision-making for political reasons.
It prevents private companies operating as The cost to the government of buying private
monopolies and exploiting consumers. companies could be very high.
Economies of scale can be achieved by merging It removes the ability of the industry to raise
all private businesses in an industry into one finance from private sources
nationalised corporation.
3. Legal constraints on business activity
• In most countries, governments have introduced laws that control
business decisions and activities:
• employment practices, conditions of work and wage levels
• marketing behaviour, consumer rights and controls over some products
• competition
• location of businesses
4. The law and employment practices
§ These laws control the relationship between employers and employees.
§ Differences globally with laws
The main objectives of these laws are to:
, 1. prevent exploitation of workers by employers by insisting on appropriate
levels of health and safety and minimum wage rates
2. control excessive use of trade union collective action.
Legal constraints usually cover the following areas of employment practices:
• recruitment, employment contracts and termination of employment
• health and safety at work
• minimum wages.
5. Recruitment, employment contracts and termination of employment
§ In many countries, legally protecting the rights of workers takes the
following forms:
a. a written contract of employment so that the employee is fully
aware of the pay, working conditions and disciplinary procedures
to be followed
b. minimum ages
c. maximum length of the working week
d. holiday and pension entitlements
e. no discrimination against people during recruitment and selection
f. protection against unfair dismissal.
6. Health and safety at work
§ These requirements aim to protect workers from discomfort and
physical injury at work.
§ Providing a healthy and safe environment in which to work is now a
legal requirement in most countries.
§ Health and safety laws usually require businesses to:
a. equip factories and offices with safety equipment and train staff to
use it
b. provide adequate washing and toilet facilities
c. provide protection from dangerous machinery and materials
d. give adequate breaks and maintain certain workplace
temperatures.
7. Minimum wages
§ Minimum wage rates are legally binding on businesses.
§ The two main aims of the minimum wage are to:
