In a free market economic system, government theoretically plays no role in business. In reality, government interferes with business constantly through taxes, subsidies, tax breaks and legal regulations. Without government regulation of business, smaller players would be squeezed out of the market, leading to the monopolies that could exploit the buyer.
Business and Government
The interaction of government and business has a long and convoluted history. While many large businesses put great effort into escaping various government regulations, they also provide a substantial percentage of the tax base that runs the government. Although the government is publicly owned, it is also, in some ways, a business. Given that the U.S. government is currently more than $14 trillion in debt, there is some question as to how effectively this business has been run. Businesses in the private sector also confront economic difficulty and are sometimes rescued from it by the government, as happened with General Motors in 2008.
All businesses are required by law to pay taxes on their income. This is the primary way in which government intervenes in business. In exchange for these taxes, both businesses and individuals are supplied with various publicly owned commodities such as roads, utilities, police and fire protection and other civic advantages. Business taxes are based on the amount of profit that a business takes in. However, the complexity of tax laws allows large businesses to take advantage of myriad tax breaks and tax-law modifications.
Many of the taxes that are garnished from businesses by the government are then returned to businesses in the form of subsidies. Subsidies are given to businesses based on a number of factors, including the importance of the service the business provides to society at large, economic threats to the business and various aspects of international trade and protectionism. Some examples of industries that frequently receive government subsidies are the airline industry in the form of tax free jet fuel, and the agriculture industry in the form of farmer payouts designed to prevent food producers from going out of business.
3: Law Enforcement
Government sometimes intervenes quite forcefully in businesses that are engaging in illegal activity. Some businesses, such as those that don't pay taxes or skirt health regulations, are working in legal fields in an illegal manner. Others, such as drug dealers or prostitution rings, engage in activities that are illegal by definition. In both of these cases, government intervenes in an attempt to enforce its laws and maintain a legal economic infrastructure.