Why does business fear sudden changes in government policies?  



Asked on

1 Answer | Add Yours

pohnpei397's profile pic

Posted on (Answer #1)

Business fears sudden changes in government policies because firms need to plan.  Firms need to have assumptions on which they can base their planning instead of simply not knowing what will happen.

For example, imagine that you owned an oil company that wanted to invest in Venezuela.  When you consider doing this, you would have to understand that you would be putting a lot of money into your investment.  Now consider the government of that country.  At any moment, Hugo Chavez might change the laws and either take your equipment or reduce the amount of profit you are allowed to make.  You would fear this because your ability to do business might be radically altered without any warning.

This is an extreme case, of course.  But the same thing can happen on a much smaller scale even in countries that are more stable.  Imagine if you were investing in wind power in the US.  You would fear what might happen if Republicans come to power and suddenly cut subsidies to wind power.

Government decisions can have a huge impact on the business environment.  Firms need to know that their environment will remain stable so they can plan.  Therefore, they fear sudden changes in policy that will upset their plans and can cause them to lose money.

We’ve answered 397,417 questions. We can answer yours, too.

Ask a question