SharePoint And ADFS: SecurityTokenException – The issuer of the token is not a trusted issuer

This is a pretty common ADFS error, and there are all sorts of reasons that it could happen.

The stack trace will be this:


Microsoft.SharePoint.IdentityModel.SPTrustedIssuerNameRegistry.GetIssuerName(SecurityToken securityToken)

   at Microsoft.SharePoint.IdentityModel.SPPassiveIssuerNameRegistry.GetIssuerName(SecurityToken securityToken)

   at Microsoft.IdentityModel.Tokens.Saml11.Saml11SecurityTokenHandler.CreateClaims(SamlSecurityToken samlSecurityToken)

   at Microsoft.IdentityModel.Tokens.Saml11.Saml11SecurityTokenHandler.ValidateToken(SecurityToken token)

   at Microsoft.IdentityModel.Web.TokenReceiver.AuthenticateToken(SecurityToken token, Boolean ensureBearerToken, String endpointUri)

   at Microsoft.IdentityModel.Web.WSFederationAuthenticationModule.SignInWithResponseMessage(HttpRequest request)

   at Microsoft.IdentityModel.Web.WSFederationAuthenticationModule.OnAuthenticateRequest(Object sender, EventArgs args)

   at System.Web.HttpApplication.SyncEventExecutionStep.System.Web.HttpApplication.IExecutionStep.Execute()

   at System.Web.HttpApplication.ExecuteStep(IExecutionStep step, Boolean& completedSynchronously)


At the end of the day though, don’t sit around and fiddle with the SharePoint trusted authorities and yada yada yada, it boils down to a certificate problem. Basically the one that was specified as the signing certificate, when exported during the ADFS setup, is either malformed (the certificate chain is incomplete) or plainwrong wrong when the trusted issuer was being built up in SharePoint ala powershell. So to get around the error follow two pretty basic steps.

  1. Verify the appropriate certificate chain is present on the SharePoint server in both the trusted root authorities as well as in the SharePoint folder within the Certificate MMC snap-in. Never ever, ever delete the self issued ones that SharePoint provisioned within that folder. You will cause a Micheal Bay-spolosion. To verify the chain, just popup open the certificate details within some interface (like, the MMC :) ) doesn’t really matter what and verify that the chain is trusted and existent.
  2. Next, verify that you actually used the right certificate when specifying the certificate path when building the System.Security.Cryptography.X509Certificates.X509Certificate2 object to pass into your SPTrustedIdentityTokenIssuer. This is pretty easy to mess up when troubleshooting if you are swapping certs all over the place.

Both of these are in place, then that error will go away. Not that another won’t popup :)


Research Methods And Techniques

Any research which makes use of observations based on past events is known as research in historical approach. The main aim of historical research is to apply the method of reflective thinking to social and economic problems still unsolved by means of discovery of past trends of events; facts and attitudes. It traces lines to development in human thought and action intruder to reach some basis for social activity. Historical research method like all other research methods is not merely concerned with collection of data and facts but editing analysis, evaluation and interpretation of data are integral parts of it. The historical research should conduct critical evaluation and interpretation of historical documents and records in such a manner that general law, treads or hypothesis can be framed. Historical research is essential for both basic and applied research in social sciences.

According to Walter R. Borg, Historical Research is the systematic and synthesis objective location, evaluation synthesis of evidence in order to establish facts and draw conclusions concerning past events.

To quote Sheik Ali Historical research is digging in to the past in order to re – enact the past in its entirety to reconstruct the past events as fully as they have happened to explain the meaning and significance of these events to correct the wrong notions so long prevalent, if any, and to elaborate analyse, synthesise and philosophies the ideas in the light of the knowledge we possess.

Robert G. Murdik says that Historical research is concerned with establishing the occurrence of unique events. Although one phase of historical research consists only of determining of past events the ultimate phase deals and present the establishment of pattern of relation ships and the starting point of projecting trends.

In the simple words, Historical method seeks to find explanation of questions of current interest by an intensive study of the past. Past always contains elements of the present. Past, present and future are all well inter-linked. Infect every project of research has more or less historical approach. In discussing any problem we must know the history of the problems and only then the problem can be solved easily, quickly and accurately. To quote P.V. Young, The past, if it can be located, contains the key to the present, though today is different from yesterday, it was shaped by yesterday. Today and yesterday will probably influence tomorrow.

Significance of Historical Method

Historical research is useful both for theoretical and practical purposes. It has made important contribution to various branches of natural as well as social sciences. Some problems are so typical that they can only be investigated by this approach. Thus this method fills a gap of making the research possible and meaningful and some problems other wise would have remained unexplored with out it. Many a times it is of considerable interest to use time series data for assessing the progress of the impact of several policies which can be done by looking in to historical records only.

Sources of Historical Data

Generally, there are the following major sources of historical information before a social researcher:

  • books and magazines
  • assessable documents, papers and literature
  • cultural and analytical history material
  • memories, personal letters and accounts
  • personal sources of authentic observers and witnesses
  • diaries and confessions
  • autobiographies
  • scared archives
  • diplomatic agreements
  • statistical materials
  • Artistic materials, historical paintings, portraits, charts, maps, etc.


The advantages of historical methods are

  1. Some problems are such which can be investigated only by this method and may not offer other methods. Therefore, historical method fills in the big gap of making the research possible and also meaningful on the problems that would otherwise have remained unexplore
  2. Historical data is not repeatable under any circumstances and therefore, historical method serves a needy hand method to the researchers whose problems depend on historical observations. It is fairly easy to repeat observations in laboratories under controlled conditions but can not be done in case of historical data. Historical method, therefore, has an advantage to offer the past data under the then prevailing conditions and afford an opportunity to the researcher to view these observations in the past setting.
  3. Historical records provide very useful information that goes a long way towards the solution of research problem. As already said the researcher is compelled to fall back up on past data since he can to create these afresh and hence it is highly advantageous to follow historical method where the use of time series data is unavoidable in any case.


Historical method is not free from limitations. The main draw backs are:-

  1. Non-Matching situations
  2. Over-generalization
  3. Subjective Interpretations

Limitations may also arise in the writing of history itself because

  • Historians can not write history life-sizes
  • Not all happenings in time and space can be known at the time of writing
  • Personal biases and private interpretations often enter unconsciously, even when honest attempts are made to select pertinent facts, to arrange them consistently, and to place them in a coherent and true frame of reference.

However, it should be observed that this approach can not be dispensed with as large number of problems can not be investigated in the absence of historical research many times even other approaches to research would desirably insight in to their own investigations.

Necessary conditions for Historical Research

  1. selection of topic for research
  2. social in sight
  3. Historical orientation
  4. Knowledge of related social sciences
  5. Wide educational back ground
  6. Familiarity with the topic and its objectives
  7. Dispassionate study
  8. Imaginative capacity
  9. Selection and rejection of the material
  10. Analyzing and coordinating capacity
  11. Knowledge of study field
  12. Knowledge of his own limitations
  13. Availability of necessary facilities

Steps Involved in Historical research

The main steps involved in historical research are

  • Selection of the problem
  • Objectives of the study
  • Formulation of hypothesis
  • Preparations for collection of data
  • Testing of hypothesis
  • Evaluation of data
  • Organization of data
  • Interpretation and writing report

A case study is deep and intensive study of a particular social unit, confined to a very small number of cases. Thus the field of study in the case study method is limited but it aims at studying all aspects of a social unit. It also seeks to determine social process; it reveals the complexity of factors and indicates their sequences and their relationships. It is also a diagnostic study oriented towards finding out what is happening and why it is happening and what can be done about it. Case study says Charles H. Colley, depends on our perception and gives us a clear insight in to life


Important definition of the case study method is

P.V young- case study is method exploring and analyzing the life of a social unit, a personal, a family, institution, cultural groups or even an entire community.

Goode and Hatt- Case study is a way of organizing social data so as to preserve the unitary character of the social object being studied. Expressed some what differently it is an approach which views any social unit as a whole.

F.I. Whitney – Case study is a complete analysis and report of the status of an individual subject with respect as a rule to specific phase of his total personality.

Characteristics of Case Study Method

  • It places more emphasis on a full contextual analysis of fewer events or conditions and their interrelations.
  • Although hypothesis is often used, the reliance on qualitative data makes support or rejection more difficult.
  • An insight on detail provides valuable insight for problem solving, evaluation, and strategy. This detail is secured from multiple sources of information. It allows evidence to be verified and avoids missing data.
  • Although case studies have maligned (criticized) as Scientifically worthless because they do not meet minimal design requirements for comparison, they none the less have a significant scientific role. Thus, a single, well-designed case study can provide a major challenge to a theory and can provide source of new hypothesis and constructs simultaneously.


The main advantages of case study method are it:

  • produces new ideas and fresh suggestions
  • helps in formulating a sound hypothesis
  • may also help in exploring new areas of research

Since the case study method makes an in depth study of a particular unit of investigation and is always approached with an open mind, it bestows upon the researcher further exploration of the research field.


Though the case study method has contributed much to the social research, some social scientists have raised some objections against the value and validity of case study. The case study method has often criticized on the basis of the following limitations.

  • It develops false sense of confidence which is detrimental to any scientific out look. Every thing about the subject can’t be known although each unit is studied.
  • Generalizations about similar cases are impossible
  • It does not provide universal, impersonal and common aspects of phenomena.
  • It is quite unsystematic in the absence of any control up on the informant or the researcher.
  • Case study situations are seldom comparable
  • It is difficult to apply the usual scientific methods without destroying the unique value of the personal document will be lost if it is formalized and abstracted.

Basic Assumptions of the Case Study Method

  1. The case study method is not in it self a scientific basic at all, it is merely a first step in scientific procedure.
  2. It is assumed that in the fact of apparent diversity among different units, there is an underlying unit. A particular unit has its uniqueness. But it is not different from other units in all respects. Under this method it is assumed that a unit selected is the representative of a group. In many respects it is similar to measures of central tendency or averages. It tries to locate the variations in the reactions and activities of the subject.
  3. It is also assumed that the study of a particular unit is helpful in the prediction and discussion of other units of the same universe.
  4. A unit is indivisible whole and can not be studied piece-meal and in fragments. We must study its life history and its back ground and to explain the behavior at a particular time are few, but more.

Steps Involved in Case Study

  1. selection of cases and identification of situations,
  2. collection and recording of data,
  3. interpretations of data,
  4. report writing,

The term survey is used for the technique of investigation by a direct observation of a phenomena or systematic gathering of data form population by applying personal contact, and interviews when an adequate information about a certain problem is not available in records, files and other sources. It is currently being used in those investigations also where published data is used.

Some of the important definitions of social survey are as follows:-

  • A.F Wells- Social survey is fact-finding study dealing chiefly with working class, poverty and with the nature and problems of community.
  • C.A. Moser- The sociologists should look up on surveys as way and a supremely useful one of exploring the field of collection data around as well as directly on the subject of the study so that problem is brought in to focus and points worth studying are suggested
  • Mark Abrams- A social survey is process by which quantitative facts are collected about the social aspect of community’s composition and activities.
  • F.L. Whitney-survey research is an organized attempt to analyze, interpret and report the present status of social institution group or area.

Survey method is, thus, the technique of investigation by direct observation of phenomena or systematic gathering of data from population. Survey research is defined as an organized attempt to analyze, interpret and the present status of social group.

The surveys may be classified with the following types:

General or Specific Surveys

A general survey is conducted for collecting general information of any population, institution or phenomena without any hypothesis while specific surveys are conducted for specific problems or for testing the validity of some theory or hypothesis.

Regular and Ad hoc Surveys

If the survey is repeated for regular intervals to obtain continuous information, it is known as regular survey. It helps in the study trend of the effect of time on the phenomena under the study for regular surveys a permanent machinery for collecting information has to be set up.

Ad hoc surveys are conducted once for all and are non-repetitive. Such surveys may also be conducted in testing the hypothesis or supplementing some missing information regarding any research problem.

Preliminary and Final Surveys

Preliminary survey is the plot study to get the first hand knowledge of the universe under study. It helps the researcher in preparing schedule or questionnaire and organizing the survey on proper lines. Final surveys are made after the pilot study has been completed.

Census and Sample Survey

Census survey deals with the investigation of entire population. Under this method the information is collected from each and every unit of the universe. Money, material, time and labour required for carrying out a census survey are bound to be extremely large but its results are no more accurate and reliable. In case of sample survey only a small part of the universe which is representative of the whole population is taken and the information is collected. Thus the sample surveys are more economical and less time and labour consuming.

Survey method has the following merits in comparison on with other methods:

  • fosters direct close contact between researcher and respondents.
  • greater objectivity it avoids the possibility of personal biases.
  • useful in testing the validity of many theories.
  • proved its usefulness in leading to the formulation and testing of hypothesis.
  • social surveys are based on actual observations.
  • it has a universal application.
  • Survey method is costly, time consuming and wasteful in certain cases where the objectives are limited.
  • Unsuitable if the number of persons to be surveyed is very large or where they are spread over a large geographical area.
  • Under this method personal bias may vitiate the result.
  • It lacks flexibility.
  • It is only useful for current problems and is not suitable for the problem that requires the study in the historical retrospect.
  • Does not permit more comprehensive and dynamic study of the society.
  • Under this method most of the surveys are conducted on sample basis.
  1. Selection of a problem
  2. Preliminary study or pilot study
  3. General objective of the study and specific objectives
  4. Resources and personnels
  5. Sampling
  6. Method of collecting data
  7. Training the investigating staff
  8. Organizing of the field work
  9. Content analysis
  10. Reporting

According to Festinger, The essence of an experiment may be described as observing the effect on a dependent variable of the manipulation of an independent variable.

In the words of Greenwood, An experiment is the proof of a hypothesis which seeks to look up two factors in a casual relation ship through the study of contracting situations which have been controlled on all factors except the one of interest the later being either the hypothetical case or the hypothetical effect.

According to V.H. Bedkar, Experimental method implies a controlled observation of a succession of events the aim is to search for casual connection

This research method goes by various names, the experimental methods, the cause and effect method, the pretest- post test control group design and the laboratory method. The basic idea behind this method is to attempt to account for the influence of a factor or, as in the case of complex designs, of multiple factors conditioning a given situation.

In its simplest form, the experimental method attempts to control the entire research situation, except for certain input variables which then become suspect as the cause of what ever change has taken place with in the investigation design. The experimental research method requires us the understanding of different variables. But what are variables?

The term variable is used by scientists and researchers as a synonym for the property being studied. In this context, a variable is a symbol to which numerals or values are assigned.

The numerical value assigned to a variable is based on the variable properties. For example, referred to as being dichotomous, have only two values reflecting the presence or absence of a property: employed- unemployed or male- female have two values. Variables can be seen in to two categories:

Independent Variable

Independent variable is a variable that affects the value or characteristic of another variable (the dependent variable). It can be manipulated or controlled by the researcher so that its effect can be seen. Independent variables can also be classifying variables.

For example (1) in a study about the effect of assignment provision on the academic achievement of students, the independent variable is assignment provision. The researcher can control the situation of assignment provision. He/she may or may not provide assignment to the subjects. So assignment provision is under the will of the researcher.

Dependent Variable

This is a variable being affected or assumed to be affected by the independent variable. It is a measure of the effect of the independent variable. In the first example given above academic achievement is the dependent variable.

Generally, if the investigator has control over the variable and is able to manipulate it or change it at will, then we say that variable is an Independent variable. If, on the other hand, the investigator has no control over the variable and it occurs as the result of the influence of the independent variable, then the variable is known as the dependent variable.

The matter of control is central to the experimental method. We frequently refer to this means for searching for truth as the control group, experimental group design. At the out set, we assume that the forces and dynamics with in both groups are equisetic. We begin, as far as possible with matched groups. These groups are randomly selected and paired so that, each group will resemble the other in as many characteristics as possible and, certainly, with respect to those qualities that are critical to the experiment.

Mathematically, Experimental group = control group

Characteristics of the Experimental Metho

The experimental method deals with the phenomenon of cause and effect.

Thus, we have two situations and we assess each to establish comparability. We attempt to alter one of these by introducing in to it an extraneous dynamic. We reevaluate each situation after the intervening attempt at alteration. What ever change is noticed is presumed to have been cause by the extraneous variable

Experimental research needs to be planned.

This planning is called the designing of the experiment. Experimental design refers to the architectonics and planning of the entire experimental approach to a problem for research.

Advantages of Experimental Method

Main advantages of experimental method may be summarized as follows.

  • This approach is more rigorous. It has the advantage of scientific and vigor and mathematical logic in so far as the entire piece of research work is based on a well founded model.
  • In comparison to other methods, this approach permits the determination of cause and effect relation ship more precisely and clearly.
  • Under identified conditions, a lot of it depends on the behavior of the respondents. A respondent is always under the in thecae diverse social organism and it all depends on the type of mental frame that he has at the time the researcher approaches him for information.

Problems of Social Experiments

  • Difficulty of co-operation
  • Difficulty of setting
  • Difficulty of control
  • Errors of Measurement

Field Investigation Research
A field experiment is a research study in realistic situation in which one or more independent variables are manipulated by the experimenter under as carefully controlled conditioned as the situations will permit. Where the laboratory experiment has a maximum of control, most field studies must operate with less control a factor that is often a severe handicap to the experiment. The weakness of field experiment, therefore, is of practical nature. The control can not be held as very tight, the investigator himself works under several influences and may at times be faced with unpleasant situations and the independent variables may got affected by uncontrolled environmental influences.

A field experiment is generally credited with a few virtues which are supposed to be unique to this category of a research. This virtues may be listed as: (1) the variables in a field experiment. This is because of the fact that field situation takes stock of realistic natural operations. (2) field experiments have the advantage of investigating more fruitfully the dynamics of inter- relationships of small groups of variables. (3) Field experimental studies are as so ideal to testing of the theory and the solution of the real world problems.
Ex-post facto Research
This is an empirical research and the researcher does not have any control over independent variables, because they have already been manifested. Ex-post facto researches systematic empirical inquiry in which the scientist does not have direct control of independent variables because their manifestations have already occurred or because they are in hearth not manipulability.

Inferences about relations among variables are made, with out direct intervention, from concomitant variation of independent are dependent variables. This kind of research is based on a scientific and analytical examination of dependent and independent variables- Independent variables are studied in retrospect for seeking possible and plausible relations and the likely effects that the changes in independent variables, produce on a single or a set of dependent variables.

In es-post facto research, the researcher’s control on the behavior of independent variables is very weak and in many cases no control is possible.

Some of the weaknesses of ex-post facto research are summarized here under.

  • The inability to control the charging patterns of independent variables.
  • The ex-post facto research findings owe the risk of improper interpretations
  • The ex-post facto research may not have any particular hypothesis as there is a likely hood that such an hypothesis may predict a spurious relationship between independent and dependent variables.

Laboratory Research
By definition, research of this type is confined to lab. Experiments alone. The basic feature of such research is that there exists a possibility of exercising control over independent variables and isolating their influences for plausible explanations. A laboratory experiment is a research study in which the variance of all or nearly all of the possible influential independent variables not pertinent to the immediate problem of the investigation is kept at a minimum. This is done by isolating the research in a physical situation apart from the or ordinary living and by manipulating one or more independent variables under rigorously specified, operational zed and controlled conditions. This type of research has a limited application in social sciences as it extremely difficult to study social variables in isolation of each other. However, it may, at times be possible to create a situation; where in a maximum control can be exercised to keep the variations among the independent variables at a maximum. In such cases laboratory experiment types of research may find its applicability in social research as well.
Action Research
This is a recent classification. This type of research is conducted through direct action. The actual study may consist of a number of phases, say, base-line survey, systematic action, periodical assessment, etc. A good example of action research is a study of test marketing. A base line survey is initially conducted and the informants are identified; and this is followed by the distribution of the product under study, and then an assessment of survey.

It is very useful method in consumer product. Even in the case of industrial products, machinery and consumer durables, the action research method is used when, instead of distributing the product, demonstration is made as part of action research. Action research is also termed as applied research because it is a type of research that will be conducted to solve immediate practical problem(s). By its very definition, it is research through launching of a direct action with the objective of obtaining workable solutions to the given problems.

In conducting research through launching of actions, this type of research has the quality of adapting itself to the changes take place in a given population. Action research is spread over different phases such as a base line survey, where all the possible information of research interest is collected to enable the researcher to acquaint him self with the existing operational situations. This also aims at collecting information from the other sources that have direct or planned action is particularly launched and then at the next phase action research carries out periodical assessment of the project.

At subsequent stage, changes, modifications and other improvements are made in the functional aspect of the project and finally the whole process culminates in the evaluation of the project as a whole.

The method used for this type of research is usually personal interviews method and the survey method. Some times attitude measurement techniques are also made use of some problems associated with action research are the personal values of the personal values of the individuals, lack of social scientists interest and exclusion locations with the respondent.

Generally, action research is directed to the solution of immediate, specific and practical problems. The findings of action/ applied research will be evaluated in terms of local applicability and not in terms of universal validity (usefulness). It is mainly intended to improve certain contextual problem and helps to add greater effectiveness in a certain practical manner. It focuses on the solution of day-to- day problems at the local level.

~~ These are the notes from my Research Process class @ UoM ~~


IT Consulting Ethics – Part 3 – Benefit-Cost Analysis and Government Considerations

If the principal objective of a not-for-profit organization is to maximize some aspect of its non-pecuniary mission, the marginal comparison criteria applied in the for-profit sector to revenues and costs should be equally applicable in the not-for-profit sector to the quantifiable    characteristics of the mission being pursued. “Benefit-cost” analysis may provide decision criteria for the organization manager in the government and not-for-profit sectors. The sum of all benefits (non-pecuniary as well as revenue) resulting from mission pursuit constitutes the numerator, B, of the benefit-cost ratio. Its denominator, C, consists of the sum of all costs (non-pecuniary as well as pecuniary) incurred in pursuing the mission. If the value of the ratio is a number greater than unity (i.e., B/C > 1), then the activity under analysis is justifiable; any benefit-cost ratio less than unity (i.e., B/C < 1) suggests that the activity is unwarranted.

Simple benefit-cost analysis has been extended to the concept of marginal benefit-cost analysis. This version is applicable to situations where the question is whether to do more or less of the activity which is already in progress. The numerator of the marginal benefit-cost ratio includes only the additional benefits which are expected to flow from some increment of the activity; the denominator sums only the increased costs incurred by the activity increment. The same decision criterion holds for the marginal as for the simple benefit-cost ratio: a value greater than unity warrants the activity increment while a value less than unity indicates that the activity increment should not be undertaken. While marginal benefit-cost analysis has been used most often as a decision criterion in the not-for-profit sector, it is apparent that the for-profit criteria of marginal revenue and marginal costs are special cases of marginal benefits and costs where the benefits and costs are pecuniary values (or equivalents).

Both simple and marginal benefit-cost analyses are subject to bias and fraught with the potential for abuse. The bias follows from the requirement to include all benefits (psychic and other non-pecuniary benefits as well as any revenues resulting from the activity) and all relevant costs (non-pecuniary psychic and opportunity costs as well as explicit money costs). The problem is that a decision maker who is has a predisposition favoring a proposed activity tends to exhaustively identify all possible benefits and also tends to overestimate their money value equivalents. A decision maker with such a predisposition also tends to be more casual about identifying the relevant costs, and may also be inclined to underestimate their money value equivalents. By the same token, a decision maker with a predisposition against an activity tends to do the opposite, i.e., to casually overlook some benefits and underestimate the values of those identified, while exhaustively finding all relevant costs and carefully estimating their full money-value equivalents. Because of the subjectivity involved, it is entirely possible for two decision makers, confronted by precisely the same prospects and with the same information, to estimate widely divergent benefit-cost ratios and reach opposite decisions about whether to proceed with the activity.

Because capitalism (or market economy) is the form of economic organization to which the world seems to be drawn, I shall presume its general characteristics in subsequent discussion of the role of government. Given this presumption, there are six principal points of contact between firms and the government.

(1) Along with other entities in the economy, the government is a demander of goods and services from private-sector business firms; i.e., firms function as suppliers to the government. Since the government is likely to be the single largest economic entity in any economy, the prospect of supplying the government should provide market opportunities for a great many firms in the economy. However, firms seeking to function as suppliers to government should be aware of becoming too highly dependent upon government orders.

(2) Firms pay taxes to the government. The taxes may be related to the firms’ profits, their sales, their inventories or other assets, or the wages which they pay to their employees. Tax-related record keeping and reporting often become burdensome to business firms, and tax liabilities and rates are subject to change at the dictatorial or parliamentary whims of the state.

(3) Depending upon the government’s particular political, social, and military programs, various firms in the economy may become objects of support by the government. Such support may take the forms of subsidies, approval of licenses, preferential contracts, or other encouragements. The government may attempt to structure such activity as a coherent industrial policy for the promotion of international competitiveness of domestic companies.

(4) In pursuit of its agenda, government’s interests in firms may extend beyond support to efforts to control the activities of firms. Objects of governmental controls may include directions of research and development efforts, determination of product mixes and item specifications, selection of capital investment alternatives, eligibilities for import or export licenses, and employment practices. These activities may become elements in a more comprehensive industrial policy.

(5) The private sector may become an object of regulation by the government in the interest of employees, consumers, or other interests in the economy. Such regulation almost always imposes additional costs upon business firms, and consequently squeezes profits or results in higher market prices.

(6) And finally, the private sector may become the object of efforts either to promote and encourage competition, or to stifle or prevent competition. In the former case, “antitrust” or “antimonopolies” laws may be enacted and enforced; in the latter case the government may become the prime mover in the effort to “rationalize” or cartellize industry (also a possible component of industrial policy).

In their extreme manifestations, points (1) and (4) above may devolve to the characteristics of fascism. I may also note that the government can effect a ready transformation to the characteristics of socialism simply by nationalizing private-sector firms so that they become government-owned and directed enterprises. Our purpose in making these observations and otherwise identifying the various points of contact between firms and the government is to note that the operation of government in a capitalistic economy may pose threats to private sector firms as well as provide opportunities which they may attempt to exploit.

The most fundamental role for government to play in the market economy is the maintenance of an environment which is hospitable to the functioning of market economy and the exercise of entrepreneurship. At very minimum this means establishing the rules for holding, transferring, and arbitrating disputes over the possession of private property, determining weights and measures, providing a stable money supply, insuring the sanctity of contracts, and otherwise maintaining law and order. John Stuart Mill during the nineteenth century referred to these minimal roles for government as the “night-watchman” functions.

Beyond the night-watchman functions are four other significant rationales for governmental involvement in the market economy: to maintain competition, to reallocate resources, to redistribute incomes, and to stabilize the economy. Each of these rationales is founded upon some fault, shortcoming, or failure in the functioning of the market.

From this perspective it may be noted that any problem in the functioning of a market may invite some response from government to address the perceived problem. And if market mechanisms exhibit traumatic failure or become fundamentally distrusted by the political leadership of the society, these constitute the rationales for shifting to fascism by conferring product-mix decision making upon a central authority, or to socialism by nationalizing privately-owned productive resources and imposing central planning and direction. By the same token, failure of authoritarian socialism constitutes the rationale for shifting from authoritarian control to some form of market economy. It appears that this latter phenomenon is being widely experienced in the Eastern Europe even as some economies of the West experiment with more statist orientations.

Viable competition among business firms in each market is the sine qua non of market capitalism. It is competition which ensures that firms efficiently produce only those goods and services demanded by the consumers of the society. But there is an inherent divergence of interest between the firms in an industry and their customers. Although customers surely benefit from adequate competition (lower prices, higher quality merchandise, greater product variety), firms might achieve greater profits in cooperation with each other or as sole monopolists of their respective markets.

Governments of democratic societies then find rationale to undertake the promotion and preservation of competitive conditions in their economies. This is usually done by enacting legislation which declares the existence of monopoly to be unlawful (in the U.S. this is accomplished by Section 1 of the Sherman Antitrust Act) and the perpetrator of monopoly to be guilty of an unlawful act (Sherman, Section 2), or which enumerates specific acts or activities which diminish competition and which are thus unlawful (the Clayton, Robinson-Patman, and Wheeler-Lea acts). But the enactment of legislation alone is not enough. The government must further establish an enforcement authority (in the U.S., the Federal Trade Commission and the Antitrust Division of the Department of Justice) and resolve to make effective the enforcement of the relevant legislation. This resolve may differ significantly according to the political party in office and the particular agenda which it is attempting to implement.

The managerial implications of the determined enforcement of laws which are intended to preserve and maintain competition are that managers of business firms must make themselves knowledgeable of the pertinent laws, and they must make calculated judgments as to whether to risk violating such laws in any of their sourcing, producing, or marketing activities. It may also be worthwhile to note that in a society governed by law (as is the U.S.), innocence is presumed until guilt has been established. The significance of this is that no act undertaken by the management of a business firm is necessarily in violation of the law until it has been tested in the courts.

In a legal environment of presumed innocence, even though a law may declare a certain act unlawful and other firms engaging in the act have been indicted and successfully prosecuted, the act may be repeated by yet another firm. In order for the firm to be penalized under the law, the act must be detected, indicted by an appropriate legal authority, and successfully prosecuted in court. Because failure may occur at any of these stages, the management of a firm may behave rationally to assess the probability of detection, the probability of indictment if detected, the probability of successful prosecution if indicted, and the magnitude of the penalty if found guilty under the law. Then if the “expected value” of the penalty (i.e., the conditional probabilities multiplied by the likely penalty) is judged small enough, the management may deliberately assume the risks of detection and prosecution by engaging in the act. Indeed, it is not uncommon for business firms to maintain legal staffs or contingency funds to cover legal fees and any penalties which are actually assessed.

Two cautionary notes are appropriate at this point. First, even though the behavior described in the paragraph above may be rational, the reader should not take this acknowledgement as an advocacy of the assumption of risk in knowingly breaking the law. And second, although the liability of corporate shareholders is limited to their investment in the firm, corporate managers should beware of the possibility of both criminal prosecution and civil liability suits when their firms have been found guilty of violation of the law.

Suffice it to say at this point that the rationale is based upon the conclusion that the particular allocation of resources resulting from the normal functioning of the market economy is not satisfactory and needs adjustment. This conclusion may emerge if there are so-called “public goods” desired by society but not producible in response to market incentives, or if there are positive or negative externalities (or “spillovers”) resulting from the market production of goods or services. The managerial implication of this rationale is that declining profits or losses will likely emerge in industries from which resources are diverted, but profitable opportunities should be found in industries toward which resources are reallocated.

The income redistribution rationale follows from a social and political judgment that incomes are being inequitably distributed across the population of the society by the normal functioning of the market economy. There is little doubt that any market economy distributes incomes unequally because of the fundamental reward mechanism of capitalism: to each according to his or her contribution to the process of production of demanded goods and services. Since members of any population possess differential abilities and experience varying intensities of drive and motivation, there will occur different contributions to the production process, and as a consequence an unequal distribution of income.

Social action becomes warranted only when it is judged that the inequality of distribution is also inequitable. The governmental vehicles for redistribution include progressivity of income and profits taxation, the taxation of capital appreciation, and any of a wide range of possible transfer payments. One managerial implication of governmental redistribution is that business net incomes, assets, and wages paid are likely to be objects of taxation to raise revenue for redistribution to lower-income members of society. Another is that businesses catering to transfer recipient clienteles may benefit from the redistributions. However, there may be little hope for managements of business firms to exert significant control or influence upon the political process which determines how incomes are to be redistributed.

The rationale for bringing the offices of government to bear upon the stability of the economy is based upon the view that market economies are naturally unstable, that the degree of instability is intolerable, and that some force must be applied to counteract the natural instability of the market economy. Of course, the only entity in the economy which can possibly bring enough force to bear upon the problem of instability is the government.