Features / General

The government and the private sector

In the late 1980’s, the collapse of the Soviet Union closed a significant chapter on a centuries old debate regarding how involved government should be. The Union, from 1920 up to its reform in 1980s, employed a central planning system  in which the central authorities determined economic behaviour.

The authorities had to manage an enormous amount of data, and attempted to properly analyze the data to produce truly comprehensive and integrated plans that address current and future problems. This, however, caused them to suffer from issues such as poor coordination, quantity-over-quality, shortfalls,  lack of incentives and environmental degradation.

These factors and more led to the failure of the command-economy dream as proposed by German economist Karl Marx (1818 to 1883). It proved that his century-earlier predecessor, political economist Adam Smith, was closer to the truth with his theories about the free-market economy being inherently better at organizing itself and achieving efficiency.

Smith, the father of capitalism, argued that the Pure Market System is self organizing, because it’s governed by the fundamentals of demand and supply, a structure in which buyers and sellers’ in pursuit of their own individual self interests will inevitably lead to efficient outcomes.

In other words, Smith argued that the private sector should be leading the way, and the state simply should provide the background that defines property and protect rights from foreign and domestic enemies.

However, the free-market economy has also been known to have its fair share of disadvantages such as growing social inequalities that we could call the rich-getting-richer-and-the-poor-getting-poorer phenomenon. A pure market system has also been known for its inclination towards over exploitation of resources, and of course no provision of public goods such as roads, buses, schools, national defence, and so on.

In practice, however, there is no such thing as a purely planned or entirely free-market economy. Most economies today are hybrids of traditional systems, command economies, and free-market systems. In many mixed economies, government’s role and the level of involvement it should have is hotly debated.

Government in the Mixed Economy

Under the mixed-market system, economists seek to answer the mysteries of the self-organizing prowess of the market-economy, while looking at how well the government may intervene to improve (not replace) its working in specific situations.

Such interventions, as it pertains to equality in not-so-wealthy nations, also seek to solve the age-old problem of the poverty of the majority in the midst of the plenty of the few.

Therefore many economists say government should take on a refereeing role. It should have a limited albeit aimportant role to play in our economy.

Its roles should encompass things such as the provision of a functioning legal system that enforces laws and protect private property rights; provide public goods that no private business would be interested in providing because of their non-excludable and non-rivalrous nature; and correct potential market failures such as externalities (external costs or external benefits).

In its big-brother role, economists also agree that it should seek to maintain competition by regulating monopolies; redistribute income by taxing the “haves” to help the “have-nots,” and most importantly reduce economic evils such as unemployment and inflation by promoting economic growth.

In essence, the government should work towards redistributing resources in a way that ensures equality and a level playing field. They must try to provide policies that alleviate the poverty and suffering of those who for whatever reason failed to share in the income and employment that the well-functioning market economy could provide.

Government’s role in Bus route battle 

While economic principles and theories are mostly just guidelines  or theoretical benchmarks for the “best” allocation of the limited resources of a nation, and the real-life dynamics of public administration is its own conundrum. It is always amazing to see how certain decisions could be made that defycertain fundamentals.

Let’s take the ongoing three-way battle with the Belize Bus Owners Cooperative (BBOC), the Belize Bus Association (BBA) and the Board of Transport.

According to the principles already mentioned, GOB should be looking for ways to intervene and improve (not replace) its working in specific situations, and also work to ensure an equal playing field.

What   improvements were made by the intervention that allowed Westline Bus Co. Limited, owned by Mr. Sergio Chuc—who BBA President Thomas Shaw says the Prime Minister recognized as a UDP executive, to enter the bus market by taking over runs belonging to BBOC, a cooperative that is comprised of at least 15 separate bus owners.

In May of last year, this “intervention” led to a crippling strike on the Northern Highway, in which BBOC members blocked the highway with their buses and burned some tires. The authorities had to intervene to correct their own  mistakes to quell bus owners’  rage  ignited by the thought of them  loosing what one BBOC bus owner and demonstrator, Maria Rodriguez, called her “bread and butter.”

And here we are, little over a year later with yet another BBA-BBOC-Westline issue, in which this one company, Westline, has reportedly requested three of the BBOC’s runs; and has already paid for these runs, while most of the other bus owners say they haven’t even received a letter from the authorities.

According to Transport Board’s Chair Merlene Bailey-Martinez, the BBOC will get the runs they had applied for, and that this entire matter could be summed up as a communication gap.

We can only hope that the BBOC’s members will get such a favourable word soon.

Speaking to The Reporter on Wednesday Shaw said that the BBOC is not even asking for new and more profitable runs; they just want the authorities to leave the ones they have alone.

Advisor to the BBA Patrick Menzies speaking of Westline owners’ political affiliation said, “There we go, again, political influence puts this guy in there and he kicked out the poor BBOC members.”

If that is indeed the case this one bus company’s ability to trump a cooperative made up of  about 15 bus owners, one must ask if the Belize Government (both the current administration and its PUP predecessor) makes any attempt to follow those economic principles and theories—such as ensuring equality and  fairness— when making certain decisions.

Call to level the field

Deeply rooted in government’s role as the equalizer, they also should work to correct things that could cause the market to fail—market failures.

Without getting too technical here, i suffice to say that one such market failure comes in the forms of externalities (the spill-over effect that is a cost or benefit that is not reflected in prices).

In a broad sense, an industry that has a negative spillover effect such as pollution of the environment would often be taxed, which would be termed as internalizing the externality.

An industry that has a positive externality is often subsidized.

Looking at positive externalities, one common example could be found in vaccinations. When one person is vaccinated, the benefit is not only for that individual, but for all those around him who don’t have to worry about contracting any communicable disease.

Naturally, it’s is very difficult to come to a precise dollar amount for such positive spillovers; and often cost-benefit analyses would use surrogate market values.

Continuing with the inoculation example, if you consider the fact that healthy folks can work and the sick cannot, we could essentially take into account the incomes that are maintained because those who come in contact with the immunized  person are less likely to get sick and have to miss work for a week or more. That would mean a week or more of reduced productivity and other associated costs.

In the same way, the BBA has recently sent a letter to Minister of State Hon. Edmund Castro, who has specific responsibility for transport, to ask for subsidies in the form of duty free importation of parts and equipment and lower fuel rates. They have also asked for their fares to be increased from 8 to 16 cents in light of the high price of diesel fuel.

Like the inoculation example, thousands of Belizeans rely on public transportation to get to work, school and even to leisure activities everyday. If the government would take a surrogate value of what losses would be recorded if all bus companies would unanimously declare a strike for just one work/school week, its value would easily come into view.

Of course, we all would hope the bus owners would never have to go to such extremes, but it’s interesting to see how this important industry is treated.

The bus owners are calling for a price increase. However, in these challenging economic times it would be difficult for the mother of four, the father five, the struggling farmer, the single mother or the student that has to commute from Benque to Belize City everyday to muster twice as much in bus fare, as is being requested.

But on the flip side the bus owners are saying they need to survive as well. Certainly, we would all agree with the Transport Board’s Chair Merlene Bailey-Martinez who told The Reporter that the bus owners’ subsidy request is “worth examining.”

We certainly look forward to seeing how the role of big brother government helps to objectively level the playing field for the hard-working men and women who either rely on or make up this industry, as well as the  tens of thousands who rely on bus transportatio to get from one place to another.

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