Purpose of Designing and Argument for Government Subsidies for Bus Driver Training - Case Study Example

Trelawney Buses Trelawney Buses: An Economic Overview for the Purpose of Designing and Argument for Government Subsidies for Bus Driver Training Name of Student Name of University Trelawney Buses 2 Trelawney Buses: An Economic Overview for the Purpose of Designing and Argument for Government Subsidies for Bus Driver Training The Trelawney Bus company has acquired a large portion of the market for public transportation. To understand how this affects the company, it is important to understand the history of privatized smaller companies that end up swallowed by larger companies. As this happens, a monopoly begins to emerge that affects government controls on the industry. A result of this is that the OFT will have to step in and look at the affects of these larger companies as they control the market and if this will mean that the government will have to take action. The labour market becomes an important factor in the way that funds are used within the company budget as pricing control affects the number of employees and the rate of pay available. In looking at these issues, the company can find a plausible argument for Trelawney Buses to use toward convincing the government that subsidies for training are needed to promote the continuation of effective competition and price control. The concept of privatizing a business is that the competition will create a higher quality of product. By giving one company a monopoly on the market, the quality can be dictated by the control of that company. The intent of the government in breaking up the bus routes into smaller privatized routes was intended to create a competitive market place where quality control emerged through the need to do better than the others. In giving several businesses the control over the areas, the bus system would be able to increase its overall efficiency and make a better attempt to fulfill the needs of the consumers According to Moschandreas (38) “Neoclassic economic theory assumes that prices constitute the control through which market transacting controls the allocations of resources.” Trelawney Buses 3 This means that prices are the way in which a business will decide which areas of the business will need the most funds. However, when smaller businesses attempt to compete, the pressure to lower prices will often force them to be unable to properly support all the needs of the company. This gives an open door to other larger companies with better funding to come into the market and buy up the smaller companies giving them control over the market. This is called a monopoly. The government is responsible for watching the control that a monopoly will assert over the market so that the needs of the consumer are not lost to the power that the company holds. The reason that a company cannot hold a monopoly over a market is that it makes it less possible for other companies to effectively compete. Holding a monopoly power means that a company holds power over pricing and market share (Shim, Siegel and Levine: 204). Having that power will make it impossible for the smaller companies to allocate their funds within their budgets so that the company can be profitable. The larger companies have opportunities for saving money through the concept of volume than will be possible for the smaller companies. Losses have a larger impact on smaller operations as do changes that affect their bottom line. To understand this in reference to the bus company, one might look at the training issue as a cost that is easier for a larger company to absorb than a smaller company. As Trelawney is a larger company that has absorbed several smaller operations, this issue will need to be addressed when discussing the issue of more government subsidies for training new employees. In addition, any competing companies that need these subsidies might be enlisted to help approach the government. The status of a larger company in holding more control over the market may need support from companies with less resources to make a strong case for subsidies in training. Trelawney Buses 4 In understanding why a monopoly is not a desirable position, one might look at the acquisition of Eastbourne Buses and Cavendish Motor Services by Stagecoach Bus Holdings LTD. This act prompted a recommendation by the OFT to investigate the monopoly hold that Stagecoach now holds (Office of Fair Trading). This investigation will look into the way in which service and price are affected. This type of an investigation can provide the community with assurance that the service they are receiving is not affected by the power that a company holds. However, it can also mean that a company will have to spend time and resources addressing these questions. Fig. 1 The Restrictive Trade Act of 1976 and the Competition act of 1998 were designed to prevent companies from actions that are purposely designed to promote a restrictive practice. According to Kew and Stredwick (88), a restrictive practice is one in which collusion is committed that promotes an effect of “restricting, distorting, or preventing competition.” The Trelawney Buses 5 reason that this is deemed important is that without fair access to a market the quality of the market is undermined. These specific actions by government shows the importance that is given to a fair market place by society. Some of the ways in which a monopoly is considered bad for the overall market are as follows: Higher Prices Higher Price and Lower Output than under Perfect Competition. This leads to a decline in consumer surplus and a deadweight welfare loss Allocative Inefficiency. A monopoly is allocatively inefficient because in monopoly the price is greater than MC. P > MC. In a competitive market the price would be lower and more consumers would benefit Productive Inefficiency. A monopoly is productively inefficient because it is not the lowest point on the AC curve. X - Inefficiency. It is argued that a monopoly has less incentive to cut costs because it doesnt face competition from other firms. Therefore the AC curve is higher than it should be. Supernormal Profit. It is argued that a monopoly has less incentive to cut costs because it doesn’t face competition from other firms. Therefore the AC curve is higher than it should be. Higher Prices to Suppliers - A monopoly may use its market power and pay lower prices to its suppliers. E.g. Supermarkets have been criticized for paying low prices to farmers. Diseconomies of Scale - It is possible that if a monopoly gets too big it may experience diseconomies of scale. - higher average costs because it gets too big Worse products Lack of competition may also lead to improved product innovation. Charge Higher prices to suppliers. Monopolies may use their supernormal profits to charge higher prices to suppliers. (Economics Help) Trelawney Buses 6 In order to defend itself to the OFT if an allegation of monopolizing the market results from raising the issue of subsidized training, Trelawney Buses must be able to address all of the issues that arise from a monopoly and show that they do not fit into the criteria that would label them as such a company. It must be able to show that their pricing is a benefit to the consumer and that the consumer does not suffer from the size of the company in comparison to the level of competitive market share that the company has created by its larger territory. Before entering into conversations with the appropriate parties that will help the training subsidy issue, each of the above issues must be addressed and answered so that the company is prepared for any questions that might reflect poorly on the company. Along with understanding the government position on monopolies, it is important to understand the concept of labour as it will relate to the issue of training. In approaching the issue, one must analyze the labour market for bus transportation and show that absorbing the cost of training will be a burden that adversely affects the consumer. As well, showing that it interrupts the competitive nature of the business when Trelawney absorbs the full cost of training when the employee decides to accept a position with a competitor will show that the practice of paying for training without government subsidy creates an unfair burden that will affect the ability to conduct business fairly. According to Jevons (71), “The main element of production and the chief source of wealth is undoubtedly labour.” This was written in 1905 and still holds true to this time period. The core of any business is the way I which labour is handled. The way it is handled for human resource issues will determined the well-being of the worker. The way in which the worker approaches the efficiency of his or her own production will effect the overall quality of the Trelawney Buses 7 product. When the labour has a quality level of efficiency, the company benefits as the labour costs go down when time is utilized at is optimum financial advantage. It is important to understand that Labour Economics is a sub-field of economics for which research and study is done separately from mainstream economics. Labour Economics is defined as a discipline that seeks to “understand the functioning and dynamics of the market for labour” (Wikipedia). According to information released by Queens University and their course on economics there are three basic theories upon which Labour Economics predicates its study. Institutionalism- individuals and institutions, customs and socio-politics shape labour market outcomes Dualism-the labour market is segmented into core (good) and periphery (cruddy) jobs. The latter having high turnover. Within the internal firm, allocation of labour is determined by administrative rules and customs. Radicalism (Marxist) – Economic structure is the result of social development. For example, capitalism generates classes which result in class conflicts. These conflicts drive exploited workers to unite to improve their position. A basic understanding of these theories will allow a stronger position when approaching the argument for government subsidies for training. Strictly speaking, in economics, labour is seen as a commodity. In looking at the labour market, it is wise to understand that the supply and demand theories of economics applies. In addressing training for individuals for job performance, the supply of trained individuals for the position will directly affect the demand for trained employees. If one company supports the costs of training while another benefits from that training, then an unfair advantage has been exploited and the concept of fair trade no longer exists. This creates an imbalance in competition. In approaching a defense for government subsidies for training of bus driving personnel, Trelawney Buses 8 it is best that a practical rationale be developed to present to the board. There are many valid reasons for supporting the government subsidy and in showing them the ways in which appropriate fair market practices will be supported, the decision for greater subsidy will be proven. In order to find support for this concept it will be necessary for several issues to be specifically addressed. The first argument that may be made can address the governmental support in fair market values. In supporting values that suggest that the market should have a fair foundation, the government would support a movement that would level the field for training of employees for public transportation. In investigating the Stagecoach Bus Holdings LTD acquisitions, the government has already declared its specific interest in fair practices within the transportation industry. Therefore, providing the funding for training employees with no guarantee of service once the training has been completed, with the additional possibility of those employees using that training for other companies, would create an unfair burden upon Trelawney Buses. In presenting this argument, it is important to support the need for training of the employees for the welfare of both the community and the industry. Having well trained employees is vital in job satisfaction and the support of safe practices within the industry. Therefore, the business of bus transportation needs to have trained labour so that safety issues and satisfied employees can be utilized to support conducting solid business transactions. Since it is the government who sets the laws under which safety is enforced, it is in the interest of society that proper training be provided for employees of the industry. In order to form a credible argument, it would be wise to provide proof that a percentage of employees trained with Trelawney paying for the education have quickly moved to other Trelawney Buses 9 businesses to use that training. As well, a financial graph showing how the other businesses have benefited from the training provided by Trelawney will increase the credibility of the argument as the visual representation of why this issue has merit. This will then support the fairness in business argument that will be the foundation of the argument. Support for the success of the previous subsidy program will also provide foundation for the argument. If the company can show that the subsidies allowed for a more fair financial basis within the employment of workers then the argument will have merit. As well, showing the losses that might be suffered by the labour force should this expense be shouldered by the company will reinforce the argument for why the government should pay for the classes required for training. Finally, the issue of the importance of the training should be proven. As the safety and welfare of the employees for their impact on society is weighed against the financial consequences of not having trained employees, the board will be able to recognize that it is both essential to have the training and the responsibility of the government to ensure that the welfare of society is supported by the subsidizing of proper education without it being the burden of private business. To conclude, the case for government subsidy for training of personnel for the Trelawney Bus company has economic merit. Using fundamental visual representations of the costs and benefits of the training when provided by the government versus the expense being shouldered by the company will provide a solid foundation for a well defined argument. The costs of training employees with no possibility of guaranteed production puts an unreasonable burden on the company and this can be proven through economic resources for information. Trelawney Buses 10 Illustrations Fig. 1 Diagram of a Monopoly found at http://www.economicshelp.org/microessays/m arkets/monopoly-diagram.html Trelawney Buses 11 References Economics Help. (2010). Diagram of a monopoly. Viewed on 5 February 2010 from http://www.economicshelp.org/microessays/markets/monopoly-diagram.html Jevons, W. S. (1905). The principles of economics: A fragment of a treatise on the industrial mechanism of society. London: Macmillan and Co. Kew, J., & Stredwick, J. (2005). Business environment: managing in a strategic context. London, Chartered Inst. of Personnel and Development. Moschandreas, M. (2000). Business economics. London [u.a.], Business Press. Office of Fair Trading. (13 May 2009). OFT refers Stagecoach bus acquisitions in Eastbourne to Competition Commission. Viewed on 5 February 2010 from http://www. oft.gov.uk/news/press/2009/56-09 Queens University. (2009) Viewed on 5 February 2010 at qed.econ.queensu. ca/pub/students/rybczynskik/week1.pdf Shim, J. K., Siegel, J. G., and Levine, M. H. (1998) The dictionary of international business terms. London: Fizroy Dearborn Publishers. Wikipedia. (2010). Labour Economics. Viewed on 5 February 2010 from http://en.wiki pedia.org/wiki/Labour_economics Read More