Effect of Path Dependency in Port Melbourne - Case Study Example

Running Header: Economics Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Path Dependency According to Magnusson and Ottosson (2009, p. 140) path dependency refers to the casual relevance of preceding events in some type of temporal sequence. Path dependency holds the opinion that the events that occur at an earlier period of time and the sequence at which those events occurred have an influence on how the subsequent events occur in the society’s history. This simply means that what happens today is dependent or it is influenced by what happened in the past. Path dependency means that historical occurrences and events determine what will happen in the future. Pierson (2011, p. 20) emphasizes this by stating that path dependency means that the events that occurred at an earlier point in time will affect the sequence of events that will occur afterwards. Path dependency involves the process at which dynamic events which have positive feedbacks create numerous probable outcomes depending on the particular cycle in which proceedings unfold. It therefore means that critical occurrences in the historical process create path dependency and this leads to events occurring or happening in a predetermined order. Therefore, if an organization or a society adopts a given path in developing its set of practices it becomes more difficult to change this path with the passage of time. In path dependency, history plays a key role in determining the future. Path dependency can either occur when tiny events frequently lead to major consequences or when a precise courses of action is once introduced becomes difficult to overturn. Effect of Path Dependency in Port Melbourne Reverley and Tull (2008, p.10) note that port reforms in Australia has become global phenomenon, culture, institutions and processes of path dependency. Reforms in port Melbourne were aimed at increasing the ports economic performance. However, Notteboom, Langen and Jacobs (2012, p. 14) note that the reforms had a major impact on the port but at the same time the reforms did not affect the traditions of the port in relation to increasing its profitability and speeding up its cargo handling rate. In addition, the port continuous to locked up its development path by only focusing on developing the port complexes within Melbourne. This means that the management does not pay attention to new innovative investment projects. The port management maintains that it is focused on long term development of the port complexes in Melbourne. The path dependency inherent in the port of Melbourne has made it to continuously perform poorly due to it’s over reliance on its complexes. The port adopted a path of hiring its senior managers from either the public sector or from internal promotions. This has greatly affected the port operations because it does not acquire skills which are in line with more commercial cultures and this has made the port to be unattractive employer. Furthermore, the fact that it concentrates on hiring from the public sector or through internal promotions makes the port to lack a diverse and widely experienced workforce and this explains its poor performance. The port of Melbourne adapts old and incomprehensible monitoring tools and techniques (Notteboom, Langen and Jacobs 2007, p. 14). The port has failed to change its old monitoring tools and techniques given the current emergence of highly accurate and reliable performance monitoring techniques. The lack of reliable monitoring tools has made the management to make risky decisions which end up being overturned and this makes the port to incur large amount of losses. Effect of path Dependency in the Australian Wine Industry Aylward (2006, p. 4) states that the wine industry in Australia previous success in research and development has led to creation of a path dependency from which the industries are finding it difficult to change. The industries have been able to grow tremendously and this has been associated with their continued efforts in increasing financial investments in research and development activities. Hakim and Jin (2010, p. 4) note that the historical influence has forced wine industries to continuously undertake research and development. The manufactures have depended on this path hence they have been able to come up with differentiated wine products which have enabled them to gain global success. Moreover, through research and development the wine companies have been able to produce innovative wines and this has enabled the companies to gain and build competitive advantage. A study conducted by Alyward (2006, p.12) indicated that through depending on research and development the Australian wine makers have gained regional identity and reputation. Their products have gained positive reputation in domestic and international markets. The industries have been able to undertake research on the best marketing and production techniques. This has in turn provided them with a means of developing innovative regional infrastructure with effective planning, production and distribution techniques. The wine makers have realized that wine making and marketing require an entirely new thinking process and this has made them to continuously depend on research and development. Farm Problem The farm problem can be defined as a problem of continued and persistent variable and low incomes for farmers (Alston and Pardy 1996, p.109). The variability occurs due to the fact that too much labour is supplied in the agriculture sector and this makes the sector to respond at an excessively low rate to the changes in the economy. Farm problem refers to a situation whereby full time farmers generate incomes that are below the national average from their farming activities. The farm problem may involve changes in climate as well as changes in demand which can lead to substantial decline in the prices of farm products. This may in turn create low and unstable incomes for the farmers. Causes of Farm Problem According to Alston and Pardy (1996, p.110) the farm problem occurs due to the employment of excessive numbers of laborers in the agriculture sector. This means that the laborers are unable to earn substantial and adequate incomes as compared to the amount that the same laborers would earn if they employed their services in other sectors of the economy. This situation occurs because the excess supply of labour left in the agriculture sector is unable to respond quickly to the changes in the economy. Another factor that has been identified to cause the farm problem is the current changes in technology. Improvement in the farming technology leads to a subsequent increase in the amount produced by the farmers. The increased output creates instability in the market and this in turn leads to a reduction in the prices of the farm produce hence creating low incomes for the farmers. According to Attwood (1992, p. 222) technology leads to a more efficient and effective production at the farm level and this has a positive impact on the total output produced by the farmers. Improved technology provides the farmers with an opportunity to efficiently combine their factors of production in a manner that will improve their outputs. However, the increased output leads to excessive supply hence the farmers end up earning low incomes and this leads to the farm problem. Alson and Pardey (1996, p.110) state that the increased output as a result of adopting the technology creates a market imbalance between demand and supply of the farm products. The excess supply is compensated by a decrease in the products prices and this means lower incomes for the farmers. The increase in the amount of farm outputs leads to reduced farm products prices hence this creates a lower amount of income for the farmers. Alson and Pardy (1996, p. 111) argue that farm problem has also been caused by poor government policies. Governments may introduce policies with an aim of reducing economic hardships experienced by the farmers. However, the research policies and the farm programs advocated by governments can have negative impacts on the farmers and this can in turn reduce their incomes. Poor research policies can create inefficiencies to the farmers hence end up reducing their overall incomes. On the other hand, the government can motivate the farmers to adopt poor farming programs which can reduce the quality of their outputs and this can in turn reduce the farmers’ incomes. Attwood (1992, p. 224) argues that the support provided by the state with the aim of improving the farmers outputs can lead to a reduction in the farmers’ incomes due to an increase in supply which is usually occasioned by a reduction in prices. Moreover, the government can set the minimum price of the farm products with an aim of boosting the farmers’ profits. However, the enforced price can lead to a decline in demand and this can consequently reduce the farmers’ incomes hence create the farm problem. According to Alson and Pardy (1996, p. 112) reduction in the relative importance in relation to the farm commodities can lead to the farm problem. The increased prices of farm products which are attributed to the increase in the prices of inputs can reduce the demand for the farm products. Moreover, customers may feel that the increased use of technology by farmers may lead to the production of unsafe products and this can make the customers to reduce their demand of the farm commodities. The changing customer demands may prove to be difficult for the farmers to satisfy and this can adversely reduce their income. Impact of Deregulating Rural sector on the Farm Problem According to the Organization for economic Co-operation and development (1998, p. 282) deregulation of the rural sector has led to efficiency gains in the agriculture sector. This means that the farmers are able to improve their operating efficiencies making them to incur less production costs hence this has increased their incomes. Therefore, deregulating the rural sector has reduced the farm problem by increasing the farmers’ incomes. The deregulation has enabled the farmers to become more efficient in responding to the changes in the international market. The farmers are now able to diversify their farming activities and this has assisted in improving their income hence reducing the farm problem. Moreover, deregulation of the rural sector led to a reduction in the excessive labour supply in agriculture sector and this reduced the farm problem due to the increased efficiency in the rural economy. Vanclay (2003, p. 85) notes that deregulation of the rural sector provided farmers with a wide range of marketing channels. The farmers were able to utilize different marketing agents and strategies in order to sell their market. This meant that they were able to sell their products at the highest prices possible and this improved their incomes. Before the deregulation farmers could only sell their products to monopolies who offered low prices and this led to the growth of the farm problem. However, the deregulation provided the farmers with a variety of markets and this enabled them to bargain for the highest prices. This in turn led to an increase in their incomes consequently reducing the farm problem. Industrial Policy Industrial policy refers to a variety of actions undertaken by the government in order to protect or promote specific industries, firms or sectors (Harrop 1992, p. 123). They are mechanisms and policies adopted by the government with an aim of influencing industrial investment decisions. The policy may aim at offering some assistance to a given industrial sector. The government utilizes the industrial policy as a tool for offering protection by implementing restrictive trading measures in order to discourage foreign investors. This means that the government can use the industrial policy to regulate competition. In this case the government can implement policies protecting monopolies, restrictive practices and mergers (Pollin and Baker 2009, p.14) Through industrial policy the government offers its support to the domestic firms. Industrial policies can be in the form of lenient government regulations, subsidiaries targeting a specific sector, Research and development assistance, labour retraining and bailouts for ailing companies. The government may also use tax incentives and budget policies in order to offer its assistance in a given industrial sector. Industrial policy focuses at promoting investment in research and investment, motivating firms to become technologically innovative, increasing productivity and improving the firm’s competitiveness by assisting them to adopt new technological innovations. Pollin and Baker (2009, p.14) note that it is through industrial policy that the government ensures that its long term development goals are achieved. Moreover, through industrial policy the government is able to create and increase employment opportunities. Effects of Government policies and Regulation Changes on the Secondary Industries in Maintaining the Balance between Primary, Secondary and Tertiary Sectors Secondary industries are concerned with converting raw materials to finished goods while primary industries undertake activities linked with extracting raw materials directly from the natural resources. According to Arora (2008) the secondary industries are mostly composed of small firms which are financially weaker as compared to their primary competitors. This means that the secondary industries are at a competitive disadvantage when they directly compete with the industries at primary sector hence this creates a state of imbalance. Therefore, government policies and the changes in the regulations that govern the secondary industries act as an incentive to them and through this they are able to exert more competitive power. The fact that most primary industries are composed and dominated by a few large companies makes them to act as monopolies when dealing with the industries in the secondary sector. The few industries in the primary sector are able to exert their domination over the industries that constitute the secondary sector. The changes in regulations that control the secondary industries enable them to overcome the market pressure imposed by the primary industries and this creates a balance between the primary and the secondary industries. Government policies also assist in creating a balance between the primary and the secondary industries. Through government incentives the industries in the secondary sector are able to reduce their costs and this places them at par with the primary industries. On the other hand, the tertiary industries are involved in providing services. The tertiary sector offers services to other sectors in the economy. Dang, Liu and Wang (2010, p.253) note that the tertiary sector grows at a faster rate as compared to both the primary and secondary sectors. This is because both the industries in the secondary and primary sectors supply all their resources to the tertiary sector. The government enforces policies in order to ensure that the imbalance that results due to the speedy growth of the tertiary sector is restored. The changes in government regulations enable the secondary sector to avoid being under direct control from the tertiary sector hence this creates a balance between the tertiary and the secondary industries. References Alson, J., & Pardey, P. (1996). Making Science Pay: The Economics of Agriculture R&D Policy. Washington, The AEI Press. Arora, P. (2008). Materials Management. New Delhi, Global India Publications. Attwood, E. (1992). The Nature and Causes of Farm Income Problem, Journal of the Statistical and Social Inquiry Society of Ireland, 14(4), 217-244. Aylward, D. (2006), Innovation lock-in: unlocking research and development path dependency in the Australian wine industry, Strategic Change, 15(8): 1-27. Dang, Y., Liu, S., & Yuhong, W. (2010). Optimization of Regional Industrial Structures and Applications, New York, CRC Press. Hakim, L., & Jin, C. (2010). Innovation in Business and Enterprise: Technologies and Frameworks. Hershey, IGI Global. Harrop, M. (1992). Power and Policy in Liberal Democracies. New York, Cambridge University Press. Magnusson, L., & Ottosson, J. (2009). The Evolution of Path Dependence. Cheltenham, Edward Elgar Publishing Limited. Notteboon, T., Langen, P., & Jacobs, W. (2012). Institutional Plasticity & Path Dependence in Seaports: Interactions between Institutions, Port Governance Reforms and Port Authorities zroutines, Journal of Transport Geography, 10(16), 1-28. Organization for Economic Co-operation and Development. (1998). Agricultural Policy Reforms and the Rural Economy in OECD Countries. Paris, OECD Publications. Pierson, P. (2004). Politics in Time. New Jersey, Princeton University Press. Pollin, R., & Baker, D. (2009). Public Investment, Industrial Policy and U.S Economic Renewal, Centre for Economic and Policy Research, 1(1), 1-34. Reveley, J., & Tull, M. (2008). Port Privatization: The Asia Pacific Experience. Cheltenham, Edward Elgar Publishing Limited. Vanclay, F.(2003). The Impacts of Deregulation and Agricultural Restructuring for Rural Australia. Australian Journal of Social Issues, 38(1), 81-94. Read More