A direct government action related to Amtrak - Research Paper Example

?A Direct Government Action Related to Amtrak Contents Contents Background of Amtrak 2 of Stakeholders 3 Arguments in support of Government’s Direct Role 4 Arguments against the Government’s Direct Role 5 Recommendation 7 Reference 8 Background of Amtrak Amtrak, the U.S. government owned corporation started its operation from 1971. It provides passenger train service in 46 states of U.S.A. and three provinces of Canada. Before 1971 the rail service was provided by several private corporations. Because of the declining financial condition Amtrak was established by U.S. congress. The board of directors’ members is appointed by the U.S. president and the senate of U.S. Most of the track of Amtrak is owned by the freight railroads which is a major source of earning. Amtrak has also its revenue from the ticket sales. In spite of these earning Amtrak needs government subsidies. There were many controversies has taken place about the direct government action. From the inauguration of Amtrak the financial condition was never stable. Despite of several financial aid given by the U.S. government Amtrak has never became self sufficient. This is the main cause of the controversies about Amtrak. But from the year 2007-08 the number of riders increased continuously which is a boost for the organization. This paper is an attempt to analyze that whether the government should continue to play a direct role in the operation of Amtrak. Description of Stakeholders The stakeholders of Amtrak are the U.S. government, the employees of Amtrak and the board of directors, the passengers, the taxpayers and the companies who are partners of Amtrak. The government owns all the stock of Amtrak and thus they would get the profit generated by Amtrak, but it is a fact that Amtrak has never been able to generate profit from 1971. The government has to provide subsidies for continuing the operation as it is an important medium of communication. The employees and the board of directors are the major stakeholders of the company. Approximately 19000 employees employee is working with Amtrak till date. They are responsible to provide quality service to its passengers and take steps necessary to improve it and inform the U.S. congress about the operations of Amtrak (duty of inspector general) (Amtrak Office of Inspector General, “About Amtrak OIG”). The taxpayers are providing tax and funding a major part of the needed capital of Amtrak. Some private companies or other government companies are work as the partner of Amtrak like Access America, AAA, eBags, Continental Airlines, iSeatz, Greyhound. They are the stakeholders of Amtrak as they have certain interest that how Amtrak will perform in the future and it is sensitive decision to continue partnership with them. The passengers are the major stakeholders as they are paying the price of the tickets and receiving the service. They would take the decision whether to continue travelling in the railroad or take some other medium. Arguments in support of Government’s Direct Role According to some critics if Amtrak get privatized then the company would become self sufficient and would generate profit. The private companies would divest the operations which is not so profitable. But there are also lots of demerits of this decision. These are described as follows. If the transport medium gets privatized there is a high chance that the cost of transport would increase and the common people get affected, as this would cost more. There would be less money in people’s hand and this could be a reason of economic crisis. Though the organization is generating a loss every year the government is providing subsidies to them. The recent increase of riders results in decrease the net loss of the company. If the private sector would be there they would take measures for cost cutting or steps to increase the revenue. They can generate more revenue by increasing the costs of tickets or the cost of advertising and cut down the costs by decrease the budget which may lead to some lower quality service. The private companies can also outsource some services to other companies like the securities, which would lead to professionalism, it is of no doubt but there would be problem regarding the integration of the whole service. Some problems of miscommunication can take place if the services are outsourced by the private companies (which they generally do) in an important area like railway transport. In the current situation all the operations are managed by Amtrak. The services of Amtrak are up to the mark though they are generating loss. Amtrak is maintaining high ethical standards; it is a doubt whether the sane standard would be maintained by the private organization. If there is some problem arises then the government and the political party in power would be there to answer such question but such chances is less when a private company is in charge. As the railway transport is totally owned by the government so there is assurance that the operations would not be liquidated ever, so the private organizations or the individuals would like to invest there as it is risk free. Presently Amtrak is funded by the central and state governments as well as the private investors. If the organization gets privatized then it would be risky for the investors to invest, as there is not enough security of the money of the investors. Moreover the private firms can go for a joint venture with government which would be profitable for the private companies and the government also. Also an improved quality service can be offered by Amtrak to its passengers. There are certain partners of Amtrak who are working with them like Access America which provide benefits of travel insurance and assistance services during travelling. Amtrak has partnership with eBags which is the largest retailer of accessories and bags. There are also some other companies which continuously improving the passenger experience (National Railroad Passenger Corporation, “Partners and Alliances”). It is a serious question if the organization gets privatized would they be able to offer this quality services to the passengers or not. The privatization may also create problem in the area of employment. The private companies would surely want to do the same job with less number of employees and it is also not sure they would retain the employees of the organization who are presently working with Amtrak. The Amtrak privatization may results in some short term profit but some steps taken by the companies which are assumed may become problematic for the people of U.S.A. also non-financially. The private companies can eliminate the services in less populated rural areas or the long distance service which would be inconvenient for the common people (Sclar, p.6). This would not improve the infrastructure of the country. The privatization of the railroads was happened in Great Britain in the 1990s. But this step of the British government went in vain as the railroads were bankrupted, the taxpayers have to pay more money, the cost increases more than it was before the privatization (Nyden, “Opponents of Amtrak privatization point to Britain”). This example shows that privatization of a organization like railroad transport can cause problem for not only the organization itself but also the whole economy of the country. It is tough to take some decision to privatize an area like railroad transport in this present era of globalization. Arguments against the Government’s Direct Role Though the organization is owned totally by the U.S. government it has never became self sufficient in spite of the support from the government, getting the government subsidies. Amtrak is making loss since its inception. As a result there was always criticism that the government should make it privatized for improving the quality of operations, for generating profit. In October, 2005 the Government Accountability Office (GAO) prepared a report and they have identified certain problems which has made the organization the unprofitable one. These are as follows The organization lacks a suitable strategic plan. For the long term run the company is need to have some long term strategies which will return profit for them. The financial reporting practices are not suitable for the organization. It is not correct at all reported by the GAO. The acquisition management of Amtrak is not effective. Some departments of Amtrak have made large purchases which have no adherence to the policies of Amtrak. There is lack of transparency inside Amtrak. As Amtrak is not a publicly traded company it is not accountable for the results (United States Government Accountability Office, p.3-7). From the report the causes of the inefficiency of Amtrak is found. This is the report of the year 2005. Since then the situation has not changed as there is the same condition and the company is gradually making more loss. In the year 2009 the net loss of the company was $1264 million and in the year 2010 the net loss of the company was $1309 million (Amtrak, p.39). So it is found that the situation has not improved in these six years also. The management has not taken some remedial measures for making profit from the operation. In this scenario the privatization of the business unit can generate profit from the area. The private companies are traded in the stock market. They are liable to report their activities to their investors as per the rule of the U.S. Securities and Exchange Commission. The reports of the company are properly audited so there is minimal chance of doing fraud. The stakeholders can get the correct information about the company and then they can take decision about whether to invest in the company or not. The transparency would improve the performance of the company and thus the quality of the service can be improved. There would be some good strategic plan according to which the company would continue their operations. The private companies would have that plans but in Amtrak there is no suitable and cohesive plan for long term. In the government entities there are lack of professionalism. There is corruption, employee strikes, demands from the labor unions which affect the operating efficiency of the business. In the private organizations there are restrictions for which the employees are bound to work more and there would be professionalism, in turn the company can provide better service to the passengers and the cost can be low. The per employee turnover also get higher (Rosar, p.8). The private companies which would take over the organization from the government would have the aim to increase the revenue and generate a good profit. They can outsource the services to other corporations which would bring professionalism in the railway service. Include all these there would be improvement of technical efficiency which would generate the quality service to the passengers as well as cut down the cost (Gormley, p.294). Since the inception of Amtrak in 1971 the company is generating loss every year despite the monetary support from the U.S. government. In the past 40 years the organization has never generated profit so it is a matter of concern now. In this situation the government can take step to privatize the organization as it would bring more professionalism, cut the costs and thus generate profit. Recommendation Amtrak is a passenger train service provider which was established to provide rail transportation to the common man during the declining financial condition of the country. Railways are a part of infrastructural services whose main aim is not profit making but to run any type of organization whether profit making or nonprofit making would require funds to operate in the industry. Moreover the resources should also be managed and utilized efficiently so that the organization can at least break even. The main reason behind the declining position of Amtrak is its organizational and managerial inefficiencies. GAO in its report has also mentioned the lack of strategic planning, improper financial management, and managerial inefficiencies as the main reasons behind the organization’s declining position and has also recommended that the strategic planning of the organization should be improved; improvement should be done in practices of financial management and more transparency in information should be maintained. It was also recommended that the company’s accountability and the ability of control should also be improved (United States Government Accountability Office, p.2-8). Thus to improve the accountability and make the management more effective it is recommended that some of the shares of the company should be sold to the general public thus privatizing it partially. This will enable the management to produce the financial and other relevant disclosures periodically which will in turn make the management to work efficiently as their performance will be scrutinized and highlighted the periodical reports which will be publicly available. As Amtrak operates in an infrastructural sector therefore instead of privatizing it fully it will be beneficial to partially privatize it. Reference Amtrak Office of Inspector General. 2011. About Amtrak OIG. Date of Retrieval: December 15, 2011 < http://www.amtrakoig.gov/content/about-amtrak-oig >. Amtrak. 2010. Amtrak Annual Report. Retrieval Date: December 15, 2011 < http://www.amtrak.com/servlet/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1249229514103&blobheader=application%2Fpdf&blobheadername1=Content-disposition&blobheadervalue1=attachment;filename=Amtrak_AmtrakAnnualReport_2010_v1.pdf >. Gormley, W. Privatization and its Alternatives. United States of America: The University of Wisconsin Press. 1991. National Railroad Passenger Corporation. Partners and Alliances. 2011. Inside Amtrak. Date of Retrieval: December 14, 2011 < http://www.amtrak.com/servlet/ContentServer?c=Page&pagename=am%2FLayout&p=1237608345018&cid=1241245669154>. Nyden, P. Opponents of Amtrak privatization point to Britain. June 26, 2011. News. Date of Retrieval: December 14, 2011 < http://wvgazette.com/News/201106260085 >. Rosar, K. 2006. Privatization and the Federal Government: An Introduction. Retrieval Date: December 15, 2011 < http://www.fas.org/sgp/crs/misc/RL33777.pdf >. Sclar, E. 2003. Amtrak Privatization- The Route to Failure. Date of Retrieval: December 14, 2011 < https://docs.google.com/a/sigmaresearch.in/viewer?url=http://www.epi.org/page/-/old/books/amtrak/amtrak_intro.pdf&hl=en_US&embedded=true&pli=1 >. United States Government Accountability Office. 2005. Amtrak Management: Systematic Problems Require Actions to Improve Efficiency, Effectiveness and Accountability. Retrieval Date: December 15, 2011< http://www.gao.gov/new.items/d06145.pdf >. Read More