Reasons of Government Intervention in Transportation Industry
Abstract Certain function can be carried out satisfactorily only by the central or local government even where the provision of public transport is left entirely to the private sector, the government has an important role to play. If only to ensure through appropriate policy measures that the operating environment is conducive to the development of a suitable transport industry. A fundamental requirement is full government commitment to the success of the transport system even if this requires difficult political decision.
In this report, there are few reasons for government involvement in the transport industry with of course based on real-life examples. Transport is that part of economic activity which concerned with increasing human satisfaction by changing the geographic position of goods or people. It may bring raw materials to where they can be manufactured more easily, or finished goods to places where consumer can make best use of them. Alternatively, it may bring the consumer to places where he or she can enjoy services which are being made available.
There are 5 types of transportation mode which are road, rail, sea, air and pipeline. Each of it has its own characteristics as well as advantage and disadvantages. The transportation industry can be broken down into three major groups of companies; shipping, passenger transport, and equipment manufacturers. In some cases, particularly within shipping and passenger transport, companies provide services in multiple areas of the industry. Shipping companies are responsible for the transportation of supplies, and products to businesses, governments and individual consumers and operate on a global basis.
The passenger transport segment provides people with the means to get anywhere on the planet, whether it is by air, sea or land. Finally, the manufacturing segment produces the trucks, planes, ships and railcars along with all the technology that allow transportation to exist in its current form. These manufacturers are just as essential to the transportation of materials and people as are the companies that transport them. Slow economic activity results in lower demand for freight and passenger transportation.
According to the IATA, the air transport industry lost more than $4 billion amidst the 2008 global recession. Another major driver of the industry is cost, in terms of ticket prices and financing (demand) and factors of production (supply). Transportation activities heighten during the holiday seasons, impacting the performance of this industry. The major players of the transportation industry are:
- Railways: The US has the biggest railway network (approximately 240,000 kms). Other countries with vast railway lines are Russia (154,000 kms) and Canada (72,961 kms). Airways: The major airlines are British Airways, Lufthansa, Qantas, Cathay Pacific, Emirates, Air France-KLM and Southwest Airlines.
- Shipping and logistics: The chief shipping companies are APM Maersk (TEU capacity: 2,031,886), Mediterranean Shipping Company (1,469,865) and CMA CGM Group (988,141). Government in Transport Industry Any transport system requires basic regulations in the interest of public safety. A basic framework of rules must be laid down and enforced. Offences must be delineated and punishments prescribed.
The doctrine of Laissez-Faire, which drew from the eighteenth-century, holds that the state should not interfere with the activities of private individuals who are showing enterprise but should leave them to do as what seem fit. But it soon become apparent that in reality where the entrepreneur are aiming at the greatest personal profit, was likely to exploit the general public, especially in view of the monopolistic nature of many early transport enterprises. Here are where the line of government to start their involvement in the industry with a lots more additional reasons.
Transport policies arise because of the extreme importance of transport in virtually every aspect of national life. Transport is taken by governments of all types, from those that are intervention list to the most liberal, as a vital factor in economic development. Transport is seen as a key mechanism in promoting, developing and shaping the national economy. Transport frequently is an issue in national security. Policies are developed to establish sovereignty or to ensure control over national space and borders.
Certain transport services may not be provided sufficiently or at all by the private sector even though they are valued by users because of inherent difficulties in charging for or excluding those who do not pay for the service. For example, without government funding, roads would be under-provided. Commercial incentives to provide roads privately are compromised by the need to allow many entry and exit points from a given route (particularly for local roads), presenting obstacles to the efficient collection of user charges. However, the distinction between a ‘public’ and a purely ‘commercial’ service is not always clearcut.
The existence of a natural monopoly in certain aspects of urban public transport is seen as necessitating a role for government to prevent the exercise of market power and possible exploitation of the travelling public. This role usually takes the form of direct service provision and/or regulation of fares. Unrestrained competition leads to market dominance by a company thereby achieving monopoly power. Such dominance brings into question many issues affecting the public interest such as access (in a port would smaller shipping lines be excluded? , availability (would smaller markets continue to receive air service by a monopoly carrier? ) and price (would the monopolist be in a position to charge high prices? ).
Other reasons for policy intervention include the desire to limit foreign ownership of such a vital industry for concerns that the system would be sidetracked to service more foreign than national interests. For example, the US limits the amount of foreign ownership of its domestic airlines to a maximum of 49%, with a maximum of 25% control. Other countries have similar restrictions.
Transport raises many questions about public safety. Issues of public safety have for a long time led to the development of policies requiring driving licenses, limiting the hours of work of drivers, imposing equipment standards, establishing speed limits, mandating highway codes, seat belts and other accident controls. More recently, environmental standards and control measures are being instituted, in response to the growing awareness of the environmental impacts of transport. Examples include banning leaded gasoline and mandating catalytic converters in automobiles.
Both the US government and such international organizations as the International Maritime organization (IMO) and the International Civil Aviation Authority (ICAO) have instituted new measures that impact on operations, and represent additional costs to the transport industry. An inadequate level of safety may be provided by a free market if operators do not incur the full costs of damage or injury to passengers and by standees caused by an absence of safety measures. For example, those injured incur costs which can only be retrieved through personal insurance or common law.
Environmental and Health Governments are beginning to exert greater control over environmental and health, issues that are replacing former preoccupations with economic matters. The environment is becoming a significant issue for government intervention. Coastal zone legislation has made it increasingly difficult for ports to develop new sites in the US. Air quality is a major factor influencing the allocation of US federal funds for urban transport infrastructure. In Europe, environmental issues are having an even greater influence on transport policy.
The EU Commission is promoting rail and short sea shipping as alternatives to road freight transport. Projects are assessed on the basis of CO2 reduction. All transportation projects are subject to extensive environmental assessments, which may lead to a rejection of proposals, despite strong economic justification, such as the case of the Dibden Bay proposal for expanding the port of Southampton in the UK. As a major source of atmospheric pollution and environmental degradation, the transportation industry can anticipate many further government environmental policy interventions. E. Providing Access to the Transport Disadvantaged
Governments also intervene to assist the transport disadvantaged. Some members of the community may not be able to afford adequate access to transport due to low incomes and/or the high cost of transport to them. The desire to provide public transport at a particularly low cost to pensioners, the unemployed, the old and the young has provided justification for government being involved in urban transport operations. Almost universally, public transport has been provided at a loss because governments have been concerned that it be accessible to as many people as possible at a price as low as possible.
Many transport modes and services are capital intensive, and thus policies seeking to promote services or infrastructure that the private sector are unwilling or unable to provide may be made commercially viable with the aid of subsidies. Private railroad companies in the Nineteenth Century received large land grants and cash payments from governments anxious to promote rail services. In the US, the Jones Act, that seeks to protect and sustain a US-flagged merchant fleet, subsidizes ship construction in US shipyards.
Indirect subsidies were offered to the air carriers of many countries in the early years of commercial aviation through the awarding of mail contracts. The Roles of Different Levels of Government In each State and Territory, governments operate public transport authorities. Urban rail systems are run by state government monopolies. In the case of buses, a mix of public and private operators prevails, but private operators usually operate under licences or contracts specifying routes, schedules, fares and so on. Taxis are mainly run by private interests, but are heavily regulated by government licensing bodies.
State governments are responsible for the construction and maintenance of state arterial roads. These functions are performed through the various state road agencies. State departments of transport or their equivalents generally administer overall transport policy. Other government agencies which impinge on urban transport include urban planning and environment. The nature, extent and effectiveness of coordinating machinery vary. Local governments also play a considerable role through their land use regulations, funding of local roads, and provision of local public transport. The Commonwealth Office of Local Government identified a number of activities of local government:
- The construction, funding, design and managements of roads;
- Land use planning and regulation;
- Providing some specialised local public transport;
- Shaping transport options by measures such as control of parking;
- Providing transport related infrastructure such as car parking areas and bus/rail interchanges; and
- Interaction with other government spheres on land use and transport planning.
Conclusion
It is essential to control transport from many points of view, but it is important not to make regulations so burdensome that they discourage enterprise. The chief reasons for regulations are to promote safety of the public, to prevent the abuse of monopoly situations and to avoid cut-throat competition. It is also important to ensure that transport costs are not passed on to the general public as ‘social costs’ for example as pollution, noise, accident damage and more. Therefore the government involvement in transport industry is important to balance up the economy and benefit either on the entrepreneur side or the consumer.
Refferences
- The Australian Government’s role in transport security, retrieved on 5 December 2011 from http://www. dfat. gov. au/facts/transport_security. html
- Transportation Industry, retrieved on 3 December 2011 from http://www. wikinvest. com/industry/
- Transportation EconomyWatch (30 June 2010), Transportation Industry, Transportation Sector; retrieved from http://www. economywatch. com/world-industries/transportation-industry. html
- Don Benson, Ralph Bugg, Geoffrey Whitehead (1994). Transport and Logistic. Great Britain: Woodhead-Faulkner (Publisher) Limited.
