Economic Independent Written Assignment Government Monopoly vs. Private Monopoly A welfare state is defined, “as a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens”. Their principles are based on the equality of opportunity and equitable distribution of wealth. Government monopoly is considered public sector, because it trades and conduct businesses that deals with the production, delivery, allocation of goods and services to its citizens. As a result, coercive monopoly is a term refers to where there is a single seller of a product for goods and services, where there are no substitutes. In other words, this is conceived to be government ownership that takes place at both the federal and provincial levels. They create policies such as permitting, prohibiting or regulating in regards to monopolies. These policies can have major impacts on specific businesses, industries, the economy and society as a whole. The reasoning behind a coercive monopoly is because it prohibits competitors from entering the field and potential competitors are excluded from the market by laws and regulations. The rationale behind such logic is that government agencies are the sole provider of a specific good or service where competition is prohibited and it is legally enforced by law if any forms of violations. In other words public monopolies consist of the firm making pricing, production decisions, and choices without competition. For example, there is no opportunity to compete through means such as price competition, technological or product innovation, or marketing. This is a nationally government state ownership that controls the assets, industries, and enterprises. This is administered at any levels of government leadership and it creates monopolies in order to serve public interests. It is essential to industrialization, societal functions and its operations. Examples of public sector monopolies are, power infrastructure, food distribution, air traffic control, emergency services, banking, delivery of social security, administering urban planning and organizing national deference etc. These firms are known as Crown Corporation. Examples of Crown ownership include Canada Post, Canadian Broad Casting, Bank of Canada, Canada Student Loan, Atomic Energy of Canada etc. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or smaller and more specialized firms in comparison to oligopoly is when a market is dominated by a small number of firms that together control the majority of the market share. In this case this it is considered a non contestable market, where there arent many incentives to keep the prices low; they can price gorge by restraining, or limiting production and services are usually performed insufficiently and inefficiently. In the case where the main resources is owned by one firm the government has the power to give absolute right in the decision making of price and production of some goods and services. Critiques in favour of public monopolies, believe that positive externalizes are created when the government provides goods and services to society at large. For instance, those who support regulations and government policies pertaining to public monopoly thinks it controls market power, facilitate competition, promote investment, system expansion, generates net benefit for society and it stabilizes the markets. Economists are often very critical and are against monopolies because in their opinion they feel that monopoly can be harmful. They feel if the benefits of perfect competition outweigh the benefits of monopoly it can be regarded as harmful; that the consumers are not receiving the maximum possible utility for their purchases; monopolies are scrutinized for its high prices, profits, and governments enact policies that serve their best interest not the public. Also monopolies produce a lower level output and charge a higher price than under perfect competition in both the short and long run. In the long run monopolies will or tend to eventually lose their monopoly power and face long term instability. Just as there are very strong incentives to create and maintain monopolies, strong forces also exist to weaken and destroy monopolies, which can be intentional or unintentional. They likewise revolve around the eternal quest for wealth and power, resulting of other businesses trying to weaken or destroy monopolies for their own competitive advantage. Privatization has been a key component of structural reform programs in both developed and developing economies, because they want to achieve higher micro-economic efficiency; foster economic growth and reduce public sector borrowing. According to economist, contracting and incentive problems create inefficiencies due to public ownership. The act of privatization increases profitability and efficiency, in both the competitive and monopolistic sectors, even thou full privatization has a greater impact than partial privatization. Its monopolistic sectors show an increase in profitability because it increases in productivity and it reflects their market power. The objectives that a privatization program tries to achieve involve a fundamental component and the improvement of micro-economic efficiency. These objectives that privatization firms tries to achieve are higher allocate and productive efficiency; to strengthen the role of private sector in the economy; to improve the public sector financially and to free resources for allocation in other important areas of government activity. Therefore, to achieve higher allocative and productive efficiency and to strengthen the role of private sector in the economy is considered to be a normative rationale. To improve the public sector financially and to free resources for allocation in other important areas of government activity relates public sector finance, the reduction of borrowing requirements and reallocation of expenditure towards social policy. Both the public and private sector plays an important role in privatization by out sourcing the investment and operation of non-competitive public services. Out sourcing decisions includes the transfer and control of ownership, cash flow rights on the outsourced activity of government infrastructure or public service from the public sector to the private sector in exchange for some sorts of investments or profits. In cases of such economist is against such decisions because they consider that out sourcing is not the solution for lack of competition. In saying so, privatization is defined, “as the act of reducing the role of government; or increasing the role of the private institutions of society in satisfying the people’s needs. It means relying more on the private sector and less on government; even thou some Crown Corporation is privatized. Examples of the privatized Crown Corporation include Air Canada, Petro Canada, and Canadian National Railroads etc. Private companies are considered to be more efficient rather than public companies, which are considered inefficient. The rationale behind such viewpoint is because, when it comes to setting price and cost, the private companies tend to be more efficient. The reasoning behind such thoughts is because of its strong financial backing, incentives, and competitive pressure to compete. Those in favour of privatization feel that pricing and purchasing decisions are misrepresented by political pressures which include corruption and dishonesty when it comes to public monopolies. On the other hand they feel that one difficulty that privation faces is when privatization leads to monopolies. Therefore, the difference between outsourcing and pure privatization is that the government makes contracts with private firms. Outsourcing is considered most beneficial when it leads to the creation of an infrastructure or service that would not otherwise exist. Over all when Crown Corporations are sold it produces a large sum of profits in order to pay down on public debts. Opponents to privatization argue that public goods and services should be controlled by the government because it is subjected to fair competition, its better if it is administered by the state and there are laws and regulations to protect its citizens against uncertainty. On the other hand, critiques in favour of private monopoly consider it to be more efficient in regards to setting prices and costs, and public monopoly to be inefficient. They feel that private monopolies have a stronger financial incentive, competitive force to compete, there is less corruption, and there decisions are not based on political pressures. An example of such political pressure in their opinion is rent control. Some challenges and problems that rent control faces is concerns where there are urban defects in low rents; which means fewer profits for landlords, owners and builders. This causes them to decrease the willingness to maintain their building in an appropriate manner and build new buildings. This leads to abandonment of the buildings and leaving the buildings into poor conditions because they are not making much profit and over all, the rental market suffers from inefficiencies. Therefore, they feel that private firms are better alternative to public run companies. On the flip side economics and social arguments in favor of rent control argue that rent control is necessary in order to protect the public and prevent the landlords from increasing the rents on the most vulnerable. They get protection from landlords who overprice their rents and from being forced from moving from their neighborhood because they cannot afford to pay rent. They feel by putting limits on the price of rents, the landlord can be forced to maintain city’s ethnic and most vulnerable population. There are specific rent control guidelines that are set out in the legislature that gives the province the authority to put a cap on the rent that the landlord charges on rental apartments that was built prior to February 1947. Meaning that a landlord operating a rent controlled apartment is prohibited by law, by means of government regulations, to raise the rents beyond a prescribed amount and there is a price ceiling or restriction on rent for specific apartment. Overall economics against public monopolies considers it comes at a high cost and it is not beneficial to the consumers because they inhibit competition, innovation, have the ability to extort consumers, and In their opinion they feel that private monopoly is better for the economy because the private sector generates great financial and competitive strength, furthermore, they are obliged to pay more attention to satisfying its consumer’s needs. In my opinion, both the public and private firms should come together and form some kind of unity; where they put aside their differences and come up with some form of solution in order to balance the economy. They both need each other if we want to fix any economic uncertainty and to accommodate economic needs of supply and demand. Frederic Bastiat viewed economics as the Theory of Exchange where the desires of market participants cannot be weighed or measured. . . . Exchange is necessary in order to determine value.
Posted on: Fri, 09 Jan 2015 18:36:34 +0000
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