Public policies have played a very critical role in the operation of business ventures in the country. The role played by government or its agencies has indeed been so much affective of the operations in the aviation industry, and as the aim of such policy is to bring about some form of regulation, it has remained to be in place in spite of much opposition to it (Lawrence 21). Most classical theorists and even neoclassical ones are very critical of most forms of regulation, preferring that the conditions of a free market are let to prevail in the industry so that market forces might be the driving force to innovation and creativity. The aviation industry in the country has seen times of freedom and bondage with varying results. This paper analyses the goings-on in the civil aviation industry with a view to analyzing the how public policy has affected it.
Public Policy Friend or Foe
When Adam Smith first came up with the analogy of the firm, he was keen to point out the conditions that favored firms and juxtaposed these on those conditions that hindered the desired economic performance. In his book, The Wealth of Nations Representative Selections, Smith was categorical in stating that every firm had the drive for a profit as the main purpose for engaging in any business venture (Smith 53). Every firm was therefore to put in place measures which ensured that its goals were met, and among the measures was the employment of the various factors of production such as labor, capital and entrepreneurship to come up with the level of production required. The firm was to be free to operate without any restrictions whatsoever and entry and exit of firms was to be open (Smith 56).
This trend, which he called the free market system, was one of the best models ever as it ensured that all that was done in the firm came automatically from forces that resulted from within the market. Price determination was purely by the price mechanism theory where demand and supply interaction marked the point where the price was fixed (Smith 53). In some circumstances, as there emerged other issues, it was necessary that some form of mild regulation be incorporated if the operations were to be streamlined and consumers protected. Notably, some firms adopted unconventional competitive practices which made them to gain at the expense of others. Others resorted to exploitation of customers either through provision of substandard goods and services or overcharging (Smith 55).
The Civil Aviation Industry
The practice that required the use of the free market system increasingly became unpopular around the world, and many governments through their various agencies developed policies aimed at controlling or regulating the operations of firms. The more an industry was deemed important to the economy of the nation and so the people, the more likely that it came under some form of regulation. The civil aviation industry in this country is one such sector in the transport industry which has seen a series of regulatory measures put in place to check its operations. Air regulation has been mainly aimed at ensuring that every route has a specified number of operators, and to some extent, even a proposal of the price to be charged has been made. As a vast country with a very large and growing population, air transport is very essential as it ensures one can easily move from state to state, city to city, and from the country to other nations as fast as possible (World Trade Organization 7).
The regulations in the civil aviation industry can be traced way back in the years leading to the Great Depression when the Air Mail Act was put in place by the federal government. This was in 1925, and the legislation was aimed at providing a series of regulations to ensure that customers were not exploited in any way. A year later in1926, the Air Commerce Act was passed to reinforce the first Act (Leone Ian 29). These two Acts, however, did not really have the desired effect as the industry was more or less the same and operated as though there were no regulations at all. In 1938, the first strict federal regulation was put in place. It was aimed at regulating entry and exit of operators in the industry, assigning routes, and setting fares for specific routes and at specific times. This policy was in the form of the Civil Aeronautics Act. It provided for the creation of relevant federal government agencies to address specific issues (Leone Ian 27).
The CAB (the Civil Aeronautics Board), originally the Civil Aeronautics Authority, was the main agency created through the Act (Lawrence 21). With this legislation, the industry managed to operate with less chaos, and customers benefited a lot. However, although there were price checks and controls and no unnecessary competition or crowding on certain routes and not others, there always remained the problem of safety for the customers. Until then, there had been no specific policy to address this issue. In 1958, as a response to this need to have more safety measures put in place and owing to public outcry due to rampant air safety concerns, the Federal Aviation Administration was formed through the Federal Aviation Act (Lawrence 21).
Effects of the Regulation
Although the customers seemed to be more or less satisfied, the airlines were finding it real hard to cope. With the regulation being very intense, it was very hard for most of them to operate optimally. The most harmful regulation was price control which greatly reduced the ability for most airlines to get enough revenue to remain in business and to counter stiff competition (World Trade Organization 9). As Smith pointed out, the most ideal price determination method is price mechanism because it ensures that forces of demand and supply in the market determine the price level. With the federal government too involved in the industry, it also became difficult for the industry to thrive and many airlines exited the industry. This heavy-handed regulation prompted a lot of uproar from the politicians and business community with calls for the sector to be let to operate fairly freely (Morrison Winston 57).
With the emergence of globalization, there were calls from all quarters, both within and from outside the country, for there to be an open sky system where there would be no undue restriction to operations (World Trade Organization 8). The main event that dealt a huge blow to the efforts by the federal government to retain its regulatory policies in the civil aviation industry was the introduction into the industry of planes with turbo-jet engines (World Trade Organization 7). This entry marked a revolution in the entire air transport industry, with most people getting a chance to travel using airplanes (Shipman 34). The many players in the industry created a lot of problems for the federal authorities, and it became increasingly complex and complicated to deal with regulation. There also emerged many problems, especially regarding the economic burdens that had to be borne by airlines, and the emergence of newer aircraft technology which gave some airlines advantage over others. As the number of players grew further, the government had to rethink its policy of regulation, and for the first time in many years considered a possibility of deregulating the industry (Leone Ian 30).
The Airlines Deregulation Act finally came in place and deregulation returned to the industry in 1978 (Lawrence 21). The Deregulation Act gave room for a resumption of a free market system which Adam Smith had so much advocated for. And indeed most of the problems that had been experienced quickly vanished as airlines were let to operate freely. The gains that have resulted include a great fall in prices because many players have joined the industry. There has also been an improvement in the quality of services, with passenger safety also being given priority. Although mild regulations are still in place, public policy has not played a great role in the industry ever since (Leone Ian 29).
Public policy has played a big role in shaping the civil aviation industry in the country. It has had impacts which have been both beneficial and costly. Public policy in the civil aviation industry dates back to 1925, with most of the regulations coming to an end in 1978 with the introduction of the Airlines Deregulation Act which sought to do away with most of the regulations in the industry and instead allow for a free market system. This history of regulation and deregulation in the country points out that while public policy can be helpful at times and in certain circumstances, it may turn out to be very unpopular due to its negative impacts both to the people it is supposed to protect as well as to those who are regulated. Regulation of the civil aviation industry brought about more negative impacts than benefits. This explains why it had to be done away with.
Public Policy Friend or Foe
When Adam Smith first came up with the analogy of the firm, he was keen to point out the conditions that favored firms and juxtaposed these on those conditions that hindered the desired economic performance. In his book, The Wealth of Nations Representative Selections, Smith was categorical in stating that every firm had the drive for a profit as the main purpose for engaging in any business venture (Smith 53). Every firm was therefore to put in place measures which ensured that its goals were met, and among the measures was the employment of the various factors of production such as labor, capital and entrepreneurship to come up with the level of production required. The firm was to be free to operate without any restrictions whatsoever and entry and exit of firms was to be open (Smith 56).
This trend, which he called the free market system, was one of the best models ever as it ensured that all that was done in the firm came automatically from forces that resulted from within the market. Price determination was purely by the price mechanism theory where demand and supply interaction marked the point where the price was fixed (Smith 53). In some circumstances, as there emerged other issues, it was necessary that some form of mild regulation be incorporated if the operations were to be streamlined and consumers protected. Notably, some firms adopted unconventional competitive practices which made them to gain at the expense of others. Others resorted to exploitation of customers either through provision of substandard goods and services or overcharging (Smith 55).
The Civil Aviation Industry
The practice that required the use of the free market system increasingly became unpopular around the world, and many governments through their various agencies developed policies aimed at controlling or regulating the operations of firms. The more an industry was deemed important to the economy of the nation and so the people, the more likely that it came under some form of regulation. The civil aviation industry in this country is one such sector in the transport industry which has seen a series of regulatory measures put in place to check its operations. Air regulation has been mainly aimed at ensuring that every route has a specified number of operators, and to some extent, even a proposal of the price to be charged has been made. As a vast country with a very large and growing population, air transport is very essential as it ensures one can easily move from state to state, city to city, and from the country to other nations as fast as possible (World Trade Organization 7).
The regulations in the civil aviation industry can be traced way back in the years leading to the Great Depression when the Air Mail Act was put in place by the federal government. This was in 1925, and the legislation was aimed at providing a series of regulations to ensure that customers were not exploited in any way. A year later in1926, the Air Commerce Act was passed to reinforce the first Act (Leone Ian 29). These two Acts, however, did not really have the desired effect as the industry was more or less the same and operated as though there were no regulations at all. In 1938, the first strict federal regulation was put in place. It was aimed at regulating entry and exit of operators in the industry, assigning routes, and setting fares for specific routes and at specific times. This policy was in the form of the Civil Aeronautics Act. It provided for the creation of relevant federal government agencies to address specific issues (Leone Ian 27).
The CAB (the Civil Aeronautics Board), originally the Civil Aeronautics Authority, was the main agency created through the Act (Lawrence 21). With this legislation, the industry managed to operate with less chaos, and customers benefited a lot. However, although there were price checks and controls and no unnecessary competition or crowding on certain routes and not others, there always remained the problem of safety for the customers. Until then, there had been no specific policy to address this issue. In 1958, as a response to this need to have more safety measures put in place and owing to public outcry due to rampant air safety concerns, the Federal Aviation Administration was formed through the Federal Aviation Act (Lawrence 21).
Effects of the Regulation
Although the customers seemed to be more or less satisfied, the airlines were finding it real hard to cope. With the regulation being very intense, it was very hard for most of them to operate optimally. The most harmful regulation was price control which greatly reduced the ability for most airlines to get enough revenue to remain in business and to counter stiff competition (World Trade Organization 9). As Smith pointed out, the most ideal price determination method is price mechanism because it ensures that forces of demand and supply in the market determine the price level. With the federal government too involved in the industry, it also became difficult for the industry to thrive and many airlines exited the industry. This heavy-handed regulation prompted a lot of uproar from the politicians and business community with calls for the sector to be let to operate fairly freely (Morrison Winston 57).
With the emergence of globalization, there were calls from all quarters, both within and from outside the country, for there to be an open sky system where there would be no undue restriction to operations (World Trade Organization 8). The main event that dealt a huge blow to the efforts by the federal government to retain its regulatory policies in the civil aviation industry was the introduction into the industry of planes with turbo-jet engines (World Trade Organization 7). This entry marked a revolution in the entire air transport industry, with most people getting a chance to travel using airplanes (Shipman 34). The many players in the industry created a lot of problems for the federal authorities, and it became increasingly complex and complicated to deal with regulation. There also emerged many problems, especially regarding the economic burdens that had to be borne by airlines, and the emergence of newer aircraft technology which gave some airlines advantage over others. As the number of players grew further, the government had to rethink its policy of regulation, and for the first time in many years considered a possibility of deregulating the industry (Leone Ian 30).
The Airlines Deregulation Act finally came in place and deregulation returned to the industry in 1978 (Lawrence 21). The Deregulation Act gave room for a resumption of a free market system which Adam Smith had so much advocated for. And indeed most of the problems that had been experienced quickly vanished as airlines were let to operate freely. The gains that have resulted include a great fall in prices because many players have joined the industry. There has also been an improvement in the quality of services, with passenger safety also being given priority. Although mild regulations are still in place, public policy has not played a great role in the industry ever since (Leone Ian 29).
Public policy has played a big role in shaping the civil aviation industry in the country. It has had impacts which have been both beneficial and costly. Public policy in the civil aviation industry dates back to 1925, with most of the regulations coming to an end in 1978 with the introduction of the Airlines Deregulation Act which sought to do away with most of the regulations in the industry and instead allow for a free market system. This history of regulation and deregulation in the country points out that while public policy can be helpful at times and in certain circumstances, it may turn out to be very unpopular due to its negative impacts both to the people it is supposed to protect as well as to those who are regulated. Regulation of the civil aviation industry brought about more negative impacts than benefits. This explains why it had to be done away with.
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