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Discuss the Economics on the War on Drugs

Microeconomic policy and principles. Discuss the Economics of the war on drugs: The global war on drugs has been a downhill battle with no apparent success, which has also hailed devastating consequences for individuals and societies around the world. Since the initiation of the UN Single Convention on Narcotic Drugs, set up in 1961, and ex U. S. President Onion’s declaration of war on drugs in 1971, billions of dollars and 10,ass’s of lives have been lost in this failing attempt to control the flow of these substances; in which the attempt to do so has also created a disestablishing effect on the world economy.

The cost of the war on drugs has been spread over a wide variety of avenues, including crystallization, rehabilitation and counter measures aimed at the producers, trafficker’s and consumers of illegal drugs, all of which have not sufficed effectively to reduce the demand for supply and consumption. Enforcers in this ever-present battle face a huge complexity in how to tackle their opponents, who are constantly updating and adapting their methods of trafficking and supplying the illegal substances.

In this essay I will discuss the arguments for and against the war on drugs, the impacts on society and the world economy after four decades of this issue. In doing so, I will critically examine the problem using the three economic principles used to assess the effects of the war on drugs, which are scarcity, gains from trades and supply and demand. This analysis is intended to raise such questions as “do governments policies create economic market of its own? Or, do the same economic principles explain government behavior?

Do any of these economic principles explain how bad polices continue with very little or empirical evidence of success? The war on drugs is arguably a tough case to take sides on. Both sides for and against tackling the matter both have heavy implications on society whether it be economically or socially. In this paragraph I will discuss the point from a pro war on drugs perspective and examine how this effort interlinks with economics. The illegal drug market accounts for billions of dollars spread around the world market, which provides a large profit for organized criminal groups to keep the drugs supplied.

For instance, it is estimated that the retail market value of illegal drugs globally is $321. 6 billion USED for year 2009. Table 1 bellow highlights the individual value of cannabis and herein in some Mounties. Table 1: Europe. E (commission report: world drug problem, ten years on) The figures mentioned is only an estimate and cannot be precise, it merely gives an insight into the magnitude of how much the market is worth. This creates huge flow of unmonitored money which moves freely around the globe and is widely untraceable, creating a massive gap in world markets.

Despite the efforts to combat this issue by law enforcement, the high and stable demands for these drugs ensure that black market prices will simply rise in response to the decrease in supply. The illegal drug industry has also created more than a billion Jobs in the black market, which accounts tort the great number to unemployment. The illicit drug industry in rural areas of many countries provides lots of Jobs in the agricultural cultivation of these drugs, many of whom are illiterate and possess limited skills and education.

The illegal drug trade also opens many other Jobs for people involved in laboratories, money launderers, wholesale distribution, retail distributors and runners. These opportunities can be important in economic terms for countries where there are high bevels of unemployment. Money laundering is also another important matter involved in destabilize economies which the war on drugs is trying to counter act. It has a corrosive effect on a countries economy, government and social well-being and also ensures the payment of their crimes by disguising the origin of their money to avoid detection and also re-invest as they wish.

One way in which money laundering through the profits of illicit drugs affects the economy is through undermining the legitimate private sector. By using front companies, criminal organizations are able to stigmatize their funds, also creating an unfair competitive advantage in the market. “Front companies have a competitive advantage over legitimate firms that draw capital funds from financial markets. This makes it difficult, if not impossible, for legitimate business to compete against front companies with subsidized funding, a situation that can result in the crowding out of private sector business by criminal organizations. In the I-J alone, the cost of money laundering amounts to EYE billion a year. According to the former managing director of the International Money Fund, Michel Campuses, money laundering amounts between 2 and 5 per cent of world gross domestic product or at least $600 million. These figures give us an insight to the magnitude of how much illicit drug money thrives in our economy. From living in Tangier, north Morocco, a drug thriving city with criminal organizations main export of hashish, I have witnessed how much the sale of this illicit drug thrives in the economy.

Allot of the main businesses such as cafe©’s, restaurants and nightclubs are used as fronts by criminal organizations; through their huge sub-profits they create an unfair environment in the market. In a report of Morocco made by the U. S. Embassy in 2009, they calculated that the involvement of illicit drugs in the economy amounts between 17 and 40% of the country’s GAP. I have also witnessed how much the illegal drug industry has affected the property and land market in this region, as a result causing a steep rise of price in this area over a short period of time.

In an article on money laundering provided by the CEO of Crime Trends Analysis in Australia, John Walker, he states “The crooks don’t pay tax, so they impose higher taxes on everyone else. They don’t mind paying a premium on legitimate property, so hey compete unfairly in the property markets. ” The illicit drug trade also has disestablishing effects in the valuing of currency rates often causing an overvalue of it due to the inflow go illegal funds reducing legitimate exports. Not only that, but it encourages investment in non productive sectors, delimiters state system and increases the severity of unequal income distribution.

All of this shows the extent to which illegal drugs are involved and therefore destabilize economies. In countries such as Afghanistan, Manner and Ala People’s Democratic Republic the presence of illicit drug cultivation amounts relatively high compared to the GAP of those countries estimating between 10 and 15 per cent. This paragraph will discuss the arguments against the war on drugs and how it is has been seen as a waste of tax payers money not making the situation any better.

I will start by mentioning a quote trot the author of ‘The case of legalizing drugs,’ Richard Lawrence Miller, “Early laws restricted drugs in order to accomplish other social goals, goals that were achieved. Because drug control was not the purpose of the restrictive laws, it is unsurprising that drug use has thrived despite them. Tightening those laws in order to diminish drug use is futile. ” In the U. S. Federal drug control budget the total cost of this project has cost $208. 8 billion USED so far if not more.

In contrast the war on dugs has only lead to a steady increase in the demand and supply of illicit drugs hailing no apparent success. The war on drug thus has only filled up international prisons with a majority of small time drug offenders and people who are least able to defend themselves. In the UK the cost per individual in prisons is E41000. This contributes to the overall expenditure of tax payers money on the war on drugs. Table 2 highlights the figures based on the US Federal Drug Control Budget.

Table 2: (2004-2012 – economics – federal drug control budget) Adding these budgets together – somewhat reflective of the total spending on drug control over the past nine years – produces a gross expenditure figure approximating one-quarter of a trillion dollars ($208. 8 billion). Rehabilitation, treatment and prevention programs seen as a necessary element in the war on drugs has been a very costly project amounting up to 40 per cent of the budget; in spite of this, that area has created a huge sub market in the pharmaceutical area for producing and strutting legal supplements for recovering addicts worth billions.

Twitter to Upgrade Some Features to Thwart Cyber-Bullying

Twitter, facing pressure for not doing enough to curb abusive behavior on its platform, said on Tuesday it would upgrade some features to better combat cyber-bullying.

The company said it would expand the "mute" option to allow users to block tweets based on keywords, phrases and the content of conversations from a user's notifications.

The "mute" option currently allows users to block tweets from accounts.

The change will be rolled out to all users in the coming days, Twitter said in a blog post. 

Twitter, which has struggled to strike a balance between free expression and blocking violent and hateful speech, has come under increasing criticism following complaints from users that they have been the target of abuse.

In July, Twitter permanently banned some user accounts for harassment after Ghostbusters actor Leslie Jones left the site, saying she had faced severe harassment.

Twitter said it would provide "a more direct way" for users to flag abusive content, but didn't give details.

The company also said it had improved internal controls to deal more effectively with abusive conduct reported by users.

(Reporting by Rishika Sadam in Bengaluru; Editing by Sai Sachin Ravikumar)

Why U.S. Airfares May Go Down in 2017

U.S. airfares are expected to fall in 2017 amid overcapacity and stiff competition between budget carriers and legacy airlines, according to an American Express Global Business Travel report on the travel industry.

Short-haul economy fares are expected to drop 3 percent, while long-haul business class fares may see a 1.5 percent decline in the United States, the American Express Global Business Travel report said.

However, higher ancillary fees will help offset lower fares in North America as airlines continue to look for new revenue sources, the report added.


For months, lower fuel costs have allowed airlines to add flights that would have been unprofitable when oil prices were high. With seats for sale growing faster than the pool of passengers to buy them, fares for U.S. flights have fallen.

In particular, budget carriers such as Spirit Airlines Co. have added cheap service at the hubs of larger rivals and are now adding routes from medium-sized airports.

Top carriers American Airlines Group Inc. and United Continental Holdings Inc. plan to fight back by marketing cheap but higher-restriction fares, which partially explains why 2017 may see more price drops.

Airfares in Europe and much of Asia Pacific are expected to stay flat, with slight increases depending on route and fare class in the APAC region. In Europe, fares would continue to be impacted by weak economy and security concerns.

U.S. hotel rates are estimated to increase 3.6 percent next year.

Hotel rates in Europe are expected to rise marginally, while they could vary in the APAC region as strong demand in China and India could be hurt by a rise in inventory, according to the report.

(Reporting by Arunima Banerjee in Bengaluru and Jefferey Dastin in New York; Editing by Anil D'Silva)

Discrimination of Looks in Business

The tore type has been there for ages now. I can not recall how many Jokes exist about dumb blondes and how many times people will think blond people, especially girls, are dumber than for example brunettes. You must think that It all remains with the jokes. But nothing is less true. Research says that blondes actually do get discriminated in business and people do believe that those with straight dark hair are most likely to succeed rather than light hair. As a blond girl this frightens me.

Of course it is a advantage that we blond girls do get away with things a lot easier than reunites because it has been proved that men are more attracted to the blondes than the brown hair types. But the other part, and for me most important, is that we do want to be taken seriously and treated equally when it comes to business interview, negotiations and other business related meetings. On the other hand, research of the Queensland University of Technology, proves the exact opposite.

This study contributes to the economics literature that links physical characteristics to labor market outcomes, by investigating the influence of hair color on women’s wan wages. The University used U. S. Panel data where they found that blonde women receive a large wage premium and that the wage is actually similar in size to they return from an extra year of schooling. These results were the same as the invoice research made in 2008 that shows that blonde females have greater fund raising success than brunettes. Another big topic nowadays is thin people are more successful than fat people.

Business Plan

Management principles through application of the said principles In real situation, as partial fulfillment of the subject requirements. b. Contextual Environment of the Project We had observed the school’s premise has insufficient number of computers available for the students who need to do their academic requirements. The opportunity given by the library to use computers is limited due to the number of students.

The utilization of the librarys computer doesnt cater much of the student’s omputer-related Jobs. II. Needs Giving Rise to the Project The students of Global Reciprocal Colleges were our Immediate consumers that we considered In making this project. The students’ demand for appropriate tools In computer-related actlvltles, projects, assignments, researches and the Ilke Is an opportunity that gives rise to our project. The facility of the school doesn’t have sufficient tools to provide these demands.

We also consider the factor of accessibility of the available computer services (our competitors) near the school premise. Students often walk outside the school to rent computer service; the time spent in alking is very inefficient because they have only limited time to rent. Another factor is the affordability of the computer services, majority of these services offers a standard cost for a limited time (usually, an hour usage will cost Php 15. 00); this kind of setting is inflexible for the needs of the students. c.

Project Rationale To deal with the problem, we develop a business project, “Onet”, that sult to the needs of the students In computer-related Jobs. The project “Onet” Is strategically located at the corner of Global Reciprocal Colleges to have an easy access to our mmediate consumers a “Piso per four minutes” rent cost. This is a convenient way to save time and energy for the students. d. Project Mission and Vision The business anchors its foundation to its Mission and Vision, to have a distinct purpose why the business exists.

This become a necessary tool in creating business plan and in every decision made. i. Mission statement “Onet” will provide a service addressing the needs of its immediate customers on it. Vision statement “Onet” foresees its operation to conveniently help its immediate customers and affordably sustain their needs in a accessible location. iii. Slogan statement We make sure your work is conveniently easy” Ill. Area Profile Global Reciprocal Colleges’ ground level (see appendices B: actual photo of the location) is a strategic location of our planned business.

We had considered the accessibility of the business to our immediate customers, which are the students. The location is surrounded with some establishments like Banco De Oro (BDO), Mercury Drug, Angel’s Pastries and canteens. In front is a wide car parking lot. Behind the establishment is the school’s canteen. The location has an approximate floor measure of 5 x 6 meters and an approximate height of 4 meters (see appendices C: approximate floor measure and the immediate establishments located around the location).

The location has enough space to cater our machineries and equipment, as well as customer space allowances. e. Scope of the Project The scope of the project only caters the needs of our immediate customers in terms of computer-related service such as internet surfing, typing, saving file, office words, printing hardcopies and other academic purposes that need to have a computer service. We don’t offer beverages and snacks inside the location to maintain the cleanliness of the environment.

Human resource management

Due to the successful management of the business it is listed on the Fortune 500 as 468. The firm currently operates through five countries which house its manufacturing and research and development plants . Primarily, these locations include, United States of America, China, Taiwan, Vietnam and Poland. The aim of this report is therefore, the extent of Compel Electronics global spread. The report aims to detail the different locations where the firms plants are located and how these plants situated in different localities help the business, the export of goods and services provided by the firm, and its stature in the global market place. 2.

Compel Electronics Outsourcing Since its inception in 1984, Compel Electronics has strives to be an industry leader in computer peripherals and IT technology. The firm is the second largest laptop manufacturer and one of the Wolds fastest expanding DOOM (original design manufacturer), and its vast array of clientele include Acre Inc, Dell, Toshiba and Fajitas Siemens Computers. Due to its large clientele, and the various sectors of operations of the firm, the business has expanded into different countries. The localities the firm has expanded to include; Poland, United States of America, Vietnam and China, with the head office coated in Taiwan.

Different segments of the business strive to operate efficiently in the localities they are situated and each locality deals with a specific sector of business. The diverse nature of the goods and services provided by the firm means that the localities in which these goods and services are produced in, are best suited for the production of the specific good or service. The chart below outlines the various localities the business operates from. 4 3. Compel Electronics Buyers Compel Electronics is a leading supplier for various different computer companies around the globs.

These companies include Leno, Acre Inc, Toshiba and Dell. The firm offers expert service in complete made to order machines such as laptops or ultra books and also offers various different components essential for the efficient running the these machines. Furthermore, in addition to providing computer hardware, the firm is proficient in the production of LCD television screens, mobile Pad’s, pocket PC’s, 36 mobile phones, digital audio adaptors and portable media players. Due to the rising demand in mobile phones and mobile computing, the firm has made tremendous advancements in its 36 infrastructure.

Due to offend production of 36 technology the firm has been able to grasp a firm hold on this niche in the market sector which as a result has resulted in 99. 5% of the firms revenues being generated by its 36 networking technology. Due to the spread out nature of the clientele, the firm has the ability to sell to its clientele with offence logistics. The firm primarily ships its products to; Tokyo Japan (Toshiba), Austin, Texas, United States of Global Foothold Compel Electronics is headquartered in Taiwan and is therefore not yet a member state of the United Nations.

However, Taiwan is listed among the 257 greatest entries by the Central Intelligence Agency (CIA). The small island of Taiwan was once a part of China. However, after a military defeat Taiwan was ceded to Japan. However, after World War 2, and a communist victory, Taiwan officially established government in 1949. Economically, Taiwan lists as the 20 the greatest country in the world. Taiwan has a capitalist economy with little government intervention in matters of investment and foreign trade. The result of this decreased government spending has resulted in some banks and large scale industry to become privatized.

The Taiwanese economy is greatly dependent on sports and is therefore susceptible to changes in world demand. This exposure can be highlighted due to the contraction of GAP by 1. 9% in the year 2009. However, even though Taiwan is greatly dependent on exports it has come to be known as the “Economic Tigers” of East Asia. Due to the reason that Compel Electronics is based in such a strong economy, and the export nature of the goods and services provided by the firm, Compel Electronics has a strong foothold in the global market for computer and IT goods and services.

The strength of Taiwan economy plays a vital role in daily business of the firm. This presumption can be taken into account by seeing the different strengths of the Taiwanese economy has highlighted by Fig. L . 5. Markets Due to the vast nature of goods and services provided by Compel Electronics, the main markets it operates in vary. Based on the localities of its main clientele, it can be disused that the markets the firm does business in are primarily, China, United States of America, Japan and Germany.

However, as the business has expanded into various sectors, it can be noted that different products and services will be offered to different markets. Due to the reason that the business is located in a locality where labor is cheap, Compel is able to 5 supply its goods and services at a global scale, at high quality, and lower prices than some of the competition. Furthermore, outsourcing of the business has led to efficient transfer of goods and services with a effect logistics network.

Discuss how the six macro-environments

Discuss how the six macro-environments (demographic, economic, natural, technological, political, and social/cultural) forces may affect the marketing of a drink or food company. By poisoning Discuss how the six macro-environments (demographic, economic, natural, technological, political, and social/cultural) forces may affect the marketing of a drink or food company. Companies and their suppliers, marketing intermediaries, customers, competitors, and publics all operate in a macro-environment of forces and trends that shape opportunities and pose threats.

Within the rapidly changing global picture, the firm just monitor six major forces: demographic, economic, natural, technological, political-legal, and social-cultural. Although described separately, marketers must pay attention to their interactions, because these will lead to new opportunities and threats. Demographic Environment In the demographic environment, marketers must be aware of worldwide population growth; changing mixes of age; ethnic composition, and educational levels; the rise of nontraditional families; large geographic shifts in population; and the move to micromanaging and away from mass marketing.

Worldwide population growth: the world population is showing “explosive” growth, totaling 6. 1 billion in 2000 and will exceed 7. 9 billion by year 2025. A growing population does not mean growing markets unless these markets have sufficient purchasing power. Nonetheless, companies that carefully analyze their markets can find major opportunities. Ethnic and other markets: countries also vary in ethnic and racial makeup. At one extreme is Japan, where almost everyone is Japanese; at the other is the United States, where people from come virtually all nations.

Each group has certain specific ants and buying habits. Several food, clothing, and furniture companies have directed their products and promotions to one or more of these groups. Pepsi-cola: since there will be more older people and Pepsi-Cola has been traditionally a young people’s drink, Pepsi will have to stimulate consumption by older members of the society. If Pepsi-Cola were to enter Japan, they may have cultural setbacks too. The reason being mix NT be of soft drinks.

Economic Environment e r an TTS to drinking tea instead Markets require purchasing power as well as people. The available purchasing power n an economy depends on current income, prices, savings, debt, and credit availability. Marketers must pay close attention to major trends in income and consumer-spending patterns. Income distribution: marketers often distinguish countries with five different income- distribution patterns: (1) very low incomes; (2) mostly low incomes; (3) very low, very high incomes; (4) low, medium, high incomes; and (5) mostly medium incomes.

Marketers must pay careful attention to major changes in incomes, cost of living, interest rates, savings, and borrowing patterns because they have a strong impact on easiness. Consumers will probably still have money to spend on Pepsi. However, if the price of Pepsi accelerates dramatically, consumers will switch to substitutes like plain water. Natural Environment in the natural environment, marketers need to be aware of raw materials shortages, increased energy costs and pollution levels, and the changing role of governments in environmental protection.

Shortage of raw materials: the earth’s raw materials consist of the infinite, the finite renewable, and the finite nonrenewable. Infinite resources, such as air and water, are coming a problem such as water shortages. Finite renewable resources, such as forests and food, must be used wisely. Forestry companies are required to reforest timberlands in order to protect the soil and to ensure sufficient wood to meet future demand. Finite nonrenewable resources – oil, coal, platinum, zinc, silver, will pose a serious problem as the point of depletion approaches.

Increased energy costs: dramatic rise in oil prices can also create a renewed search for alternative energy forms. Firms like Toyota, engaged in building practical electric automobiles like Toyota Pries. Anti-pollution pressures: some industrial activity will inevitably damage the natural environment. About 42 percent of U. S. Consumers are willing to pay higher prices for “green” products. This creates a large market for pollution-control solutions, such as scrubbers, recycling centers, and landfill systems.

Changing role of governments: governments vary in their concern and efforts to promote a clean environment. Many poor nations are doing little about pollution, largely because they lack the tends or the political w ill. Richer nations are able to alp the poorer nations control their pollution, but even the richer nations today lack the necessary funds. For Pepsi-cola, the packaging of Pepsi is closely related to the natural environment. If litter and solid waste problems continue to plague nations, a bottle bill might be passed, resulting in Pepsi available only in returnable bottles.

If this is imposed, additional costs will be tied to it. Technological Environment This is one of the most dramatic forces shaping people’s lives. The economy’s growth rate is affected by how many major new technologies are discovered. New technology also creates major long-run consequences that are not always foreseeable. Therefore, the marketer should monitor the following trends in technology: the pace of change, the opportunities for innovation, varying R&D budgets, and increased regulation. Accelerating pace of change: many of today’s common products were not available 40 years ago.

An increasing number of ideas are being worked on, and the time between the appearance of new ideas and their successful implementation is all but disappearing. So is the time between introduction and peak production. Ninety recent of all the scientists who ever lived are alive today, and technology feeds upon itself. Unlimited opportunities for innovation: scientist today are working on a startling range of new technologies that will revolutionist products and production processes. Some of the most exciting work is being done in biotechnology, computers, telecommunications.

Varying R budgets: many companies are content to put their money into copying competitors’ products and making minor feature and style improvements. Even basic research companies such as DuPont, and Pfizer are proceeding cautiously, and inducted by consortium of companies rather than by single companies. Increased regulation of technological change: as products become more complex, the public needs to be assured of their safety. Consequently, government agencies’ powers to investigate and ban potentially unsafe products have been expanded.

Technology might help Pepsi find some solutions to environmental issues, perhaps with the development of biodegradable containers. Political-Legal Environment Marketers must work within the many laws regulating business practices and with various special-interest groups. Legislation regulating business: business legislation has three main purposes: to protect companies from unfair competition, to protect consumers from unfair business practices, and to protect the interests of society from unbridled business behavior. The laws are not always administered fairly; regulators and enforcers may be lax or overzealous.

Marketers must have a good working knowledge of the major law protecting competition, consumers, and society. As more business takes place in cyberspace, marketers must establish new parameters for doing electronic business ethically. Growth of special-interest groups: many companies have established public affairs departments to deal with these groups and issues. An important force affecting business is the consumerist movement – an organized movement of citizens and government to strengthen the rights and powers of buyers in relation to sellers.

The government may require a more complete list of contents of Pepsi. This would mean changing the label and the company must also monitor the political environment of the many foreign nations in which its product is sold. Social-cultural Environment In the social-cultural arena, marketers must understand people’s views of homeless, others, organizations, society, nature, and the universe. They must market products that correspond to society’s core and secondary values, and address the needs of different subcultures within a society.

High persistence of core cultural values: People living in a particular society hold many core beliefs and values that tend to persist. Secondary beliefs and values are more open to change. Therefore, marketers have some chance of changing secondary values but little of changing core values. Existence of subcultures: Each society contains subcultures. To the extent that factually groups exhibit different wants and consumption behavior, marketers can choose particular subcultures as target markets.

Shifts of secondary cultural values through time: Although core values are fairly persistent, cultural swings do take place. Today, young people are influenced by new heroes and new activities: Tiger Woods, and extreme sports. Pepsi has been a traditional part of the U. S. Culture. If people’s values change and society becomes more vehemently anti-sugar, Pepsi would need to change its marketing policy and practices, and perhaps even reformulate its product. It can also munch healthy drink as a product line under Pepsi.

The company must continue to make its product one to the central theatres to U. S. Society . It must also continue to monitor the cultural environments of the other countries in which it does business. Conclusion Successful companies realize that the marketing environment presents a never- ending series of opportunities and threats. The major responsibility for identifying significant changes in the micromanagement falls to a company’s marketers. More than any other group in the company, marketing managers must be the trend trackers and opportunity seekers.

California’s Electricity Industry

The debate for and against deregulation of the generation and distribution of electricity was brought to light in the public’s eye in California during the hot summer of 2000. Residents of the fifth largest economy in the world, many who had remained ignorant of the potential impacts of deregulation legislation that had passed through the state government, were forced to endure 100 plus degree weather during rolling blackouts. The entire nation began to debate the pros and cons of deregulation in the electricity industry as episodes of The Tonight Show with Jay Leno were broadcast from studio by candlelight in order to poke fun at the disastrous situation. Two large federal and state water pumps even had to be temporarily shut down to conserve electricity.

The enormous shortfall in energy happened despite, or perhaps because of, recent deregulation efforts within the State of California’s electrical utility industry that were designed to make the system more efficient. Both sides of the argument began pointing the finger to the other, outlining in public debate how the other side was at fault in creating the shortfall. Those in favor of deregulation cried that the legislation had not yet gone far enough for the built-in efficiencies of market economics to take effect.

By deregulating the power generation companies but enforcing price ceilings on the distributors, the State of California had interfered with the market in a way that caused a dramatic excess of demand over supply. Opponents of electricity deregulation point to California’s problems as a case study of why utilities should be regulated. They argued natural monopolies such as electricity utilities will not see the efficiencies that traditional capitalist markets enjoy.

Both sides of the argument make fair points, but there is one inescapable fact. The electricity supply and distribution markets are currently in monopolistic conditions and the entire state’s economy is strongly dependent on their products. The situation offers far too much incentive for utilities to reduce supply or refuse to increase capacity, reaping huge rewards for causing energy shortfalls. If complete deregulation is allowed to run its course, the huge incremental costs will move large sums of money from families and businesses into the giants of California’s energy industry and could cause severe economic recession in the world’s fifth largest economy.

This paper will start out by looking at the economics of the electricity industry, how it fits into the concept of a natural monopoly, and how the United States government has traditionally responded to that situation. It will then look specifically at California’s energy industry, who the major players are, and how the debate for energy deregulation began. It will then show arguments both for and against deregulation in California. Finally, it will demonstrate the natural conclusion of why regulation is necessary for the economy in the State of California to remain healthy.

The question of whether or not electricity should be regulated really begins in a discussion of market economics. Our country was founded at about the same time that Adam Smith’s The Wealth of Nations introduced the concept of the free market and the invisible hand to the world. The work put an emphasis on minimizing the controls that are imposed by the government in the marketplace, a concept that he called laissez-faire. He believed that market forces would act to create efficiencies through the purchasing and supply decisions of individual consumers and businesses within a marketplace. Price increases would cause demand to decrease and supply to increase until a natural equilibrium is established. Profits for companies are short-lived in his hypothetical model as strong competition kept prices low.

However, Adam Smith’s idea of the marketplace had a significant amount of assumptions built into the model. One of the more important ones is that in order for free competition to work effectively, there must be a large amount of suppliers within a given marketplace and suppliers must be able to easily enter and exit the marketplace as prices become more or less favorable. Unfortunately, the implementation of this theoretical model had some serious drawbacks when it came to practical application. One of them came to be known as the natural monopoly. A natural monopoly occurs when the fixed costs for a given industry are substantial, while the variable costs are minimal.

In order to make a profit, companies need to achieve massive economies of scale. In such cases, it is often inefficient and impractical for more than one firm to establish itself in a given market. The production and distribution of electricity has traditionally been a prime example of a natural monopoly. The creation and distribution of electricity demands massive amounts of capital infusion and therefore inhibits the amount of suppliers in the marketplace. Having more than one distributor of electricity would also require more than one set of wires running down the street, an obvious drawback to the general public. The fixed costs also prohibit the ability of companies to move in and out of the market easily as prices change.

The United States government has traditionally responded to the problem of natural monopolies by allowing them to exist and then regulated them to ensure that they would be run to the benefit of the general public. Companies that have a natural monopoly are allowed to realize a “reasonable” rate of return, but are not allowed to charge a price that is the optimal level for a monopoly. The optimal level would keep prices high by creating a shortage of electricity, and therefore doing damage to the general public welfare. Oversight was also maintained to ensure that suppliers of electricity were creating ample capacity for expanding economies. This has caused most regulated electricity markets to maintain excess capacity. While this would be considered inefficient in many markets because the excess costs are passed on to the general public, it ensures that an economy that is extremely dependent on energy will not suffer shortages.

The debate for deregulation of the electricity market in California began with technological changes in the production of electricity. It was becoming more economically feasible to produce electricity without realizing the massive economies of scale that had been previously required. Consequently, some politicians and businesses began to question whether it was wise to maintain a natural monopoly in California if a freer market could bring more efficiency. In December 1995, the California Public Utility Commission declared the system of energy regulation in California “fragmented, outdated, arcane and unjustifiably complex.” The commission, which sets consumer energy rates, voted to open California’s energy industry to competition.

Current situation in Canada’s airline industry

The Canadian airline industry has experienced several problems throughout its history, but the worst undoubtedly have been marked by the last couple of years. A combination of internal and external factors have led to the filing for bankruptcy protection by Canada’s largest airline company, Air Canada, and the struggles that the remaining companies have been coping with. However, in order to fully understand the situation the industry finds itself in today, it is important to account for all the factors that have influenced it over the years.

The state of competition in the industry has been an important issue. Historically, Air Canada has dominated the domestic market, accounting for over 55% of market share. When it acquired its largest competitor, Canadian Airlines, this percentage was increased even further. This situation raised concerns that Canadian consumers were not benefiting from the effects of competition, meaning higher quality and lower prices.1 Their options were significantly reduced.

However, within the last couple of years the state of competition has begun to improve. The emergence and growth of other domestic airlines has forced Air Canada to give up 42 peak hour slots at Pearson International.2 In addition, Canada’s leading discount airline, WestJet, had been given access to Hamilton’s Airport in order to enter markets on the East Coast. Air Canada remains the dominant company in terms of size, but is facing increasing competition from WestJet and others such as JetsGo and CanJet.

In the last year alone, WestJet had increased the number of flights and destinations and has expanded to the West Coast. It now has access to all major Canadian cities. In order to accomplish this it had decided to purchase 11 new Boeing 737-700 planes in 2004 that are known to be more efficient in fuel consumption.3 As this company expands, its growth will naturally decline and it is expected that operating costs and competition will challenge its bottom line.4 Nevertheless, its profitability bodes well for the domestic industry.

The success of Air Canada’s domestic rivals has partly been achieved at their expense. However, the problems that Air Canada is facing go beyond the effects of competition. They go back for years and are present to this day. Initially, the company was weakened by intense competition with Canadian Airlines. After the two merged, Air Canada had to prevent a hostile takeover attempt by the Onex Corporation conglomerate. Following that, in 2000 there was a sudden collapse in business travel, as major customers such as Nortel Networks had to cut back on traveling in response to a weak economy.

Another way of looking at Air Canada’s problems is by acknowledging that the government had let Air Canada expand to the point that it did without completing major reforms. The industry is highly protected, as foreign airlines were always kept out of the domestic market and foreigners are prevented from gaining control over Canadian airlines.6 This contributed to the lack of efficiency within the company and is another internal factor causing problems in this particular industry. The Canadian airline industry has also suffered a great deal due to the after effects of 9-11, the SARS outbreak, rising costs as well as barriers to entry. The combination of these factors have impaired the airline’s ability to remain competitive and thrive in a time of necessity.


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