Question 2. Suppose that you are journalist who is asked to write an opinion pie

Question

Question 2. Suppose that you are journalist who is asked to write an opinion piece on the subject of “privatization and deregulation of the railroad industry in Turkey” by his/her editor. Indeed, a fast online search reveals that in a piece published in the Washington Post on 04.06.2015 sponsored (paid for!) by the Association of American Railroads, it is claimed that

Railroad regulation began in the late 19th century, when the rail industry faced virtually no competition from other modes of transportation. Over time, the regulations became far-reaching and greatly limited the ability of railroads to determine services, set prices and even build new rail lines.

It then continues to argue in favor of deregulation by pointing out the following:

“America has the greatest economic system in the world. Lets reduce government interference and give it a chance to work.” President Jimmy Carter used this line during his 1979 State of the Union address to demand that Congress deregulate the freight rail industry.

That article continues to claim that deregulation of the railroad industry has been a big success in the US.

Using the knowledge accumulated in this course(General equilibrium, Pareto efficiency etc..), write a structured essay analyzing this subject. Would the deregulated and private markets (wild capitalism) work in the railroad industry in Turkey?

Explanation / Answer

Deregulation is one of the primary criteria to effectively promote the private property rights that propels the economy towards growth and development. It means that deregulation removes government restrictions and firms can choose to offer the type of services, the autonomy in pricing strategy and building of new products, systems among the others to cater the demand in nest possible ways. It gives birth to the capitalism and law of invisible hand where efforts made by the firms to make wealth maximization, creates employment opportunity for the households. Further, a capitalism is only successful when it takes care of the all the stakeholders of the economy. Thus, it again brings government interventions to give a proper shape to the deregulated industry to make the best advantage of it for the nation. Even in the USA, there are deregulations, but there are environmental protection laws, consumer protection laws, civil rights act and many other acts that create the correct scope of deregulation of each and every industry in the USA.
In the case of Turkey and its railroad industry, deregulation is very important and the government should deregulate it. It will bring the expansion of the railroad industry, an important infrastructure for the development of the economy. It will create jobs and it will also help in achieving Pareto efficiency and resources will be applied where it is needed and it will make better off for all the parties involved. Hence, there will be optimum utilization of resources. Further, the deregulation and subsequent entry of new private players, will reduce the financial burden from the part of government and the funds canbe utilized in other sectors that need immediate attention. It will further create new employment opportunity and government spending in other sectors, act as a multiplier to stimulate the demand. With the expansion of the railroad industry and its spreading off into the different areas of Turkey, will create connectivity and market will become closer to the producer, an important consideration for the developing economy.
Here, the government of Turkey has to create the necessary laws so that fair competition is promoted (on the line of Sherman act) and environmental protection laws. The government should also opt for the optimum pricing due to the focus upon the overall consumer welfare and reduction of deadweight loss. It will help to improve the total welfare and economic surplus of the economy. The realization of benefits to all the stakeholders take place with the inclusion of these laws. So, setting up a scope of deregulation is also equally important in comparison to the deregulation of the railroad industry.
Deregulation is very important, though any economy cannot permit deregulation at the cost of social harmony and prosperity.

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