Free Economics Essays - For the fire service, discuss arguments for and against using the market mechanism to help in its operation.
The main focus of economics is how societies can satisfy their wants as fully as possible, given their limited resources for providing the items that satisfy such wants. Amongst many explanations offered, market mechanism is more generally defined as the process by which a market provides a solution for allocating resources and making decisions about the quantity of goods and service that should be produced without involving the government.
The following paper will analyse the role of market mechanism in relation to offering public goods especially the fire service. It will critically analyse whether market mechanism is used in its pure form where the market forces are allowed to determine the prices of public goods or whether it is used in partial form where there is some degree of government intervention. The role of fire services will be used to explain the concept of market mechanism and towards the end recommendations would be made to improve effectiveness.
Prior to starting the discussion, it is important to clarify a few concepts and explain the role of fire services in the UK. Economics is more commonly defined as, the science which studies human behaviour as a relationship between ends and scarce means, which have alternative uses. Thus economics is about people and the choices they make.
Market mechanism is generally defined as a process of allocating resources and making decisions about how much of a good or service should be produced and it also serves as an alternative way of having such decisions made without much government intervention. In simple words, the demand and supply forces in the economy help to solve the problem of allocating resources efficiently. The main focus of economics is how societies can satisfy wants as fully as possible, given the limited availability of resources to satisfy such wants.
Market mechanism has been generally defined as,
“The market mechanism is the process by which buyers and sellers, acting in their own interests, establish a market price and determine the quantity of a good exchanged in a market. Buyers (consumers) attempt to improve their well-being by obtaining goods and services for consumption at the lowest possible prices. Sellers (producers) seek to earn profits by selling goods and services at the highest possible prices. However, in a competitive market neither buyers nor sellers can control the market price. Furthermore, both buyers and sellers must have good information about relevant alternatives, and they must be able to purchase or sell in a variety of geographically separated markets if the market outcome is to be efficient. A market that satisfies certain characteristics–many buyers and sellers, good information, and trader mobility–and in which relatively homogeneous (identical or nearly identical) goods are traded is said to be competitive. In such a market, price is determined by the interaction of buyers and sellers, and the competitive process of price determination establishes market equilibrium.”
The study of market mechanisms becomes vital, as we know that there is scarcity of resources and the study of economics in essential is to find a solution to the scarcity problem by, namely, by tradition, by command and by markets. In the market (capitalist/free-enterprise) solution, the set of goods and services to be produced is determined by the interaction of consumers, who are willing to pay for them, and producers who are willing to supply them in response to the market prices. Thus, in capitalist societies, competition determines not only the prices for resources to produce goods and but also the distribution of income among resource owners. It must be noted that the capitalist system, even though a free market system relies on government or some other form of collective action to produce certain public goods like national defence. Thus it can be said that all economies that fall under the capitalist system have significant sectors of government control and planning
It must be highlighted that there are some areas of economic activity where reliance on the market mechanism will not provide for an efficient allocation resources, as a result of which, it will prevent a nation enjoying the optimal combination of goods and services, which are represented on the production possibility curve. There are essentially two types of goods – private good, is the one that the person buying is the sole consumer of the good; public good is one which other people can consume without paying for it. As Gwartney et.al (2000) state that public goods are difficult to provide commercially through the market place because there is no way to exclude non-paying customers. Thus the two characteristics which make a good a public good is (1) joint-in-consumption and (2) non-excludable. Joint-in-consumption refers to when many individuals can share the consumption of the same unit of output and thus additional consumption by one person does not reduce the amount available to others. In other words, marginal cost for public goods is zero. Non-excludable refers to the fact that the good is available to all consumers irrespective of whether they pay for it or not. This gives rise to the free-rider problem. Gwartney et.al (2000) highlight that just because a good is a public good, it does not necessarily mean that the markets will fail to supply it. In other words, when the benefit of producing public goods is high, entrepreneurs will find innovative ways of overcoming the free-rider problem. Needless to say, that the situation with public goods causes a problem with the efficient allocation of resources.
ROLE OF FIRE SERVICE
The role of fire service needs to be highlighted to explain the concept of market mechanism better. According to the Independent Review of Fire Services,
“The Fire Service is an impressive public body…We were impressed by the quality of the service that it gives to the community. But it operates within a system of rigid prescriptions and restrictive practices which mean that resources are not always in the right place at the right time to respond most effectively and efficiently to the community’s needs...All the principal stake-holders - the government, employers, senior management and unions - share responsibility for this situation.”
Thus according to IFRS (Independent Review of Fire Service) the role of fire services has been to respond to emergencies, to all 999 calls directed to it. Its primary duty, enshrined in statute, is to put out fires. The other aspect of its emergency work comprises what are termed as special services. These include dealing with the consequences of:
- Major transport incidents (road, rail and air);
- Chemical, biological and radioactive exposures and spills;
- Severe weather conditions like flooding and high winds;
- Collapsed buildings; and
- Rescue of trapped people, including those stuck in lifts.
The following diagram shows the proportion of different emergencies to which the Fire Service responded in 2000/01, distinguishing fires, false alarms and special services, categorised by type of call. Types of work done by the Fire Service
According to the survey conducted by IFRS, it has been highlighted that the Fire Service’s workload has increased over recent years. They indicate that it is dealing with more incidents of a wider variety although which includes a significant number of malicious or hoax calls or those where the Fire Service is not needed. This can be a cause of serious concern as it and does indicate that it elevates the free-rider problem and further causes inefficiency in allocation of resources.
Fire Service workload, 1996-2000
However, it is important to note that the Fire Service’s main statutory duty is to fight fires and prevent fires.
It would be difficult to allocate a price for a public good like fire services; it would not be practical for people to own their own fire engines. However what could be possible is that people are informed and made aware of preventing fires. Smoke detecting alarms, having a centralised network of alarm systems are already steps towards solving the free-rider problem in this area. This would help the fire services to serve more efficiently. The consumers pay price for the public good irrespective of whether they would like to use the service or not. The service is there to be used when the need arises. It would be impractical to price the level of fire protection that must be given to the residents. Thus it can be said that, for public goods like national defence and fire services, there would be a need to live with free-rider problems, primarily because the first duty of the country is to safeguard lives and money becomes a secondary issue.
RECOMMENDATION
However, despite the good service offered, there is room for improvement in the fire service provided in the UK. In Denmark for instance, Falck, a private company provides two-third of the country’s fire service and the remaining one-third is run by the local authorities. As reported in The Economist,
“The municipal stations were cosy and old-fashioned, just like here,…The Falck ones were like a modern office—there was no comparison.” This allows a much more effective use of time: Falck firemen not only run the ambulance service, but also the vehicle breakdown service. Their workers are better trained than municipal firemen, and earn more.
In contrast to the above example of Denmark, the firemen in the UK have not been very forthcoming about the training relating to medical skills as administering pain-killers, or to carry equipment such as defibrillators (for treating heart attacks). This also hampers in providing efficient service to the public. It has been further argued that Britain’s fire service does not provide value-for money when compared with countries like America, Denmark, New Zealand and Netherlands. It has been suggested that the fire service is badly managed and the incentives on offer are not appropriate.
As far as the current state of affairs is concerned fire services are funded according to the number of fires and call-outs. In Denmark, the contract is for a flat fee, which encourages efficiency. In one recently-discovered British scam, off-duty firemen in the West Midlands made hoax calls at the ends of shifts to trigger extra pay for their colleagues. The service is overmanned by around 20%. Some 10,000 of the country's 50,000 full-time firemen may go if a pay deal trades efficiency gains for higher wages.
Conclusion
From the preceding paragraphs it can be concluded that the fire service is Britain is attempting to provide an efficient service and ensuring that resources are efficiently allocated. The fact cannot be ignored that from international standards there is room for improvement; however, with time the service has the potential to reach enviable levels. As it has already been stated, that no matter what kind of economy, government intervention in terms of planning and control cannot be eradicated. Thus for improvements for the future the Fire men van be trained to handle certain medical situations and fire men can be more forthcoming to undergo such training. Also measures could be taken to provide the right kind of incentives. It would not make sense to have people working 2 days and 2 nights with the remaining days off which adds scope for people to pursue their own businesses and takes away the service or public duty element from the fire service. Thus in conclusion it can be said that the fire service operates within the market mechanism framework with a lot of scope of improvement.
BIBLIOGRAPHY
1. Dornbusch, R., Fisher, S., Macroeconomics, (2000), Eighth Edition, Mc-Graw Hill Education
2. Griffiths, A. and Wall, S., Applied Economics, (2001), Ninth edition, FT Prentice Hall
3. Gwartney, James D., Stroup, Richard L., and Sobel, Russell S., Economics Private and Public Choice, (2000), Ninth Edition, The Dryden Press.
4. Sloman, J., Essentials of Economics, (2004), Third edition, FT Prentice Hall
5. Sheffrin., Steven M., and O’Sullivan, Arthur, Microeconomics: Principles and Tools, (2001), Second Edition, Prentice Hall
6. Taylor, John B., Principles of Economics, (1998), Second Edition, Houghton Mifflin Company
INTERNET REFERENCES
1. http://www.irfs.org.uk/docs/future/03.htm
2. www.irfs.org.uk
3. www.economist.com
