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(Case Collection) Pearson Airport - Case #1-7

(Case Collection) Pearson Airport - Case #1-7 - Privations...

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Unformatted text preview: Privations of pearson international airport 0 Intent of the policy intervention: To build a new airport in Toronto with private money. . ~ We?” Future passenger growth, desire not to use public funds, job creation O O 0 The contract was eventually awarded to the Pearson Development Corporation. 0 Following his election in 1993 new PM Jean Chrétien cancelled the contract at a cost of some $60m. Ne—peliey-nowexistedF 0 Later the management and operation of Pearson was turned over to a not for profit private public partnership, the GTAA. O The GTAA is now developing a 4.4 billion dollar construction program at Pearson. In Dec 1992, the government made a decision to award the Pearson Development Corporation control over the redevelopment and_management of PIA. And soon later, in Dec 1993, the new government made another decision to term1nate the Pearson deal mentioned above. These two decisions at privatization of the airport a1e direct, coercive, purely reactive government intervention. Problem: 1. federal government estimated that pearson international airport would exceed it 28 million—passenger capacity by 1997 or 1998. 2. with one of the worst recession of the century, the progressive conservative government wanted to avoid incurring any large capital expenses for pearson airport 3. by expanding and developing by private sector, the project could create job to assist the economy and recovery for recession. privatization jig.) 913x 'Refers to the transfer of/public ownership to private corporate ownership. 'Emphasizes the stimulation of competitive forces. 1: uni-vi”: -Often involves former monopolies or semi monopolies 1w" Object: to shift from government control as a substitute for the marketplace to an increased reliance/ththe__marketplace as a more efficient way to serve the public. The overall. intention waste let the, marketplacngrqw amipxqmczr : Reason for privatization-i 1. improve efficiency: corporate incentives to cut cots and set prices in line with \i—‘_..__ costs :Theacfiiévement of efficient standards depends largely of the framework of competition that the new private company will operate within 2. Reducing the public sectors borrowing requirements. The capital and financial ”Pann— requirements the crown_corporat10ns will not longer be the responsibility of g governments; It may result in a lowering of deficits fig Reducing Government involvement in enterprise decision making. A major weakness 1n crown corporations is that they are vulnerable to short term political thinking; Privatization provided a credible way of giving ind astry management 4—. independence to develop business strategies free of interference. X Easing Problems of Public Sector Pay Deterrwtron Nationalization can increase the power of Unions if public sector managers and their supervisors have weak incentives to reduce labor costs; Management may be underpaid compared to the 3‘ public sector \1' Widening Share of Ownership: It IS competition that determines the survival and success of a company; More owners equals more accountability Ownership 6 translates into pressure to perform. Y9. Encouraging Employee Share Ownership. It is a vehicle for rapidly expanding share ownership because it gives an opportunity to offer shares to the public at a discount; Also allows for incentive shares to the employees 7 Qaining political advantage. Government saddled with deficits and besieged to sell public enterprises have opted for the political advantage of pnvatization impact: -No substantial impacts of government deficits. ‘ -Receipts from sales could be negative as in some cases the governments overall investment exceeded market value. -c0mpetition. -Efficient resource allocation °There is a need of government regulatory policy to influence private sector behavior by establishing an appropriate incentive system to guide or constrain corporate decisions. 'Society needs some degree of protection. Agree: Economic 'Govemment may need to rid themselves of various enterprises to allow them to be more flexible and compete against the global marketplace. 'Creates a negative impression for incoming foreign investment. Efficiency-Crown corporations are not efficient in achieving their goals and the public policy aims that they were created to meet can be better met thorough private sector ownership. Opposer-Great skepticism in the free market 'Underlying questions about the role of crown in nation building. 'Concerns about big companies becoming even bigger. Goaliito take advantage of privatization of PIA to keep its proper expansion and stimulate the regional economic development (to build a new airport in Toronto with private money/ avoid any large capital expenses/ job creation and assist economy of private sector) Intervention: :to award the corporation control over the redevelopment and _____,._. management of the PIA. The intervention isdirect‘because a change has occurred in the society with one aetion by the government. This resulted in three things occurring in B: ‘ 0- the goal is satisfied as the privatization of the airport was realized as soon as the contract was awarded to the corporation. 0- the intended result is achieved: with the assignment of the contract, the government withdrew successfully from the management of the airportOob creation, get profit) 0- a new state of equilibrium is established: with the withdrawal of the government from the management of the airport, the old equilibrium was replaced with the new one in which the corporation will be a major player in the following 37 years. The intervention is wiggle with direct intervention; when government awarded the COntract to the corporation, the other competitors failed automatically in the competition, at the same time, the privation of the airport was completed with in the legal framework, which contains mandatory power to both government and the COOperation. (crown asset and government can decide how to deal with it) The intervention is purely reactive as pi‘ivatization is not always the proper resort to every problem even it can increase efficiency. It seemed the govemment made a mistake tt'i‘bverestimate the benefit growth at first and then to underestimate the economic result in the macro environment of the recession. It could bei-Aghortsighted When only considering the job creation in short time, an addition to more political consideration, we have to admit that this decision is a\1<nee—jerking response to the ail‘port expansion problem, and this assertion will be back up by the later termination by the new government (linked to future growth, desire not to use public funds, job creation, to rush to accommodate an impending federal election) Accuracy IS greater because of the intended goal of privatization of airport is satisfied by federal government to award the corporation control over the redevelopment and management of the PIA. Precision is greater as the goal to take the advantage of privatization is reached by govemment intervention-privatization. Efficiency is greater because the benefits that Canadian government will get are tremendous in terms of privatization. By privatizing, the Canadian government will reduce its burden of supporting the development of PIA. It is good for government to do So as the supporting would involve many efforts and money; and after privatization 0f airport, government will have more resources to support other industry. Airport will benefit form the privatization because it becomes more competitive in order to access such a completely free domestic market and to earn more customers and profit. Time delay is less because the governmental intervention is coercive, federal government can directly implement the intervention towards privatization of airport without others approval. Therefore the accomplishment of the desired goal of privatization the airport can be quickly reached. Environmental effect 'on the private sector is less deleterious because: '-:the government has been making tremendous efforts to provide airport a better environment to compete with each other; therefore, the airport will increase economic efficiency and earn more profit. Go a]: to stop the process of the privatization of the Airport Intervention? to announce the termination and cancellation of the pearson contract.(to terminate the contract awarded to the corporation by the prior government in Dec 1993) When new government comes in power, it believed that private sector could do better during recession and it will let private sector to grow and create more jobs. This government intervention is directu'because there is government action at A to cancel of the Pearson contract and the privatization of the airport was stopped as soon as the announcement was declared. This resulted in three things occurring in B: O. the goal is satisfied as the privatization of the airport was stopped as soon as the announcement was declared. O. the intended result is achieved: with the cancellation of the contract, the government got back successfully control over the management of the airport. 0. a new state of equilibrium is established: with the declaration of the announcement of the cancellation, the just set equilibrium was broken again, a new state of equilibrium, in which the government changed back to its original position, was recovered. The government intervention is- Coercive: when a government intervention is direct, it is also coercive. When government terminated the contract to the corporation, the process of privatization was stopped mandatory, even though it was at great cost to the Canadian taxpayer- a compensation of ‘$30 millions to the corporation. " “H It is:;_'purely reactive intervention. The new governmentNiancelled the contract to the corporation, and the process of the privatization of PIA was stopped in a mandatory way. It is hard to assert its reasonability only in viewpoint of the new government’s criticism on the fiscal irresponsibility of such a mega prpject. Because it just cancelled the contract made to the prior government without a proper alternative solution, the new government made this decision even without rega1d to the fact that the? contract p was protected by law and the termination unitarily was contrary to fundamental rights of citizen entrenched in the charter of rights and freedom. So in this respect, the decision was just made to purely react to stop the proCess of privation of the airport. Accucracyzgreater because it is good and satisfied the goal and it involves with direct and coercive intervention. precicion:greater since the goal and intervention are closely related. - efficiencyzgreater government take less effect, the benefit far more exceeds its cost. time delayzless it will be lesssine the private sector operates and less bureaucratic . decisions are made. --P and E more efficient have target the intervention for anyone who is interested in owning and operation the airport. ' foal?" To add capacity to PIA to match its rapid growth in GTA while stimulating job creation KIntervergtlwoDm 1993, federal government announced 60— -years public— private partners 1p with Greater Toronto Airports Authority (GTAA). This government intervention is direct because there is government action at A to allow PIA to be privatized on a public — private partnership base. This resulted in three things occurring in B: 1. the goals is satisfied with a redevelopment program of terminal 1 is underway at Pm 79/8 and med in 200_5_ ( partnership to privatize the pearson, ,,,,,,,,,, investment) 2. the intended result 1s achieved because the public-private form operates PIA result iVMMt to prevent fiiture air traffic congestion. 3 A new state of equil rium is established, as federal government reduces its control over PIA and ows a private non-for—profit organization company to join the management. wad to a specific goal: they impact directly on the goal dealing With the root issues In this case the government interventions are all directed. They wanted to privatization the airport in 1980’ ,they wanted to cancel the privatization later, so they cancel it; and then they intended the established thewGAlL and they done that. This intervention [email protected] the government orders GTAA to operate PIA on a public-private base in order to upgrade the order terminal economically and effectively. Strategic intervention tends to deal with the root cause of the issue. the privatization in 1980’s, the cancel of privatization in 1993 and the later the partnership between private and public sector to build the GTAA are all strategic intervention. The government has to borrow lots of money to reconstruction. By privatize the PIA government can make the airport meet more consumer demand while reduce the government borrowing. Besides considerin Lcreasing the passenger ca acity at PIA, thfi. \v’ v ”K. -\..—- ‘ , r, C 11: 11‘ ' " gov/emerge consQers’hgw to GEMS. d econWC ession and how to 7 managih/e airport cost-effective It also considered_pu lic interest so it decide to WV’“ M a partnership with private non- -for- rofit tcom an (If strategic; we needto talk 11 h ort 11 an dian, but ow we are onl talkin“ about 6 on onl :11 “W ’3'" ”Cl "' W «EVA» y A1,» 1-1L. 12.1" 1116i “11,121'1'4f' 0111*; "-12“; 1‘1} uut - 0 Accuracy is the degree to which the intended or stated goals are satisfied 1_. II 11".“ 11-11.»? when all the effect and interaction are substantially complete or have reached a ' " ' state of equilibrium. Accuracy is greater because the goal to increase PIA passenger capacity to match its rapid growth in GTA is satisfied. I11". 0 Precision is degree to which the effect of the intervention is limited to only 1111. _ the intended goal. Precision is greater as only to increase the PIA passenger ' “~1- capac1ty is satisfied 711’“ :1” .1113 ”F171 ‘51?" o Efficiency measures 'the differences or ratio between the resources or utilities created (benefit) and those expended (cost). Efficiency IS greater as because the cost for redevelopment and operation will be burden by government and private company together. As a result, government reduces large capital expense. 0 Time delay is the period of time between the implementation of an intervention and the accomplishment of the desired goals; it is less as one the government announced the policy; it will be implemented right away. 0 Environmental affect on the private sector on private sector is less deleterious because the cost of operating PIA is shared by the government and private company. The revenue is expended to increase due to the growth rate of passenger. (target everyone who wants to get in the airport business, and earning/ spending in airport, management to keep the flight flow and customer happen, government takes the hands out and GTAA takes all the problems.) Privatization through the partnership of public and private by regulation puts the government into a position of custodian. Government got the liability out of shoulder of development and construction of PIA to private sector, Moreover, the efficiency and competitiveness are increased, and job related created revenue are generated. The Stakes of the CAN Airline Industry 1. Identify the goal: To restructure and reorganization the airline industry. 2. Identify the Intervention: To private Crown Corporations in airline industry — Air Canada. 3. Dimensions: D IRE CIT/INDIREC T D [MEN S ION i) This intervention is direct: there is G action at A to support privatizing the Air Canada to restructure the airline industry. This results in three things occurring at B as follows: a. The goal of restructure the airline industiy is satisfied since the component in airline industry was changed. b. The intended result is achieved. The G reduced the deficits and lay the burden of developing, managing and maintaining of Air Canada on the private sector. c. A new state of equilibrium is established because the G no longer owns and manages the Air Canada but devolve to private sector. Therefore the intervention is direct. C‘OERSIVE/ VOLUNTARY DIMENSION ii) This intervention is coercive: because when the G makes a decision, it is very hard for anyone to oppose or prevent the outcome. By privatizing Air Canada, the G places the burden of managing Air _ Canada on the private sector whether they like or not. In addition, 'the private companies have to run and develop the whole business * and take on the debt of Air Canada. STRATEGIC/REACTIVE DIMENSION iii) The intervention is reactive because it is a knee—jerking response to a superficial problem * high debt of Air Canada, maybe the private sector can run it better, and it does not deal with the underlying root causes of the high debt of Air Canada. In addition, G makes decision without regard for the consequences or ramifications of the intervention. 4. Quality determinants: ’ UT ACY' is greater because goal is satisfied with only one causal relationships associated with the direct, coercive G’s intervention. Therefore, all efforts and resources are directed towards that goal. ii) PRECISION — Because this intervention is both coercive and direct, precision is greater. Precision is the degree to which the effect of the intervention is limited to only the intended goals. In regards to this intervention precision is greater because the goal of restructuring the airline industry is reached through the intervention to privatize Air Canada. iii) EFFICIENCY: Because this interVention is both coercive and direct, efficiency is greater. Efficiency is the ratio between resources created (benefits) and those expended (costs). In regards to this intervention the possible benefits are far more than the possible costs. The G reduced its debt and will not borrow to repay the debt, and downsize the managing burden. Moreover, the G got money immediately when it sold Air Canada. All these benefits were received almost without any cost. iv) TIME DELAY: Because this intervention is both coercive and direct, time delay is less. Time delay is the time period between the implementation of the intervention and the accomplishment of desired goals. The goal of restructuring of Airline Industry was achieved by G’s direct and coercive intervention immediately and just waiting for natural market force to affect. v) ENVIORNMENTAL EFFECTS OF THE PRIVATE SCTOR: Because this intervention is both coercive and direct, it is less deleterious. The industry targeted for change by this intervention is the airline industry. The effects of the intervention are creating a more fair competition and free environment in the airline industry. According to the privatization of Air Canada, G will get out of business of protecting , owning and managing Crown Corporation in Airline industry. 5. EFFECTIVENESS OF THE INTERVENTION: This intervention has the ability to be very effective in regards to accomplishing the goal of restructuring and reorganization of the airline industry. The privatization of Air Canada decreases the G’s debt and the burden of the operating and maintenance expenditure of the company. It also prevents G from protecting domestic industry and provides a more fair, free, competitive market. Therefore with the implementation of this intervention the desired goal will likely be accomplished the structure of the airline industry will be more competitive and healthy. avoid any large capital expenses on Persor: International Airport. .government intervention: Privatization of Person International Airport. 40 Kid P?) In 0rd r to provide a DIRECT g1: vemment intervention, there must be no Mini _ choice but _o_ed1ence1 although, Metro1 olitan Toronto councilors sought a court injunction to block the privatization of Person International Airport, nothing could stop or prevent the government’s action to transfer the Pearson International Airport ownership from the public to private sectors. It is the governments attempt tofdive mg itself of responsibilities. Th...
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