The similarities between economic systems, traffic lights, junctions and roundabouts UPDATE: Oct 22, 9:10 PM. The post is now finished.

(DISCLAIMER: IANAE, I Am Not An Economist)

(DISCLAIMER: IANATE, I Am Not A Transport Engineer)

(DISCLAIMER: IANAP, I Am Not A Politician)

And no, I am not crazy. The long commute to the office does, on occasion, give me plenty of time to think about all sorts of things. In this case, identifying the similarities between economic systems (open, closed and mixed), traffic lights, junctions and roundabouts.

An Open Economy (Capitalism) = Four-Way Junction Without Working Traffic Lights

In a nutshell, an open economy is one where there is practically little, or no involvement by the State with regards to the running, or regulation, of the economy. The market is free to operate as efficiently as possible. The laws of supply and demand rule supreme. There are no price controls, regulations, state-owned or subsidised enterprises (like our very own CBC, QEH, BWA). The factors of production are all privately owned and operated with the goal of making a profit.

If a company is the sole provider of a good or service (a monopoly), it is free to charge whatever it wants. Dissatisfaction may lead to another company entering the market and providing the same goods at a better price. The consumer now has a choice, competition ensues and he/she is usually better off. The government stands by the sidelines and does not get involved.

There are several advantages and disadvantages to this type of economic system. One advantage is that the business owner is free to run his/her business, as best as they see fit. The lure of profit and a healthy return on investment, are typical reasons for persons starting a business in the first place.

However, a notable disadvantage exists as well. How do we protect those citizens who are less fortunate? Those in society who cannot afford the costs of a good or service (like education). Who will look after their basic needs if the market is only interested in running as efficiently as possible, and profit is the primary driving force behind all actions.

Now let's look at a typical four-way junction and motor traffic. Most Barbadians are familiar with the junction at Redmans, St. Michael (A Shell gas station operates at one of the corners of this junction).

What happens when the traffic lights are not working? Many people will argue that traffic flows freely. I believe that this is a good example of an open economy at work. The traffic lights represent Government regulation and control. This can potentially restrict the performance of the economy (or, the flow of traffic).

Motorists heading to either the north of the island (St. Lucy for example), or the south (that is, back to Warrens) enjoy a clear advantage over those drivers who are stuck on the east or west sides of the junction, who want to go either north or south. They have to wait for someone to let them join the main flow of north and south-bound traffic. These drivers are at a disadvantage, similar to the poor in an open economy with no Government protection, subsidies, or access to basic or affordable social services (like education or health care).

The motorists who are heading north or south, are free and are mostly unconcerned about the other motorists who have to look for a lucky break in order to join the main flow. And just like many businesses (the world over), most of them may not be concerned with the other 'motorists,' or with those less fortunate members of society, unless it has the potential to negatively affect their bottom-line.

These north and south-bound motorists are using their unique advantage, non-working traffic lights (or an open economy in the case of a business), to the utmost extreme, and are profiting by not having to sit in traffic and by therefore arriving at their respective destinations in a timely fashion.

Similarly, businesses who are not concerned about Government intervention in setting prices, controlling the types of businesses, restriction of foreign investment, will clearly enjoy these advantages. There is room for competition as other businesses spring up to offer a better, cheaper product. Increased competition and liberalisation of a market (for example, telecommunications) brings the benefit of choice to the consumer. There are no 'traffic lights', (no Government involvement) to slow them down. It's a free for all.

A brief note on increased competition, liberalisation of the local market, and the admittance of foreign companies into a country, especially a small one like Barbados. While the consumer may end up benefiting by having a wide variety of choice and access to cheaper goods and services, locally owned and operated companies may end up suffering over the longer term.

Many of these foreign-owned businesses have extremely deep pockets, and can easily enter into a country, reduce the prices of their goods and services drastically, capture the market, and effectively wipe out or greatly reduce the amount of competing businesses. As a result, it may become unprofitable and impractical for local companies to maintain their respective levels of unemployment, and as such, many may have to downsize their operations. (Downsizing is a nice word for lay-offs or having to 'let people go').

But go where? Unless the foreign-owned companies are willing to hire these employees, they may remain unemployed and will not be able to purchase most goods and services. What then? The foreign-owned companies may end up closing down and heading back home. After all, without any consumers for their goods or services, it means no revenue. The overseas parent companies will probably not accept this and may end up pulling out of the country in search of greener pastures elsewhere.

Trade restrictions, tariffs, subsidies and other related measures (think traffic lights, control and regulation), can be instituted by Government and can help protect local businesses and industries by placing limits on who can setup shop and what they can offer in a country.

A Closed Economy (Communism & Socialism) = Four-Way Junction With Working Traffic Lights

Switch on the traffic lights and you've got instant Government involvement and control. The motorists sitting on the east and west sides of the junction now enjoy the same advantage that north and south-bound motorists enjoy. They just have to wait for about thirty seconds for the light to change green. The traffic light (Government) is the great equalizer.

With this control, however, certain limitations and restrictions on how businesses can operate will come into play. Government's involvement in the economy may hamper its potential for growth or expansion. After all, one of the primary roles of a Government is to provide for, and look after its citizens (especially the poor or less fortunate).

As a result of their involvment, high costs (paid for by tax payers who are usually middle-class), inefficiencies and less-than-ideal goods or services are made available to the poor. But remember, something is better than nothing, and Government is primarily interested in providing services for the greater good, not in turning over a profit.

Some private individuals and businesses may not be willing to setup a business, expand an existing one, or invest in a new one, simply because of this high level of Government involvement in the affairs of the economy. It makes it highly unattractive for would-be capitalists and budding entrepreneurs. Furthermore, overseas investors would be reluctant to investment in the country. Similarly, some north and south-bound motorists may avoid the Redman's junction all together and look for an alternate route, one that does not involve traffic lights.

A Mixed Economy (Capitalism + Communism & Socialism) = Roundabout

A mixed economy is one where there is a good mixture of both private and public sector enterprises. There is a 'reasonable' amount of Government involvement in the affairs of the economy, but not as much as a true planned or closed economy. Barbados is a good example of a country with a mixed economy.

The mixed economy, it would seem, offers the best of both worlds. There are private sector interests that are concerned with creating wealth, profit and return on investment, as well as public sector interests that exist to serve the public by way of providing essential services (like a police force, a water authority and basic health care). For those who can afford it, private health care exists, as do private schools. Society has a choice, if you can afford the best, you can have it. If you cannot afford the best, then you'll have to make do with what the Government can provide for you.

The roundabout looks, to me, like a good example of the mixed economy. There are no traffic lights, yet there still exists a basic, controlled flow of traffic. Motorists are not disadvantaged. As long as there is no traffic approaching from the right (or slowly approaching), they are free to enter and exit the roundabout whenever they feel like. There is an element of choice, although somewhat controlled, present. As a motorist, you only have to slow down or stop to give way to traffic approaching from the right. You are not being controlled by traffic lights, nor are you stuck waiting for someone to 'let you out' so that you can join the major flow of traffic.

This post is by no means an accurate or even semi-accurate analysis of the similarities between economic systems and traffic signals, etcetera and should not be treated as such. For example, there are currently major traffic issues in the Warrens area as a result of the highway expansion project. These issues affect the performance of the roundabout(s), traffic lights and junctions.

In conclusion, remember the disclaimers at the beginning of this post: IANAE, IANATE, IANAP.

;-)

Labels: Barbados, blogging, economics, funny, life, politics

3:06 PM