Operating Controls | Forms of Operating Controls | Cost and Benefits of Operating Controls

Operating controls are government’s regulations or standards that limit undesirable behavior by compelling certain actions while prohibiting others. Regulation through operating control, that is, control through government directive is an important and growing form of regulation. These regulations are designed to limit or control socially undesirable activities of firms. This tool of regulation is one of the most popular methods of correcting market failure due to negative externalities. Through these means, the government will protect and advance that public interest in health, safety and security, the quality of the environment, and the social and economic well-being of people.

Government sets the rule of game for the operation of private sector business activities. The legal framework sets the legal status of business enterprises, ensures the rights of private ownership, and allows the making and enforcement / implementation of contracts. Government also establishes the legal “rules of the game” governing / administering the relationships of businesses, resource suppliers, and consumers with one another. Units of government can judge economic relationships, try to find foul / dishonest play, and exercise authority in imposing appropriate penalties.

Forms of Operating Control

Operating controls may be in various forms:

i) Control over environmental pollution

Environmental pollution is a negative externality created by private business firms involved in production activities. Government uses its different tools to correct the negative externality. For example, government sets limit for automobile emissions, fuel efficiency and safety standards to control environmental pollution. The government of Nepal, for example, has introduced Nepal Vehicle Mass Emission Standards 1999 (2056 B.S.) to control pollution created by vehicles. The role of the Environmental Protection Agency (EPA) of the US Federal Government is to control pollution.

ii) Control on food products

Firms involved in the production and sales of food products, drugs and other substances could harm consumers by producing and/or supplying low-quality or substandard items. So, it is essential to regulate such production activities. Government regulates such activities through food and drug acts. The act designed by the government to control the quality of Food forces the private business to maintain the standard mentioned in the act.

For example, The Pure Food and Drug Act of 1906 in the US sets rules of conduct governing producers in their relationships with consumers. It prohibits the sale of adulterated and misbranded foods and drugs, requires net weights and ingredients of products to be specified on their containers, establishes quality standards which must be stated on labels of packaged foods and prohibits deceiving claims on patent-medicine labels. These measures are designed to prevent false activities by producers and to increase the public’s confidence in the integrity of the market system.

iii) Industrial work conditions

Government controls the working environment of a factory by using labor laws and health regulation including the provisions relating noise levels, toxious gases and chemicals, and safety standards. For example, The Occupational Safety and Health Administration (OSHA) agency of the US Federal government requires that employers inform workers about risks and mandates firms to reduce risks.

iv) Wage and price control

Government also regulates wage through minimum wage law and price is also regulate to control inflation. Wage and price control policy of the government limits the freedom of the firm to determine wage and price.

v) Control in the operation of financial institutions

Government attempts to control the loan advancing activities of commercial banks by setting the minimum required reserved ratio (RRR) under which every commercial bank is required to keep certain percent of the deposit in cash. Banks cannot advance loan by undermining that RRR.

vi) Control in transportation

Government also regulates the operation of airplanes and vehicles. For example, the government fixes the limit of the weight of luggage / baggage in airplanes, (normally up to 15 kg, it is free and beyond that passengers have to pay additional charges), prohibition on carrying passengers on the top part of passenger buses, the Federal Aviation Administration (FAA) of the US sets standards for airline safety whereas The National Highway and Traffic Safety Administration (NHTSA) monitors risks and sets standards for automobiles and highways.

Cost and Benefits of Operating Controls

The question of who pays for such regulation is seldom answered by simply referring to the point of tax collection or point of the incidence of tax burden. This economic cost of regulation is often transferred to consumers or suppliers, as determined by the relative price elasticities of the demand and supply functions.

We can discuss the benefits of much operating controls in terms of information and risk. We know that there are externalities associated with information and risk. If every person who flew on an airplane had to have it checked for safety, the costs would be huge. It is much cheaper to have an agency like the Federal Aviation Administration (FAA) checks for airline safety. When the FAA sees a way to make a change in safety requirements that will reduce risk and thereby save lives, it has the authority to require that the airlines make these changes. Similarly, it would be costly for each consumer to check the accuracy of all advertising claims, or to test the efficacy of a new drug. By giving the Food and Drug Administration (FDA) of the US Federal government, the responsibility for testing new drugs, the public saves considerably on time and effort.

To be sure, without the government, private organizations would probably keep going to provide testing and information about products. Consumers Union is one such organization and many industries in the US economy have private watchdog organizations. But because of information externalities, the private actions would probably fall short of the efficient level.

The benefits from providing information about risks must be considered in light of the costs. The FDA might hold back a new drug for testing to reduce risks but this is costly to the people whose lives could be saved if the drug were approved. The building code requirements for a construction site might raise the cost of construction significantly. Frequently, these costs are not visible. No one knows that an illness might have been prevented with a new drug, but everyone knows when a faulty new drug causes severe illness or death.

The actions of the FDA, Occupational Safety and Health Administration (OSHA), and other agencies of the US Federal government involved in social regulation are frequently criticized because of the costs they impose on firms and consumers. Very angry letters and critical editorials about the costs are common. It is very difficult to estimate the costs, but some economists have tried. It has been reported that the cost estimate of implementing the operating control measures in the US economy ranges from around 3 to 5 percent of GDP per year for all programs. On the other side, the programs are popular, and they clearly do reduce risks and provide information.

Ultimately, the degree of government intervention will be decided in the give and take of the political process. But careful cost-benefit analysis on a program-by-program basis, as urged by many economists, would help in the decision-making process.

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• Factors Affecting Price Determination | Internal Factors and External Factors

• Types of Product and Distinctive Features of Product and Their Marketing Considerations

• Budgetary Control

• Regulatory role of the government

• Concept of Gain-sharing

• Marketing Environment in Nepal and Impact of Environment on Marketing Activities

• Externalities in the Economy

• Methods of Regulating Environmental Pollution

Methods of Regulating Environmental Pollution | Direct Regulation and Effluent Fees for Optimal Pollution Control

Why is regulation of environmental pollution felt necessary in recent days? How do you determine the optimal level of pollution control from social point of view? What are the various methods applied by the government to minimize the problem of pollution?

Environmental pollution has become one of the major political and economic problems in the present era. Environmental pollution results from the negative externalities. Externalities may be eliminated by the clear definition of property rights if the parties involved are not very numerous. Otherwise, transaction costs are too high and externalities persist. This is precisely the environment pollution, which refers to air pollution, water pollution, thermal pollution, pollution resulting from garbage disposal and so on.

As pollution results mostly from automobile exhaust and smoke from factory and electricity generating plants through the combustion of fossil fuels, which released particles into the air. While it is difficult to measure precisely the harmful effects of sulfur dioxide, carbon monoxide, and other air pollutants, they are known to cause damage to health and to property. Water pollution results from dumping raw sewage, chemical waste products from factories and mines, and runoff of pesticides and fertilizers from farms into streams, lakes, and seashores. This reduces the supply of clean water for household uses and recreational uses.

Thermal pollution results from the cooling off of electrical power plants and other machinery. This increases water temperature and kills fish. The disposal of garbage such as beer cans, newspaper, cigarette butts, and so on, spoils natural scenery, as do billboards and posters. To this, visual pollution must be added noise pollution and many other forms of pollution.

Environmental pollution results whenever the environment is used as a convenient and cheap dumping ground for all types of waste products. It is convenient and cheap from the private point of view to use the environment in this manner because no one owns property rights to it. As a result, air and water users pay less than the full social cost of using these natural resources, and by so doing, they impose serious external costs on society. Since property rights are ambiguous and the parties involved are numerous (often running into the millions), it is impossible and impractical (too costly) to identify and negotiate with individual agents. The external costs of environment pollution cannot be internalized by the assignment of clear property rights and so government intervention is required. This intervention can take the form of regulation or taxation. However, appropriate corrective action on the part of the government requires knowledge of the exact cost of pollution.

i) Optimal pollution control

The optimal level of pollution is that level at which the marginal social cost of pollution equals the marginal social benefit (in the form of avoiding alternative and more expensive methods of waste disposal). Zero pollution is an ideal situation, but as long as pollution is the inevitable by-product of the production and consumption of commodities that we want. Economists advocate optimal pollution control instead that is, we should be prepared to accept (as inevitable) that amount of pollution which, at the margin, balances the social costs and benefits of pollution. The marginal loss (cost) increases with rising amounts of pollution. When the firm does not incur any cost for discharging waste, it will do so until the marginal benefit becomes zero. That is, as long as the firm saves some cost by discharging its waste. However, pollution does impose a cost on society as a whole. 

ii) Direct regulation and effluent fees for optimal pollution control

The optimal level of pollution from society’s point of view is not zero, but is given by the level at which the marginal cost of pollution is equal to the private/social marginal benefit of disposing of waste by the cheapest method possible. Even though this prescription is theoretically precise, it is often very difficult to actually estimate the marginal social costs and benefits of pollution. Without government intervention, environmental pollution is certainly likely to be excessive.

There are generally two ways to achieve the optimal amount of pollution control: direct regulation and effluent fees. By direct regulation, government could legislate that the industry limits pollution to the optimal level. Alternatively, government could set the effluent fee that brings the private cost of pollution equal to its social cost. An effluent fee is a tax that a firm must pay to the government for discharging waste or otherwise polluting.

While direct regulation is sometimes necessary, economists generally prefer effluent fees to achieve optimal pollution control. There are two reasons for this. First, effluent fees generally require less information on the part of the government than direct regulation. Second, and more importantly, effluent fees minimize the cost of optimal pollution control, whereas direct regulation does not. This is because with effluent fees, each polluter will pollute until the marginal benefit of pollution equals the effluent fee. Thus, the optimal amount of pollution is allocated to those firms that benefit the most from polluting. As a result, the social cost of pollution is minimized.

One way to use effluent fees to reduce pollution is by the sale of pollution rights by the government. Under such a system, the government determines the amount of pollution that it thinks is socially tolerable (based on the benefits that result from the activities that generate the pollution) and then auctions off licenses to firms that generate pollution up to the specified amount. Pollution costs are thus internalized (i.e. they are considered part of regular production cost) by firms and the allowed amount of pollution is utilized in activities in which it is most valuable.

The industry/firm does not pay all social cost of its pollution, it does not consider profitable to reduce its pollution level up to the marginal level. The government may adopt various measures to make the firms reduce pollution. Some measures are as follows:

1. Direct regulation: The first method used by the government to make the business firm reduce pollution is the direct regulation. If the firms or individuals break this law or discipline of the government are punished.
2. Effluent fee: The government encourages the firms or individuals to reduce pollution by imposing effluents fee. The effluents fee may be useful in the certain area where it has to maintain quality of local rivers. This experiment may be very successful in a particular area. However, in case of Nepal, it is not applicable. Those who are making dirt in the public place but nobody charge them. In order to manage the dirt, or wasteful material goods, the government can levy the pollution tax.
3. Issue of transferable emissions permits: By issuing transferable emissions permits, the government may reduce the quantity of pollution. Such permit allows creating pollution in the given quantity. It means permits are being issued in limited quantity. If it is done, the total quantity of pollution is equal to one determined by the government.

These permits can be purchased and sold. The firms, which consider it very expensive to reduce pollution, purchase such permits. On the other, the firms that consider it cheaper to remote pollution, sale the permits.

               You may also like to read:             

• Externalities in the Economy | Economic effects that occur from the production or the use of goods

• Operating Controls | Forms of Operating Controls | Cost and Benefits of Operating Controls

• Market Failure

• Principles of Taxation and Its Strength and Weaknesses

• Regulatory role of the government and Rationale for Regulation

• Role of the government in different economic systems

Meaning of Discipline and Grievance | Grievance Handling Procedures

Maintenance of harmonious human relations in an organization depends upon the promotion and maintenance of discipline. No organization can run properly without discipline. Discipline means orderliness in any field of activities. It implies the absence of irregularity, confusion, disorder and chaos in human behavior and activities.

In an industrial organization, discipline means the situation in which all the workers and employees follow the rules, regulations and procedure of the organization. A disciplined work force can meet the challenges of the organizations and contribute to the organizational objectives in a better way. Discipline can pave the way for co-operation among the task force and result in good human relations.

According to the Richard D. Calthoon, “Discipline may be considered as force that prompts individuals or groups to observe the rules, regulations and procedures which are deemed to be necessary for the effective functioning of an organization.”

Hence, in conclusion, it can be said that discipline is a process of training the employee so that he can develop self control and can become more effective in his work.

Nature/ Characteristics/ Features of Discipline

1. Discipline does not merely mean a strict and technical observance of rigid, inflexible rules and regulations.
2. Discipline simply means working cooperatively, and behaving in an orderly and normal way, as any responsible person would expect an employee to do.
3. Discipline requires punishment or chastisement.
4. Discipline is the training that correct, moulds, strengths or perfects.
5. Discipline means orderliness: - the opposite of confusion and chaos.
6. Discipline is the control gained by enforcing obedience.

Discipline is essential for the smooth running in an organization and for the maintenance of industrial peace, which is very foundation of industrial democracy.

Grievance

A grievance is the feeling of dissatisfaction among the employees, working in the organization. Grievance, whether real or imaginary, valid or invalid, genuine or false, is a complaint affecting one or more workers within the organization. Dissatisfaction or discontent expressed by employees brought to the notice of management, it becomes grievance. Grievance is defined as:

According to Dale S. Beach, “Grievance is any dissatisfaction or feeling of injustice in connection with one’s employment situation that is brought to the attention of management.”

Causes of Grievance
The main causes of grievance may be classified under four following categories

1. Grievances resulting from management policy:
1. Leave
2. Transfer
3. Promotion demotion and discharges
4. Hostility toward a labor union
5. Wage payment and job rates
6. Lack of career planning and employee development plan
7. Over time
8. Seniority
2. Grievances resulting from working conditions:
1. Changes in schedules or procedures
2. Bad physical conditions of workplace
3. Non-availability of proper tools, machines and equipment for doing the job.
4. Poor relationship with supervisor
5. Light production standards.
6. Changes in schedules or procedures
7. Improper matching of the worker with the job.
3. Grievances resulting from personal maladjustment:
1. Excessive self esteem
2. Impractical attitude to life etc.
3. Over ambition
4. Grievances resulting from alleged violation:
1. Central or state laws
2. Company rules
3. Management’s responsibility
4. Past practices
5. The collective bargaining agreement

Grievance Handling Procedures

A grievance handling procedure is a series of steps arranged in a hierarchy of increasing complexity and involvement. Every organization has need for a consuming process of conciliation to facilitate settlement of controversies and to assure an employee with a grievance that his case will be given a fair hearing. The number of step in grievance procedures varies with the size of the organization. A small organization only have two or three steps while a large organization may be having eight to ten step of grievance handling procedure. In general while handling grievance, the following steps are followed.

Step – I Defining and describing the nature of grievance as clearly as possible

– defining or describing grievance implies that it has been expressed.

Step – II Collect all facts that help to explain how, when, where, why and to whom the grievance occurred

– After defining the grievance, the next step is to gather all pertinent facts concerned with the case. The person handling the grievance must know the alleged grievance was first experienced, whether it has been repeated or not, how and where it took place and the circumstances under which it transpired the employee should be fully convinced that management are perfectly sincere in seeing that justice are done.

Step – III Establishing tentative solution of the grievance

– After getting the clear picture of the grievance, the next step involves the establishment of tentative solution.

Step – IV Collect additional information to check the validity of tentative solution

– On the basis of the tentative solutions, facts are gathered. The executives establish a tentative solution and then observing critically whether his hypothesis is right or wrong. If the thinkers are wrong, he sets up another tentative solution and proceeds this until he finds the right answer.

Step – V Applying the solution

– For applying the solution, the executive may hold conference with aggrieved employee and questions other employees. Having reached a final decision it should be applied without delay.

Step – VI Follow up

– The executive should not conclude that grievance has been until a check is made to determine whether the employee attitude has been favorably changed. Checking can be done through causal observation while the employees are working, decision taken favorably or unfavorably. The other method includes to ask from the other employees about the aggrieved employee’s reaction.

SOME RELATED LINKS:

• Organizational Behavior and its Emerging Trends

• Participative Management in Public Administration

• Behavioral Approach in Management and Administration

• Means for Effective Motivation

• Problems and Prospects for Management of Public Services

• Public Accountability in Public Administration

• Result Oriented Administration / Result Oriented Management