economic rationale for licensing tour guides in poland

Tourism in Southern and Eastern Europe, pp. 295-304, 2013 A. Pawlicz: ECONOMIC RATIONALE FOR LICENSING TOUR GUIDES IN POLAND

ECONOMIC RATIONALE FOR LICENSING TOUR GUIDES IN POLAND UDC 338.486(438)

Adam Pawlicz

Received 1 March 2013 Revised 30 March 2013 12 April 2013

Abstract Public involvement in tourism industry is seldom criticized (Jeffries, 2001, 280). The crucial question which is discussed in economic literature regarding tourism market is not whether the intervention is necessary but what shape should it have. Tourism en block is promoted as a panacea for all problems, especially for unemployment issue (Baum and Szivas 2009, 783-794). On the other hand very little is written in both academic and popular publications about efficiency of public spending and benefits from withdrawing public intervention. Most economists agree there are certain areas of tourism economy where public regulation is indispensable such as tourism information or marketing of tourism destinations (Jeffries 2001, 100-150). Licensing of tour guides belongs to areas which are relatively little researched and where proposed solutions are at least ambiguous (Ap and Wong 2001, 551-563). In different countries tour guiding is a subject to different regulations which change over time. In Poland city tour guides (in biggest cities) need a licence. This should change according to new regulations. Much of the debate is based rather on the emotional arguments rather than on the economic merits. The study aims to (1) identify usual arguments rationalizing public intervention on the tourism market, (2) show the specificity of market for tour guiding services, (3) investigate whether usual arguments might support enforcing regulation on the tourism market, (4) determine whether arguments used by lobbing bodies base on the economic arguments in Poland. It was found that arguments used base mostly on emotional rather than economic arguments. Keywords tour guide, licensing, Poland, rationale for public intervention, regulation, tourism

INTRODUCTION Tour guide’s role is to provide interpretation to tourism attractions. Quality of tour guide’s performance to some degree influences quality of a total tourism product of a destination. This was one of the reasons why this profession is regulated in Poland and few other European countries (11 – mostly in South Europe). Although regulation varies across countries and regions, it usually takes form of entry barriers (licensing) and sometimes a minimum price rule is set. Economic literature of tourism does not provide justification of this regulation on the ground of any of economic theories. This paper is meant to partially address this issue. Research method is composed by literature review plus an analysis of documents of lobbing groups for and against new regulations regarding tour guiding market in Poland.

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TOUR GUIDE ON THE TOURISM MARKET While there are various definitions of a tour guide, an internationally accepted definition given by the International Association of Tour Managers and the European Federation of Tourist Guide Associations (EFTGA) is that a tour guide is a person who guide groups or individual visitors from abroad or from the home country around the monuments, sites and museums of a city or region; to interpret in an inspiring and entertaining manner, in the language of the visitor's choice, the cultural and natural heritage and environment (Chowdhary and Prakash 2008, 10-15). Tour guides have also been described by several authors as an information giver and fount of knowledge, mentor, pathfinder (Cohen 1985, 5-29), a mediator, and a culture broker (Chowdhary and Prakash 2008, 10-15) but, what seems very significant, tour guide is never called an entrepreneur. Tour guides operate mostly independently, even if they form some kind of organization, it is rather non-profit association than a for-profit company. In that aspect tour guides resemble more free lance professions such as lawyers, consultants, artists etc. In those professions economics of scale and scope does not matter much and competitive advantage is based almost entirely on the personal knowledge and skills while availability of capital in this market is of scant importance. Although tour guides operate mostly independently (in a sense that they do not hire other staff) it is possible to call them entrepreneur because they take risk and operate a business. However many tour guides treat their job as a secondary one or even as a ‘passion’ or ‘hobby’ (Simiński-Stanny 2012, 165-172). As most of tour guides are not even registered as entrepreneurs (they are commissioned by tour operators as part time employees), they are not eligible for any public support directed to SME sector. Tour guides may clinch contract directly with tourists – their final customers, or, which is the rule, via an intermediary – incoming tour operator. Tour operators, in contrast to tour guides, are medium and large companies which operate in oligopoly market (Dale 2000, 357-367) and naturally they may (and certainly do) execute their power with actors that operate in less concentrated markets such as travel agents (Succurro 2006, 199-218), independent hotels (Castellani and Mussoni 2007, 230-260) or tour guides (Ap and Wong 2001, 551-563). This puts tour guides in a disadvantaged position as tour operators press them to accept low prices and unfavourable conditions. One of the way to improve position of tour guide is introducing a regulation, which sets entry barriers (limits supply), ensures that appropriate conditions are met and sometimes set a minimum price rule.

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RATIONALE FOR LICENSING IN TOURISM Public bodies in their actions try to achieve a spectrum of social, economic and environmental aims through their policy instruments. Regulation, which is apart from spending and taxation a third public policy instrument provides standards and rules which limit certain markets. Effective government regulation addresses a range of issues including: (Foreign Investment Advisory Service, 2009): • •

• • •

Indentified market failures such as asymmetry of information; Achieving specific public interest objectives, such as fostering consumption of goods which have certain merits (or demotivation to consume other goods, such as alcohol); Externalities such as pollution and public or consumer safety Existence of public goods and common resources, Monopolies, where one producer exercises non-transitory market power to the detriment of consumers.

It is often advocated that regulation should address given problem and be limited to the absolutely necessary area, although as Stigler (1971, 3-21) noted that regulation was primarily intended to benefit related business. Stigler’s opinion differs sharply from orthodox view in which regulation is intended to diminish abuses from imperfections of the market (High 1991, 5). According to Kahn (1988, 1-20) economics of regulation has two corresponding aspects. First provides guiding principles which “define the goal of economic efficiency and provide rules for achieving it” and the second, institutional, deals with relations between various arrangements – “market structure, system of incentives, laws and administrative procedures – and economic performance. Both aspects will be shortly discussed in this paper. Licences in tourism serve, however, very different reasons. They are basically aimed to solve three groups of problems: • • •

Environmental Protect tourists Revenue collection

Protection of natural environment is given a as a primary reason to intervene on the tourism market as an influence to environment is called main dysfunction of tourism. Incoming tour operators are licensed in order to assure they follow standards and obey environmental regulations. Regulations usually call for qualified staff, environmentally friendly devices etc. Tourists, especially foreign tourists, have limited knowledge about local law and customs. For that reason certain licenses are issued (such as categorization) which aim is to diminish possibility of exploiting tourists which potentially negatively affects image of a destination.

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Revenue collection is especially popular in developing countries. Licenses in this sense is kind of a hidden tax. Reasons why this tax is concealed are various: government improves its image; it may serve in achieving both goals; destination looks more competitive in views of potential tour operator etc. When designing licensing system one should answer the following questions: 1. Who issues permissions? 2. Should it be mandatory? 3. Who designs system of quality control? 4. Should a licence be temporary? Although licensing should address a market failure, economic literature does not provide an universal list of market failures. Those that are given in the literature, there are overlapping with each other. E.g. information asymmetry leads to transaction costs, externalities often are associated with merit goods etc. Next two sections will examine two possible reasons for regulating tour guiding market: externalities and information asymmetry.

EXTERNALITIES Classic definition of externalities states that it is “any indirect effect that either a production or a consumption activity has on a utility function, a consumption set, or a production set”. By “indirect”, it is meant that the effect is created by an economic agent other than the one who is affected; and the effect is not transmitted through prices (non-pecuniary) (Laffont, 2008). There is extensive literature regarding theory of externalities (Cornes and Sandler 1996, 230-280; Papandreou 1998; Merlo and Briales 2000, 197-208), although most definitions and concepts raise from the general theory of microeconomics and public choice economy. One of the most fundamental feature of tourism service is their interdependence, i.e. consumption of hotel product is conditioned by existence of tourism attractions or other objects that attract visitors etc. So production and consumption of tourism products generates by definition external effects. Still, there is a paucity of theoretical research in the area of tourism externalities, which derives from the difficulty of measuring their impact. Moreover Bochert (2007, 160-220), who most thoroughly handles the problem of tourism externalities, states that virtually every transaction leads to external effects. Even a purchase of flowers which are exposed in the street window leads to the rise of utility by neighbours. Public bodies should be therefore very careful whether it is reasonable to correct it and compare a cost of correction with prospective gains. As tour guide certainly influences the quality of total tourist product. The quality of its service decides whether a tourists values high or low given site.

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Fig. 1: Externalities on the tour guide market Tour guide

Tourists

Quality of total tourism product Source: Author

Still, similar externalities may apply to virtually all tourism enterprises. The quality of hospitality, catering and transportation services also determine the quality of total tourism product. Their perception of a destination is similarly influenced by other service. The main task of a tour guide is to interpret a tourist attraction. If one treats tourist attraction as a reason d’etre of tourism, then a question arises why should one refrain from treating a tour guide similarly (Interpretation from a tour guide can be seen as an important part of attraction)? The main reason why tourism attraction are supported with public funds is: they generate tourism flow in a destination and it is not possible to charge tourists for visiting them (i.e. they are quasi public goods with non-excludability and non-rivalry principle, e.g. some monuments, beaches, landscape etc.). Alternatively, it is possible to charge but it is applied a cross financing rule, public body charges little fees (e.g. in some national parks, museums etc.)and benefits from collecting taxes from tourism enterprises and reduced unemployment. Turner (2002, 347-356) discussing problems of financing national parks in US came to conclusion that intangible features of national parks (i.e. national pride of having a park, which will never be converted into willingness to pay a fee) is a crucial rationale for public intervention (because it will never be reflected in private entrepreneur cost calculation). Services of tour guide are, however, excludable but are (to certain extent) non-rival as many (but not infinite number) people may listen to one guide. Moreover service of tour guide presents just complementary (to the attraction) product and does not attract tourists to the destination. For that reason service of a tour guide is different to the core tourist attraction and should be treated differently. But even if one assumes tour guide are eligible for public support because of externalities they generate, this alone does not justify licensing as a solution to the problem. The goal of public action could be defined as maximizing externalities, i.e. not only improving average quality of tour guiding but also increasing the share of tourists that use a tour guide service at all. The former goal can be achieved by licensing, the later by removing of licenses as this would enable expanding supply on the market. The problem of distinguishing between qualified and not qualified tour guide is discussed in the next section.

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INFORMATION ASYMMETRY George Akerlof (1970, 488–500) in his seminal paper described problem of information asymmetry on the market for used cars. He distinguished two types of used cars: good cars and lemons (cars with hidden flaws which cannot be seen by a potential buyer). Akerlof was first to show that in such markets consumers are willing to pay only average price for a car, which leads to withdrawal of good cars from the market. This eventually lowers average quality and price. Mann and Wüstemann (2010, 278–285) state that government takes action against information asymmetries but there is no theoretical justification in economic textbooks for public actors to intervene. They shown that “Public Choice Theory offers only few and Public Finance Theory not enough explanations for the prevalence of such government interventions.” If there is no comprehensive theory that supports government action in the presence of information asymmetry, it is even less likely to find it in tourism economics related literature. Still the problem exists and is fragmentally discussed in many sources. In his works, Keane (1997, 117-130) suggests that information asymmetries between visitors and producers may lead to a loss of competitiveness of tourist destinations. Candela and Figini (2012, 120-150) point that information asymmetries on the tourism is one of the reasons to creation of transaction costs (i.e. market inefficiency). As in Akerlof’s example, on the tourism market producers have much better knowledge about their products than consumers have. The notion of information asymmetry is applied rarely to some sectors of tourism economy, e.g. Papatheodorou and Platis (2007, 221-242) discuss problems of demand for air transport in Greece in view of spectacular plane accidents. Problem of information asymmetry in relation to tour guide services is discussed in view of so called “zero-fare” tour guiding in Honk-Kong and other Asian destinations (Ap and Wong 2001, 551-563; Chen and Mak 2012, 2-5). Such tours are offered for free for a customer (tourist) and a tour guide makes its salary from the provisions of visited commercial entities (shops with souvenirs etc.) According to Ap and Wong some inbound tour operators even demand provision from tour guides to assign them a group. This situation leads to low quality of tour guiding services and a low level of earnings of tour guides. Main problem that arises in those destination is that a tourist, prior to experience a service, does not know whether he or she buys a tour guide with more or less shopping. Similarly to Akerlof example, better products are driven out of the market. Information asymmetry is usually diminished by: (Nicolau and Sellers 2010, 832-839) 1. Investments in brand and image, 2. Offering warranty, 3. Efficient promotion, and 4. Providing independent certificates. It is difficult to imagine a tour guide performing 1-3 actions and a voluntary certificate is also difficult to work. More discussion should be given to certificates.

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Independent tourists really cannot distinguish between well- and bad-qualified tour guide. But tourists do not know what a given certificate actually means, so they cannot judge it as a signal of quality. Should certificates work, tourists must be informed about their existence prior to arrival to the destination (in means of transport). Questions that are in such cases always difficult to answer are: who issues certificates, who pays for promotion, what shape should a public body’s intervention have? Incoming tour operators, as professional actors on the market can judge quality of tour guides without any additional signals. However, Ap and Wong state that for tour operators most important trait of a tour guide is to generate money from provisions (in commercial entities he visits with tourists, those provisions are usually split between tour guide and a tour operator) rather than his professional knowledge about destination. From the problem of information asymmetry point of view, a certificate (voluntary or mandatory) might have a sense only in case of relationship between independent tourists and tour guides. Tour operators might choose a tour guide that offers best relations between service quality and price.

ARGUMENTS USED IN POLISH DEBATE OVER LICENSING TOUR GUIDES Poland is an appropriate research setting to study the changing regulations on the market for tour guide services because the law regarding tour guide profession is in process of liberalization. This study used qualitative research techniques which base on the analysis of documents issued by lobbing organizations. Two main organization were identified. One supports liberalization process, the other promotes status quo. Than arguments are compared to economic rationalization to the regulation on the market for tour guide services. Tour guiding in Poland were regulated prior to 1988. Then with political and social changes associated with the introduction of market economy also tour guiding were liberated. This ended in 1997 where new regulations have been enforced and have not been changed. According to present regulations there are 3 main types of tour guides: • • •

Mountain tour guide; City tour guide; Area tour guide (for areas which are neither city nor mountain).

Right now, to become a certified tour guide a potential candidate must be educated at a high school level, accomplish a tour guide course and pass an exam. Moreover he must pass medical tests. A license is given by regional governments and is valid lifelong. Polish government plans (2012-2013) to liberate the profession of a city tour guide. After deregulation which is planned for 1.1.2014 there will be virtually no barriers of entry. This will enable everyone that has a legal right to work in Poland to become a tour guide without necessity of showing any formal certificate.

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Polish Tourist and Sightseeing Society (Polish: Polskie Towarzystwo TurystycznoKrajoznawcze, hereinafter PTSS) is the main association of Polish tour guides and strongly opposes governmental plans for deregulation. Main arguments has been collected in their internet site (PTSS, 2013): 1. Only a dedicated course may assure quality of a tour guide, its knowledge is too interdisciplinary to be learnt at any course of university. 2. Even in cities there are dangerous traffic situation which justify the need for a group to hire a tour guide 3. Only licensed tour guides can assure quality guiding 4. A term “tour guide” is currently associated with certain sense and weight. 5. Exams that are conducted by Marshall Offices (regional governments) are not difficult. Moreover the number of tour guides increases year by year. 6. In Poland there are only 100-200 professional tour guides (for the rest tour guiding is just an additional source of income). Deregulation means that tour operators cease to hire any tour guide and their role will be replaced by bus drivers. 7. Deregulation will eventually lead to quality decrease and unfair competition, where those that offer lower prices win. 8. A market will not regulate themselves by “invisible hand” since Polish tourism market is not mature. Polish tour guiding market will resemble India where tour guides does have a fundamental basics about a destination where he lives. 9. Lower quality of tour guiding will harm image of Poland. 10. Deregulation will not lead to more working places but rather to its disappearance, since tour operators cease to hire tour guides at all. The tourist organization that supports deregulation process is “Social Action Free Professions” which wrote a letter to the Polish Ministry of Justice with their arguments (Social Action Free Professions, 2013). In their paper they stated that: 1. Tourism is connected with freedom, hence limiting access to tourism profession contradicts with nature of tourism. 2. Running a tour operator company does not require any formal qualifications so expecting those from a tour guide is not justified. 3. It is free market not state regulations that can guarantee best quality of tour guiding. 4. Tour guiding is regulated only in south Europe where the level of overall bureaucracy is high. Countries with strong economy such as Germany, Switzerland, Great Britain, Scandinavia does not impose any regulations to tour guide profession. 5. Current regulations were enforced because of tour guiding lobby. It leads to monopoly in many cities. 6. Tour guiding is a highly seasonal occupation, hence it requires flexibility, which is limited by current regulation. 7. Current regulations limits the freedom of speech. 8. Such long courses are not necessary as one can see practice of Western Europe. 9. Liberating tour guides does not contribute significantly to Polish economy, but it has a great symbolic value.

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Both proponents and adversaries of liberalization of a tour guiding profession do not use primarily economic arguments. Externalities (of course not expressis verbis) were mentioned in one argument of PTSS (9) and asymmetry of information also in one (3). Other arguments were refereed or to symbolic values (deterioration of tour guides’ income and image) or to possible chaos after introduction of liberalisation rules. Arguments used by proponents of regulation also base on rather emotional than economic arguments. Just one argument referrers to free market and “invisible hand”, while the rest is based on situation in other countries and professions. The first and foremost argument bases on freedom which is limited by current regulation (symbolic value).

CONCLUSIONS AND MANAGERIAL IMPLICATIONS It is difficult to provide a clear arguments for mandatory certification of a tour guide profession basing on the theory of externalities and information asymmetry. Ronald Coase in his highly cited article (1960, 1-12) stated that “All solutions have costs and there is no reason to suppose that government regulation is called for simply because the problem is not well handled by the market or the firm”. In other words, even if some negative externalities would arise after liberalization of tour guide profession this might not exceed potential benefits. Those cost might be diminished by introduction of voluntary certificates. It is disappointing that arguments used in the debate over liberalization of a tour guide profession rely mostly on emotions and not on economic knowledge. Still there is a paucity of economic research in this field. A further research in the area of relations tour guide – tour operator, influence of a tour guide performance into quality of a total tourism product and a price changes after liberalization of this profession is advised. If no economic arguments prevail in a debate over liberalization of tour guide profession between lobbing parties, than, the most vital policy implication, is also use rather emotional than economic arguments to convince all stakeholders. Another implication might relate to the way economic knowledge is presented to organizations in tourism sector. Tour guiding is usually a part-time job performed most often by teachers. As in this profession knowledge from the area of history, sociology and psychology (not from economics) is essential, economic arguments should be coded in a less complicated way.

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Adam Pawlicz, PhD Univeristy of Szczecin Faculty of Management and Economics of Services Cukrowa 8 Str., 71-004 Szczecin, Poland Phone: ++48 504 748 358 E-mail: [email protected]

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