Monday, March 23, 2009

You Can't Fly a Plane with Chains Around Your Neck

Continental Airlines Chairman and CEO Larry Kellner wants more government regulation of his industry. In an interview with the Chronicle, Kellner said:

If the government wanted to re-regulate the business, I wouldn’t be opposed to it.

What we are doing today isn’t working. It isn’t creating a stable industry. That is not good for communities, that is not good for employees, and that is not good for customers. It needs something and it doesn’t need to be 1978 (Civil Aeronautic Board-style) regulations, so when I say, ‘I would not oppose regulations,’ that doesn’t mean I just want to go back to the past.

The only solution to the industry's woes, according to Kellner, is more government control. But he wants those controls to be different from what existed prior to airline deregulation. In other words, Kellner wants to be put in chains, but he doesn't want those chains to be too tight.

By implication, Kellner blames deregulation (that is, more freedom) for the airline industry's problems. Demonstrating his short sightedness and lack of principles, he correctly identifies the Railway Labor Act as a contributing factor, but goes no further. Loren Steffy, one of the Chronicle reporters who interviewed Kellner, writes:

Kellner said he prefer new government rules that would remove some of those cost constraints, allowing airlines to make money, employees to earn decent pay and passengers to feel they’re getting a good deal.

Among the biggest rule changes would be revamping the Railway Labor Act, which has governed labor agreements since the dawn of passenger air travel.

The RLA was designed to keep railroads running during labor disputes at a time when trains were the nation’s lifeblood of commerce and travel. For airlines, it means lengthy contract talks, which often wind up in mediation that leaves both sides unhappy.

“The problem is the structure of the RLA creates a very cumbersome process,” Kellner said. “It hasn’t worked well since deregulation. It creates a tremendous amount of angst on both sides.”
Kellner is correct that the RLA should be revamped--right out of existence. The RLA forces airlines to recognize and negotiate with unions, which invariably drives up labor costs. The government has no right to mandate any aspect of the employer/ employee relationship, including negotiating with labor unions. The RLA is bad law--it forces employers to act contrary to their own judgment.

While recognizing that the RLA is a major source of problems, Kellner stops short of calling for its repeal. While implicitly recognizing that government intervention has created problems, he explicitly calls for more government intervention. Kellner can't see the forest for the trees--all he sees are isolated, concrete details, rather than the underlying principles.

Government intervention always creates distortions in the market. Those distortions lead to calls for additional interventions to correct the problems created by the initial intervention. We see it in the auto industry and the financial industry. Rather than point to the fundamental cause--government intervention--pundits, politicians, and often the industry itself claim that a lack of regulation and oversight is the cause.

Speaking about Obama's views on reregulating the industry, Kellner said:

I think he actually does understand that you need to have a marketplace economy but need to have a rule book that is fair. … So when I talk about re-regulation, I think I would welcome some more rules or some amendments to the rules we have in a way that works for everybody and then I want the government to enforce those rules levelly and then let competition work.

Certainly the marketplace needs fair rules. But those rules should be objective and protect individual rights. Those rules should allow each individual to act according to his own judgment in the pursuit of his own goals and values. And this is precisely what individual rights do--they sanction an individual's freedom of action. They allow him to act without intervention from others, so long as he respects the mutual rights of others. If Kellner truly wishes to have fair rules that work for everyone, he would advocate individual rights.

This would mean the repeal of the RLA and all other legislation that interferes with the employer/ employee relationship. It would mean the repeal of all legislation and regulations that dictate how airlines operate, where they fly, or any other detail. In short, it would mean a complete separation between government and the airline industry.

Despite Kellner's claims, deregulation is not the cause of the airlines problems. The fact is, the industry is not and has not been deregulated. Some controls were lifted, but other controls (such as the RLA) remain. Those controls are the true cause of the industry's current and ongoing woes. And so long as Kellner and other airline executives accept chains around their necks, they are going to find it difficult to fly a plane profitably.


Rajesh said...

A lot of businessman think all they need to know is how to run a business profitably. It would have been OK in a perfect world but when the reality of a not-so-perfect anti-business govt. hits them, they know something is wrong but don't know the solutions. I have seen businessmen plodding under the weight of humongous controls and and accepting it without much protest in India.

The only solution is to have the intellectuals wake up and reassert themselves. If we don't have a Renaissance of philosophy then I am afraid the only place a plane will fly with chains around it is in circles.

Brian Phillips said...

But a plane can't fly in circles forever. The chains will ultimately bring it crashing to the ground.