All Commentary
Tuesday, June 6, 2017

This “Privatization” Is a Fake

Air Traffic Control is being shifted from a bureaucracy to a government-managed nonprofit. Fine but yawn.

“Welcome to the beginning of a new era for American infrastructure,” said Vice President Mike Pence while introducing Donald Trump for a press conference. “Starting today,” Pence continued, “this president will take historic steps to keep his promise to rebuild America.”

Wow, that’s some serious hoopla. Excited?

Well, curb your enthusiasm. What’s happening is not awful, and it is probably even essential, but it marks no new era.

It was a memo with a signature but has no force of law. Trump was announcing… what exactly? It was a memo with a signature but has no force of law. Still, there was a big press conference, remarks by the President, multiple rounds of applause, and a formal signing that actually does nothing at all. 

This seems to be a pattern. The public relations element of this administration’s actions is wildly outstripping the reality. That is both good and bad. The unwelcome parts of the Trump agenda (protectionism, drug warriorism, travel restrictions) have so far proven to be as overblown as the welcome parts (health care reform, tax cuts, and privatization).

Fake Privatization

The memo Trump signed was an endorsement of an idea to “privatize” Air Traffic Control, but the word is in quotes because that’s not actually what the legislation does – and yes, there is legislation, pushed by Bill Shuster, the Republican chair of the House Transportation and Infrastructure Committee. The idea itself has been around since the 1970s. Some form of spinning off Air Traffic Control has already been successfully adopted by 50 other nations.  

The US, with air traffic control as part of a huge regulatory bureaucracy, is an anomaly at this point. Old-fashioned, unworkable. The proposed change does the following, according to Wired Magazine:

Trump wants to hand over the nation’s air traffic control infrastructure to a private, nonprofit entity with its own board made up of airlines, unions, airports, and federal officials (like a real company!)… The FAA would oversee this new nonprofit entity, which would be funded through user fees – like takeoff and landing charges – instead of the excise taxes on passenger tickets and fuel that currently fund the country’s aviation system. Moving air traffic controllers from the FAA to this new organization would take about three years, the Trump administration estimates

There you have it. It’s a new government-backed nonprofit organization, overseen by government with government officials on the board.

It is certainly not privatization.It will probably be in a better position than the current government bureaucracy to be adaptive and that could translate to a better experience for consumers, eventually.  

Again, that’s probably an improvement. It is certainly not privatization. It looks more like what happened to the US post office: it became the US postal service, with independent operations and financing. Again, maybe an improvement. But this is not the new permissioning of competition, market-based pricing, or free enterprise. Not anywhere close to it.

Real Deregulation 

The first great strides toward introducing markets to the airline industry came in 1978 with the Airline Deregulation Act. It’s hard to imagine, but the government used to control all fares, routes, and industry structure. That meant flying was mostly for the elite who could afford it. After this partial deregulation, everything changed. Fares fell 30% over the next two decades, and another 25% since, and the number of passengers on domestic flights soared. It’s what made flying a normal experience in American life.

However, none of it went far enough. There is still no free market in airports. The barriers to building new airports are almost insurmountable. Existing airports face an almost impossible time just making new runways. Airports themselves can be privately owned, but deal with a labyrinth of regulations on pricing. What John Meyer wrote 17 years ago remains true:

Neither the use nor the supply of airport runways and air traffic control services is determined on the basis of their highest-value uses. A commercial jet with hundreds of passengers, paying thousands of dollars in ticket and jet fuel taxes, is given no more priority in departing and landing than a small private aircraft. Access determined by first-come, first-served queuing is a guarantee that demand and supply will be chronically mismatched and congestion and delays will ensue, with air travelers suffering as a result.

Airlines themselves cannot manage their industry structure outside federal antitrust regulations. The FAA’s rules are stopping modernization in the use of drones, Uber for flying, and air space access.

Put a government bureaucracy in charge of airport security? What do you think will happen?Then you have the security problem. The TSA was created by Congress after 9-11, effectively nationalizing airline security. The high costs and delays of that decision created 10 years of hell for consumers and airlines, and this never ends. No one is even talking about the privatization of this system, even though no institution has more incentive to provide security than airlines and their customers.

The votes for nationalization in Congress were nearly unanimous, suggesting that the political class learns nothing from history. Put a government bureaucracy in charge of airport security? What do you think will happen? Exactly what did happen: massive inefficiency, high cost, pointless invasions of privacy, and no innovation.

Real Reform

It’s fun to dream about what a real infrastructure revolution would look like. This is my preferred slogan: sell it all! What if the federal highways were actually sold to private enterprise and managed entirely by them? What if road entrepreneurs could build and finance them as they see fit?

The whole point of freedom is to discover new ways of serving each other in a voluntary society.The economics of that would not be unlike the way the internet works today: advertising could fund management and ownership could change hands based on a profit-and-loss system. Bridges and dams could be sold as assets and owned by corporations, and renamed on that basis. Whole sectors of public property in cities could go private, like Atlantic Station in Atlanta, where even the policing is private.

Maybe we could finally get our flying car.

The main resistance to a serious and sweeping infrastructure reform is the fear that no one could know for sure what the results would be. But that is a feature and not a bug. The whole point of freedom is to discover new ways of serving each other in a voluntary society: no central plans, no bureaucrats predetermining results, no regulations killing creativity.

That would indeed mark a new era for infrastructure.