The Destructive Power of Deregulation – Exhibit A – Deregulation of the Airline Industry.

The deregulation of major industries are sold time and time again as a measure to improve efficiency,
increase opportunity and cultivate economic growth. The benefits of deregulation are assured to trickle down to consumers through lower prices of goods and services, and to employees with better wages/benefits. In most cases, these promises are a big con job. The deregulation of industries systematically lowers the standard of living for employees and provides a lower quality of goods and services, while increasing corporate profits and shareholder value (the true goal of deregulation). Today, if you want to know what policies will benefit whom, it is as simple as looking at who is pushing and funding the legislation. Policies of deregulation are backed by large corporate interests and Wall Street firms.

Exhibit A – Deregulation of the Airline Industry.
It is 2017 and the airline industry is a tight oligopoly. 4 airlines control 80% of all routes. Those 4 airlines are, in large part, commonly owned by a small handful of Wall Street firms and investors. Those investors do not want those 4 airlines competing against one another. Competition in this environment would only drive down the return of those interested solely in taking home enormous profits.  It is why ticket prices have not declined, even though jet fuel costs are nearly one third of what they were a couple of years ago. There is an unspoken agreement within this tight oligopoly and its common ownership and that is: to reduce the number of flights, over-crowd the cabins and raise fares. While airlines are reaping record profits, airline jobs have been eliminated, wages have been cut 30 to 40%, pilots are flying longer shifts on reduced wages, and passengers are frustrated, angry and in some cases beaten and dragged off of overbooked flights. How did it get this way? In a word: deregulation

Deregulation of the airline industry began in 1978 with the Airline Deregulation Act (ADA), thanks in large part to even liberals buying into the ‘conventional wisdom’ of the time that free markets and major industries needed to be liberated from burdensome government regulation. Prior to the ADA, air travel was treated as a public necessity and regulated as a public utility, which allowed the government to set fares, routes and schedules.  Free market economists of the time complained that, due to government regulation, the pricing restrictions and barriers of entry in the industry led to “excessive service” for passengers who were paying for services that they didn’t want. Deregulation of the industry promised to lower cost, allow for more competition, avoid unreasonable consolidation and to increase the benefits to employees/consumers. Virtually none of this happened.

While costs did initially decline, that decline coincided with a crash in the oil market. Moreover, air travel fares declined at their highest rate in 1978 and 1979 before any of the deregulation had been implemented. Though the airline industry did see new market entrants after the ADA, over 200 of those airlines went bankrupt and over 50 other airlines merged to form the tight oligopoly we have today. Additionally, although deregulation promised benefits to employees, many full time employees have seen their jobs eliminated and the ones that remained had their wages cut, benefits slashed and pensions eliminated. In summation, airline deregulation has been bad for consumers and terrible for employees.

When we talk about government regulation, what is that supposed to mean? We have forgotten what a government is supposed to be. A government, our government, is supposed to represent the will of the people. The government is us (or it should be) and regulations are basic standards which we agree should be followed. When 4 companies have a monopoly on air travel, without a government to defend us or regulations to restrain them, we, the consumers, are at their mercy. This means they can squeeze us into however small a seat they want to squeeze us into. They can have us violently removed from a flight we paid for because of their policy of overbooking flights (which they do to guarantee there will be no empty seats). They can keep coming up with new ancillary fees to charge us. They can be indifferent to the arrival and departure times they promise on their tickets.

Since almost all of us need air travel and it is an economic necessity for all cities, we are all at the mercy of 4 CEO’s and a handful of Wall Street investors who will do whatever it takes to maximize their own takeaway. The only way to balance that power is to have a strong government which represents the interests of the people, the people who are NOT the CEO’s or shareholders of these airline giants.

Unfortunately for us, it is the CEO’s and shareholders who have the ears of our politicians. We all need to understand the effects and speak up against the deregulation of our industries whenever we can.


More information and details on the deregulation of the airline industry: Unfriendly Skies by David Dayen

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