Forum Archive Index - December 2002

["Capitalist" <capitalist@paradise.net.nz>]

Gareth's latest gem on this issue:

 

Judas flies Air New Zealand

markets / regulation - 4 December 2002

Our treasured national airline now has the spin doctors out in force, blitzing the press with a series of well–rehearsed fantasies about why New Zealanders should not worry about competition in our domestic skies. The reasons being pushed are to say the least – bizarre. Try a couple.

Apparently Air New Zealand thinks having an independent study done on the economics of its proposed cosy duopoly is sufficient to ‘prove’ that national benefits outweigh the cost of loss of competition. Independence is no protection against incompetence and it is guaranteed that the work done is at best a partial analysis without any full evaluation of a full competitive skies policy.

We get a hint of the lack of depth in this work from CEO Ralph Norris’s recent press babbling designed to assuage public opinion prior to the Commerce Commission hearing. He holds that three failed attempts so far to sustain two competing full service airlines proves that the duopoly model he’s pushing is the best for New Zealand. Of course it proves nothing of the sort. There’s a myriad of possibilities for our skies – trying just one and failing at that fifty times does not suggest for one minute there’s only one alternative.

Probably the air operator one has to feel most sorry for in this government-sponsored carve-up is Origin Pacific. It looks very much like it will end up as dog meat in the sweet little deal brokered between governments. It’s tragic that while it may be that there’s room for only one full service airline in New Zealand, there’s room for several Origin Pacifc-style operations – if only big lumbering, non-viable, subsidised and protected Air New Zealand would be put out of its misery.

Herein lies the fault with any economic analysis that simplistically concludes there is only one alternative – and that a controlled carve-up by a protected cartel. Finding the alternatives is precisely what free markets do – through a series of searches, failures and tribulations they end up with a sustainable outcome – until the next shock comes along. The Qantas/Air New Zealand deal seeks to deny this process working by lobbying public opinion with spurious national interest arguments that they know were the reason for the New Zealand government’s ill-considered intervention in the first place. These are the cynical manipulating ploys of politicised self-interest.

Mr Norris makes a claim his way will be more “stable”. Since when has stability been a precondition for national economic benefit? The whole point about a competitive market is that it not be regulated to be stable – any “stability” as Mr Norris fondly reveres, should only come about through finding the prices that equate the interests of willing passengers and willing air operators. Stability of a legislated duopoly as Norris champions promises a cosy permanence for the two airlines involved, while consumers just get screwed. How does this guy sleep at night?

Opening the market to all comers will produce a final outcome that none of us can be certain about – and we’d hope it certainly wasn’t of the stable sort that duopolist Norris speaks. His is a contrived anti-competitive charade. Competitive markets accommodate innovation and productivity gains, protected ones do not. We may not get two full frequency airlines but then again we may – Norris cannot tell us that. An international airline marginally pricing excess capacity here may well be one element of an outcome with tenure – we simply do not know. But who cares what the final or intermediate form is? The only objective should be that it is an outcome where consumers are not shafted.

What are the economic conditions where a competitive market can be eschewed rationally in favour of a cartel with its cost-plus price fixing? The tests are quite simple – is there any reason competition cannot persist or are there externalities that impact (especially damage) net national economic benefit that are not factored into the private prices that prevail.

In the case of our domestic skies and international landing rights it is difficult to establish a case on either of the above grounds. Since we’ve never opened our skies to unfettered international competition we have no reason at all to presume it will not prevail. It’s always been a heavily regulated duopolistic market at best. Without a competitive benchmark we cannot possibly conclude that competition wouldn’t work.

There’s a further dimension of this that makes one want to throw up. Ralph Norris is a former chairman of the Business Roundtable, that champion of competition and rational economics. Here he is now asking us to believe that shutting out competition from our skies will not only be of benefit for his new paymasters but will also be in the “national interest”. Ralph claims he’s promoting simple “common sense” with his orchestrated taxpayer-funded PR campaign.

I’ve heard of religious conversions before but the set of arguments Norris forwards are not only founded on sand but so diametrically opposite to the arguments he sponsored in his previous office as chairman of the Business Roundtable, that his personal credibility has disappeared. Roundtable members must be severely embarrassed – I wonder why they don’t say so. Business ethics is an issue I’ve addressed before. If two pieces of silver can buy the conversion of the Business Roundtable’s chairman, and public silence be the response of his erstwhile colleagues, why should we wonder why so many hold businesspeople in such low esteem.