Jim "Hell NO”berstar and the Fear Mongers; Thomas K. Merton and the Unintended Consequences
Saturday morning’s headline in the Washington Post read: “Job Losses Could Drown Stimulus.” The headlines in the Wall Street Journal read: “Jobless Rate Tops 8%, Highest in 26 years”. Getting the FAA Reauthorization bill moving toward action on the floor of the House, Congressman Jim Oberstar does the unthinkable. He attaches ill-conceived language to the reauthorization bill that would make it increasingly difficult for airlines to form new, or maintain international alliances to augment revenue –whether those airlines with applications for alliances now under consideration, or current alliances that must win anti-trust immunity every three years.
The FAA Reauthorization bill is, in and of itself, critical to commercial aviation. It funds many of the operations and projects necessary for the effective functioning of the nation’s airspace, and also includes monies to implement NextGen technology to upgrade the nation’s air traffic control system. In an industry in which all stakeholders will benefit from enhanced efficiency, NextGen is critically important.
But the current version of the reauthorization bill does not come close to making this a priority. Instead it is a bill that serves primarily as a vehicle for the amendments that Oberstar and his labor constituents find appealing, including funding for US-based maintenance and aviation repair facilities; an initiative to legislate the Aviation and Safety Action Program (ASAP); and language that includes key elements of the Passenger Bill of Rights.
As I read what the House and Congressman Oberstar are proposing, I started thinking back on my courses in economics and public policy. And in this case, the law of unintended consequences comes to mind.
In the Concise Encyclopedia of Economics, Rob Norton writes: “The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it”.
Some Background on the Subtitle
It was during the Delta-Northwest merger discussions and related testimony before Congress that I first began to pay close attention to Oberstar’s remarks and motivations. When asked if there would be any airline mergers, it was Oberstar who responded “Hell, no.” Thus my nickname for the Congressman, Jim “Hell NO”berstar.
Then it was the witness list of past critics of consolidation, including the Business Travel Coalition and others, who lined up to offer their “analysis” -- insisting that the world was coming to an end because the airline alliances would soon control over 90 percent of the activity across the Atlantic. It was this group that I dubbed the Fear Mongers. As the process continued, the one hit wonders were born.
Bands are often influenced by those that came before them. Unfortunately, “Hell NO”berstar and the Fear Mongers failed to acknowledge the sounds of Thomas K. Merton and the Unintended Consequences.
Thomas K. Merton
In a 1936 paper, American Sociologist Merton wrote the first meaningful analysis of unintended consequences in a paper entitled: “The Unanticipated Consequences of Purposive Social Action.” According to Wikipedia: Possible causes of unintended consequences include the world's inherent complexity (parts of a system responding to changes in the environment), perverse incentives, human stupidity, self-deception or other cognitive or emotional biases.
- Ignorance (It is impossible to anticipate everything, thereby leading to incomplete analysis)
- Error (Incorrect analysis of the problem or following habits that worked in the past but may not apply to the current situation)
- Immediate interest, which may override long-term interests
- Basic values may require or prohibit certain actions even if the long-term result might be unfavorable (these long-term consequences may eventually cause changes in basic values)
- Self-defeating prophecy (Fear of some consequence drives people to find solutions before the problem occurs, thus the non-occurrence of the problem is unanticipated)
Of the five possible causes, ignorance and error are perhaps the most insidious. Oberstar has clearly demonstrated error in assessing the structure of the airline industry. Most recently, Oberstar insisted that the Delta-Northwest merger would lead to a domino effect of other mergers in the industry.
That certainly did not happen.
The Unintended Consequences
For whatever reason, the 8th District Congressman from Minnesota remains a loud voice on aviation issues. Perhaps, as it has been described to me, aviation is so far down the ladder that the industry is assigned the lowest common denominator when it comes to representation. When I compare the Congressional advocate voices of aviation to Congressional advocates like Bob Corker and the business acumen he has lent to the public policy debate on the auto industry, this airline industry is best described as suffering a leadership void.
In his analysis of Oberstar’s legislative objectives, Merrill Lynch analyst Mike Linenberg said: “The first major ATI agreement was implemented between Northwest and KLM in 1992 and became the basis for a major joint venture which as of KLM’s last fiscal year (ending March 2008) generated approximately $600 million of operating income on about $4 billion of revenue,” Linenberg said in commentary released on March 6: “The ATI agreement has been a huge positive for the growth in air travel to Minnesota (Northwest has a major hub in Minneapolis) and the company’s local employees, which, ironically are constituents of Representative Oberstar who hails from the same state.”
Linenberg continues: “Our view is that if airlines could operate like most other global industries and be allowed to pursue cross-border mergers, then there would be no need for alliances, and therefore, legislation like what is being proposed above would be unnecessary. But oddly enough, Representative Oberstar is also proposing another clause in the aforementioned FAA bill that would potentially make it difficult to achieve some of the foreign ownership objectives expected to be part of phase two negotiations of the U.S. – EU Open Skies Agreement.”
I am also reminded of a piece I read recently on American Airlines’ Negotiations website by Jeff Brundage citing the number of passengers American carries each and every day as a result of relationships with partners. Brundage writes that American carries 8,200 passengers each day from international feed, or enough to fill 73 MD-80’s. 73 MD-80’s represents approximately 25 percent of American’s domestic narrowbody fleet and approximately 15 percent of its total fleet. And this, despite the fact that American does not even have anti-trust immunity.
But if this is where we are headed, then organized labor’s mouthpiece Oberstar potentially causes employment in the industry to be cut yet again – not because of the price of fuel or a failing economy - but rather because of twisted logic being used in implementing public policy. The very thing Merton’s paper addressed in 1936. The Air Transport Association estimates that 15,000 airline industry jobs are at risk. I believe the number is significantly greater even before considering reprisals from the international community.
It is sad when all you can be is cynical when it comes to airline issues on Capitol Hill. In other words, let’s not make the most fundamental infrastructure architecture efficient because that might translate into an improved bottom line for the industry’s air service providers. Instead, let’s punish all things outsourcing even if it is in the best interest of a specific airline; and let’s be sure to legislate provisions from the Passenger Bill of Rights because that will surely aid all stakeholders.
Aviation labor, which has been a long time financial supporter of Oberstar’s campaigns, should be thinking long and hard about this. Unions are about dues-paying members. If Oberstar is successful in this effort, then labor may well have fewer members.
It is true that the airline industry needs to get smaller just like banks and other far flung network-based industries in this economic environment. Past legislation and bad management-labor decisions have pushed the auto industry to the brink. Past legislation and bad labor-management decisions ensured that the US would be only a secondary producer of steel. If Oberstar wants to implement public policy that ensures that US commercial aviation is nothing but a feeder system to the more efficient global carriers, then public policy, like H.R. 915, should be passed. If labor wants fewer jobs as a result of their PAC contributions and inward thinking, then you succeeded in your lobbying efforts. But I am sure that is not how you will explain it to your remaining members.
At some point Oberstar and Congress must recognize the conflict of interest between consumers and labor. I thought the Obama administration is first about job creation, then job preservation. Not only does this bill work to reduce jobs it also has a detrimental effect on consumers as well through reduced service options, the loss of reciprocal frequent flyer benefits and increased costs to the consumer based on the failure to address issues fundamental to the industry’s success to name a few.
Ignorance, error and self-serving interests seem to be guiding aviation public policy yet again. Will we ever learn?