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The Source of Air-Travel Insecurity

Mises Daily: Monday, November 26, 2001 by


With the recent signing of the Air Safety Bill, President Bush has finally taken what many believe to be the only sensible response to the tragic events of 9/11: federalizing airport security.  

Ostensibly "no-nonsense" commentators have pointed out the poor training and minimum wages of privately provided airport security personnel.  The recent (and, fortunately, innocuous) security breaches at Chicago's O'Hare and Hartsfield Atlanta airports seem to underscore the conclusion that profit-hungry firms cannot be trusted to provide adequate security.

However, those who have studied the matter know that as a general rule, government agencies do not operate nearly as efficiently as private companies.  Surely a move to federalize, say, the production of automobiles would only hurt the interests of consumers.  And, as John Lott, Jr., points out in a recent article (L.A. Times, Oct. 19), several European countries experienced a sharp drop in hijackings after privatizing airport security.

It would thus seem that the persistent flaws in U.S. airline security are the result, not of private firms per se, but of the perverse incentives they face.  Indeed, if we examine the situation of the airlines after 9/11, it should come as no surprise that they failed to adequately revamp their procedures.

Most obvious, the multi-billion-dollar federal bailout of the industry softened the blow of the systemic failures that allowed terrorists to seize control of four airplanes and use them as weapons.  In addition to the direct injection of cash, the government shielded the airlines from lawsuits by nonpassengers.  Libertarians believe in the virtues of private business, but this belief rests in large part on the profit and loss system to remove incompetent managers.  If, as many critics allege, those responsible for airline security were truly shortsighted and placed profits above safety, they should have been allowed to go bankrupt.

Instead, what happened was that airline executives were told that their firms were too important to fail.  They realized that no matter how incompetent their decisions, in the end the government would ensure their continued operation.

This leads to the second crucial feature of the U.S. airline industry: pooled security.  The federal government establishes minimum security guidelines and then forces the airlines to chip in their share to pay for them.  Whatever their airline, passengers are funneled through a common security checkpoint, staffed by a third-party company.

In such an environment, it would be silly for an individual airline to spend millions of dollars to exceed the government's minimum standards by providing expert security personnel.  Because of the setup of (government-run) airports, every other airline would benefit too from this arrangement, so it is doubtful that such an expenditure would be rewarded by increased consumer patronage.

Further, because the public naively believes the government when it "guarantees" air safety, even if an individual airline could realistically offer better security measures than its competitors, consumers would still feel rival carriers were "safe."

A third point is that the airlines knew full well that, given the political climate, the federal government would eventually take over security functions directly, and pay for it by socking consumers with a surcharge.  Imagine that, after a major crime spree, there were a large public outcry for the government to train and provide security personnel at shopping malls.  Would we be shocked if the individual stores maintained the status quo, instead of engaging in a costly revamping of their procedures, which would only be scrapped the moment the feds stepped in and assumed control?

The above considerations should make it clear that the U.S. airline industry was not operating in a "free market" before or after 9/11.  Libertarians never said a government-regulated industry would provide safe air travel, and thus the continued security lapses since the disaster came as no surprise.  What. then, would be the response of a truly free market?

In the first place, the privatization of government-run airports would allow true competition.  By having the option of curb-to-curb handling of their passengers, individual airlines could fully capture the benefits of superior security measures.  New approaches to security--overlooked by government bureaucrats--could be tested by innovative firms.  Indeed, one of the best arguments for the free market is that we just don't know what the best response to terrorism might be, until entrepreneurs are given the chance to earn millions if they find a better solution.

Second, the insurance and legal industries would maintain the oversight of the airlines that is now (supposedly) handled by the government.  As it is now, property owners are helpless in the face of the threat posed by huge metal objects hurtling above their buildings.  (Indeed, after the crash of Flight 587, residents of Belle Harbor have protested--in vain--for flight paths out of JFK airport to be rerouted over water, rather than their neighborhood.)

In a legal system based on libertarian principles, airlines would have to bear the full costs of their actions.  Even if the terrorists themselves were ruled liable after an incident such as the World Trade Center disaster, building owners would certainly demand that the airlines pledge to compensate them for any subsequent terrorist attacks.  (This is for the simple reason that the estates of dead hijackers could never cover the billions of dollars in damage they had caused.)  Such a move is impossible in today's environment, where the government "owns" the airspace and arbitrarily limits the liability of airlines.

Finally, with the possibility of billions of dollars in liability, airlines would turn to insurance companies and, through the cost of their policies, would be made to internalize the risks associated with air travel.  (Purists may complain that isolated incidents such as terrorist attacks should not be classified as an insurable risk.  This is fine, but insurance companies provide coverage for unusual items--such as Liberace's fingers--all the time.)

Contrary to popular belief, in a free market for air travel, consumers wouldn't have to keep tabs on the safety record of competing airlines.  Rather, the experts at the insurance companies would monitor their clients (the airlines) to ensure that their equipment maintenance, personnel screening, etc., were appropriate.  Shoddy airlines would suffer direct financial penalties for their behavior in the form of higher insurance premiums.

In conclusion, we see that the poor security of U.S. airlines is a predictable outcome of government regulations and subsidies.  By preventing airlines from profiting from superior procedures, and by shielding them from losses resulting from incompetence, the government has left us vulnerable to further terrorist attacks.  Only through complete privatization of the industry will consumers be able to fly cheaply and safely.

Robert P. Murphy, a Rowley Fellow of the Mises Institute, is an economics graduate student at New York University. See his Mises.org Articles Archive or send him MAIL.