When privatization isn’t privatization

Question for you to ponder today: when is privatization not privatization? Answer: when it doesn’t fix the underlying problems that are supposed to be solved via privatization.  Or, more to the point, when it merely muddies the waters between government and private enterprise by creating those awkward things called “government-sponsored enterprises” or “GSEs”. You’ve heard of GSEs: things like Fannie Mae, Freddie Mac. And while the Post Office isn’t a GSE, per se, it certainly acts like one.

Current proposals to restructure our air traffic control system suffer from this problem. While calling it a “privatization,” in reality proponents want to create a GSE-like entity to replace the current government agency that runs most of our nation’s air traffic control towers.

{mosads}The idea is straightforward: an entity provides a function that some feel ought to be performed by the government, but that ought to be run as/like a private enterprise. The problem, of course, is that this creates the worst of all possible worlds: an enterprise hamstrung by government rules, with essentially a government-sanctioned monopoly, that has taxpayers footing the bill.

Privatization, in its purest form (and when done correctly), does, at a minimum, two things: it saves the taxpayers money by delivering services at a lower cost. At the same time, it is also supposed to deliver those services in a far-better manner due to the incentives that the market creates. It is deeply unclear that this system would achieve that when essentially we would be turning over billions in taxpayer assets over to this quasi entity run by the biggest commercial operators that already have a long history of keeping out lower cost competitors.

Proponents claim the new system would be funded by a user fee instead of taxpayer funds. However, without the competition that comes with the free market, there is nothing to protect taxpayers from footing the bill for a bailout when costs spiral out of control.

Second, privatization is not supposed to represent a labor giveaway, and unfortunately, as you peel back the layers of the onion, more and more sweetheart deal “goodies” for labor allies get revealed. First, wages are set by the union – although without the federal salary cap that exists for government workers, and with assured federal health insurance, and “official time” collectively bargained under the new structure.

And, let’s talk about their golden retirement plan. The Air Traffic Controllers union is set to go before Congress today to talk about their staffing woes, and one of the biggest reasons for this is that Controllers are mandated to retire at 56 so that they can begin enjoying their $100,000 pension plan, even though a recent University of Illinois study found that air traffic controllers up to age 64 perform just as well as their colleagues.

If anything, true privatization would grant the new ATC entity more freedom to control labor costs by extending mandatory retirement ages, increasing flexibility in health plans, and reducing the union’s power in wage negotiations. In a true free market, the efficiencies of the marketplace would create incentives for a private ATC provider to control labor costs, keep travelers’ costs low, and maintain an impeccable safety record, all in order to survive. An entity with government protection but no market pressure provides none of these incentives.

Andrew Langer is President of the Institute for Liberty