"Bolkestein amendment" and the results of US deregulation in 80s

Deregulation gone mad

William Pfaff
TUESDAY, APRIL 4, 2006

A man who played a key role in the deregulation of the U.S. airline industry in 1980, Tom Allison, at the time chief counsel to the U.S. Senate Commerce Committee, says that if senators had known then what they know now about airline deregulation, they would never have passed the measure.

Allison says that by lifting restrictions on airline competition, and on where airlines could fly, Congress unintentionally created unending disruption and cost to both industry and consumers, with gross accompanying inefficiencies.
In an interview given to the International Herald Tribune in February, intended to influence the current debate in Europe over airline deregulation, he said the human and other costs of U.S. airline deregulation outweighed benefits to consumers, which were chiefly lower airfares on the popular routes between big cities that attract competition.

Small-city air service, typically provided in the United States by single carriers, has greatly increased in cost, or has simply been abandoned. From any big American city, Allison said, "It's cheaper to fly to Paris than to Missoula." In practice, to get to Missoula, in Montana, you now need a car, the Greyhound Bus or a bicycle.

Allison said that deregulation cut airline salaries, slashed retirement benefits, forced job cuts despite rises in the frequency of airline services, bankrupted many formerly great airlines or forced them into bankruptcy protection, ruined standards of airline service, raised fares on most non-mainline services, and made life miserable for travelers and airline employees.

A further consequence of deregulation, Allison noted, which most Americans fail to appreciate, is that deregulation resulted in a "massive shift of airline debt to the public," via a federal corporation established to pay the pensions (or a part of them) of the employees of airlines driven out of business or forced into bankruptcy.

"I had no idea these things would occur," Allison says, speaking of 1980, when he was a believer in deregulating America's airlines.
I recount this American experience because of its relevance to the European debate on air travel deregulation, but mainly as an example of the economic and human harm that has been caused in recent years by unthinking submission to the prevailing ideologies of deregulation and privatization.

A further example, a very small one but in its own way significant, was brought to my attention last week by an annoying demand that I choose among 18 different operators competing to provide me with the telephone number I don' t happen to have at hand.

There are certain things that are natural monopolies, and providing telephone-directory service is one of them. Another is providing water to communities. The private water companies that rushed into developing countries early in the deregulation era, making promises of improved, abundant and cheap water service, have recently acknowledged that they cannot do so and still make a profit in typical third world circumstances (what a surprise!). They recommended properly regulated nonprofit public monopolies.

The European Parliament has recently removed the controversial "Bolkestein amendment" from the terms on which transnational competition in services is authorized inside the European single market.
Once again, the problem was doctrinaire defiance of common sense. The obvious intention of the EU in creating the single market was to raise the living standards of all, not to undermine the wages and social standards of the more advanced EU countries. This is what the Bolkestein proposal was accused of doing, by authorizing companies in poorer countries to perform work in other EU states for the lower wages and social charges of their own countries.

The intention of doctrinaire deregulation is to eliminate what are deemed "inefficiencies," including wages and standards uncompetitive with those in less advanced countries. In the EU case, this constituted the kind of retrograde thinking that, as in the case of airline deregulation, drives everyone's standards down, ending in a net loss to society.

International Herald Tribune