The just-released Productivity Commission draft report on airport services is a fascinating read.
After a decade of transitioning to genuine commercial negotiation, it seems all parties, perhaps even the regulator, are loathed to return to heavy-handed regulation. Sure, there’s plenty of posturing. Users complain about market power, the take-it-or-leave attitude of airport owners, but no-one has forced the issue by enlisting the help of government.
As the Commission wryly observes, so many regulatory triggers, so few shots fired.
This civilised win-win begs obvious questions not asked by the Commission. How was it achieved and why isn’t it the norm?
Policy wonks often concede regulation is inherently difficult. Consider the range of “acceptable” rates of return. There’s no agreement on the fixed components, the premium above the risk-free rate or dividend imputation, let alone the degree of undiversifiable asset risk.
It’s assumed this stuff is hard, when in reality it’s impossible, the equivalent of counting to infinity.
The airline sector, though it may not realise it, has hit upon this truth and the profound ruse that comes with it: regulation is only of value if never enforced.
Addressing market power requires quantitative analysis. While price, service level and investment benchmarks can paint a picture, such information cannot prove anything of consequence.
Capitalism works because knowledge is intrinsically contingent. By the time the dimensions of “commercial” or “efficient” have been pinned down, they’re dated, effectively meaningless. Frightening as it is true, there are no formal solutions in the market place, only choices.
Demanding an airport demonstrate the reasonableness of its charges is therefore prone to set off a damaging quest for what cannot be grasped.
The testimony of a regulated entity will necessarily have qualitative elements. This subjective gap, however, is seized upon by narrow-minded self-interests as proof of nefarious intent. The regulator, unable to verify things either way, feels obliged to step in and do the impossible, thus taking everyone further from the truth, intensifying the frustration and greatly increasing the prospect the regulator will end up indirectly responsible for industry performance.
This bizarre yet common outcome stems from an amusing, Dr Strangelove-type dilemma.
The fundamental, nose-despite-your-face flaw with regulation has to be denied at all cost, since acknowledging it would give greedy, untrustworthy capitalists the upper hand. It’s presumed – and this cannot be questioned either – admitting the truth would only enhance the likelihood of wickedness.
Paralysed by the circularity of such cynicism, coupled with a comforting belief government has the answers and the drama can be avoided, regulation inevitably becomes much more than a threat. Once the shooting starts, the parties bunker down.
The irrationality of Mutual Assured Destruction is not contained to economic regulation or nuclear weapons.
Trends in global atmosphere are just as unknowable as the market. Like stock market predictions, weather forecasts – long and short – are necessary but insufficient, something to be used but never relied upon. Data are always capable of being manipulated to fit any prejudice.
The Government has failed in the carbon tax debate by allowing the narrative to dwell on the climate change science and not the impossibility of a definitive solution.
Leaders, whether in politics or business, are able to help rescue those who succumb to a deterministic view of reality, that soul-destroying belief that doubt can be eliminated by greater transparency and smarter technology, by embodying one of life’s great ironies, one confirmed by free market theory: it’s only after accepting there are no solutions that you’re able to fathom what has to be done.
The Federal Opposition’s fear campaign cannot be countered with more analysis or ridicule of sceptics. Abbott and cohorts are a test, one failed by Kevin Rudd and the Liberal Party, who should be pitied for their inability to rise above the politics of uncertainty.
Julia Gillard, like much of big business, is not trusted, but this cannot be changed and the debilitating conflict ended if she’s affected by fear herself, since it’s fear, the desperate need for answers and control, that keeps us from the truth and its relieving irony.
Big, bad airport owners would do well to reflect upon all this. While it’s great they’ve achieved a light-handed result, the framework remains defective. It only takes one major user to break rank and down the rabbit hole you all go.
To be effective, policy, whether for airport services or climate change, must formally recognise its founding ironies.
An edited version of this article was published in The Australian Financial Review on 7 September 2011, with the title “Flying by the seat of their pants”.
