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Can the Free Market Secure Airlines?

Mises Daily: Wednesday, February 08, 2006 by

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Is it possible that private companies can secure their own property? We secure homes and cars with private locks and private services, and the innovations here arrive in proportion to the threat to person and property. But what about whole companies? Disney World, with its 38.6 square miles of private property, provides security for its millions of residents and vistors. Many large corporations follow the same model of private government that works to the benefit of everyone and keeps criminals at bay.

The airline industry, however, is somehow regarded as an exception. The government has legislated itself into the position of sole supplier of airline security. By requiring federal screeners and federal air marshals in airports, the government blocks competition from the private sector. Regulations such as the Air Transportation Safety and System Stabilization Act and the Aviation and Transportation Security Act ensure the government not only enforces security but also decides what is necessary to achieve security.

The Aviation and Transportation Security Act is a prime example of government legislation with good intentions but misguided application. The Act specifies, among other things in its 51 pages, that "the Under Secretary shall make periodic assessments to determine if there are dual use items and inform security screening personnel of the existence of such items." To be helpful, the act clarifies that "For the purposes of this subsection, the term 'dual use' item means an item that may seem harmless but that may be used as a weapon." Such a broad definition could include anything from a toothpick or a necklace to a five-year-old child. Such regulations are impractical.

By mandating government enforcement and regulating the details of security in airports, government monopolization results in less efficient production. Unlike private companies, the government is not working for a profit. Hence, the government has less incentive than the industry to weigh the benefits against the costs. According to a government website, "the [airline] industry argues that the impact of federal security mandates and foregone revenue totals $3.8 billion per year." The government does not fully consider these costs, but instead legislates whatever x-ray lines and nail clipper confiscation routines seem appropriate to assure the public it is taking action. This disregard for the cost efficiency of security measures hurts the airline industry and the passengers.

On the employee level, civil service protection of federal employees' job security mitigates their incentive for high job performance. Because of the unique position of the government in the market, companies cannot compete for the jobs of federal screeners, airports cannot fire their federal security personnel, and the profit incentive does not exist for government security to provide passenger-friendly service.

Government control of airline security minimizes the benefits of competition. In the free market, competing companies create pressure for innovation in security methods and technology and for low prices. The lack of competition in the airline industry removes this incentive because the government's survival in the security market does not depend on its service.

Considering the negative effects of government monopoly, privatization makes sense. Privatization opens the doors for innovation. Airports compete with other airports and other means of transportation to attract passengers. The better security and check-in an airport can provide, the more likely it is to survive and make a profit. Ideas for better security abound, and with the pressure created by competition in the free market, airports would be forced to consider innovations to improve security.

If airports decided what security measures to implement, security could be individualized for each airport. Each airport could decide what is necessary for its security based on factors like its size and location. Smaller airports do not need the strenuous regulations and enforcement that may be necessary at larger airports. Tailoring security to individual airports is more cost-efficient. As private companies consider security, they weigh the risks against the costs. The incentive to make a profit discourages airports from wasting money on ineffective security measures.

Opponents offer many arguments against privatizing airport security. One is that government enforcement of security in airports boosts public confidence. Proponents of government control argue that the public needs to know there is a guaranteed level of security and the government is generally believed to be the most reliable provider of that standard. Nevertheless, even if a show of force does boost public confidence, the private sector is better equipped to evaluate the costs of visible security. The airlines' very survival necessitates pleasing their passengers. Airlines must realistically evaluate the costs and benefits of a show of security. If no one would fly without bag screening and security personnel on every plane, airlines would screen bags and hire security personnel for every plane. Private companies have a stronger incentive than the government to ensure consumer confidence.

Another argument supporting government involvement is that the airline industry represents an important national interest. Airlines are an important part of American infrastructure, but national importance does not necessitate government regulation. Airlines are no more vital to America than electricity, waste disposal, water plants, or food. National interests are the same as government interests only in the view of those who believe the government is the economy's keeper. However, even those who believe that must recognize that government security of all important American industries is impossible. Even the subway system, known to be a terrorist target, does not merit federal screeners.

An extension of this argument claims the airline industry is particularly vulnerable as a terrorist target and represents a risk so large that the government must intervene. Planes are big. They carry large amounts of fuel, and because of their speed and size, they can produce tremendous damage. The attacks on September 11, 2001 are the "proof" trumpeted by those who say we need Uncle Sam to keep our airports safe. The risk is undeniable, but remember the weeks after 9/11. Speculations about the next terrorist target ranged from reservoirs to football stadiums. These other industries are also vulnerable, yet football fans are not subject to federal screening and wand-waving before entering the stadium.

One hundred percent security is impossible. Risk is always present because it is impossible to take every available measure to prevent attack. Private companies have an incentive to gamble wisely, because their own livelihood depends on their passengers. Security failures never lack attention, but success is largely ignored. There was a failure on 9/11 — whether the government failed in its intelligence or immigration agencies or whether the airports failed in their security measures is still a matter of debate. It would be naïve to attribute the lack of subsequent attacks to government security measures in airports. The passengers on 9/11 did not expect a suicidal hijacking — most hijackings end with a landing on the runway. Now passenger awareness acts as a deterrent because terrorists know that passengers themselves will fight back. The airline industry feels the pressure of terrorist threats. They do not want to risk an attack because of lax security.

Federal screeners may wave wands in airports, but they aren't magic. Despite stepped-up government regulations and enforcement of security measures, curious journalists and investigators have proved smuggling weapons is possible in America's airports. The show of government force against security is anything but consistent across the country, yet the American public clamors for more government intervention, and policymakers continue to oblige. Despite the need for security, there is no guarantee that the government is the best one to provide it. On the contrary, the risk merits the best security, which is provided by the free market. The government cannot stop all terrorists from smuggling weapons onto a plane, but because they have a monopoly on security, there is no competition to force them to innovate. As a result, airlines pay more and passengers are less safe than ever.

Another argument against privatization is that without a uniform standard of security, airports cannot trust the security of incoming flights. Securing airports in the free market would require cooperation, but airports would have economic incentives to cooperate. If an airport questioned the security of incoming flights, it could restrict those flights. In some cases it would be more economically feasible to screen incoming passengers and luggage rather than ban the flights. Liability for security failure would also motivate individual airports to maintain a high standard of security. Each airport's desire for security would pressure other airports to raise their standards to achieve higher levels of security.

Because security is a marketable service, these companies have an economic incentive to provide and maintain a high level of security.

The same desire for security that makes Disney World a safe place for the whole family motivates the airline industry to make America's flights as safe as possible. The government's desire for passenger safety is no greater than the desire of the managers in the airline industry. In fact, in the private market scenario, the industry would have the added incentives of competition and profits. Just because the industry doesn't want to waste money does not mean the government must intervene; market forces merely motivate the industry to find the best way to provide good security. Privatization would result in airline security that would be more convenient, more cost-efficient, and ultimately more secure.


Abby Johnson is a student at Grove City College. This article is based on a paper she gave at the Austrian Student Scholars Conference 2005. Send her mail. Comment on the blog.

Works Cited:

"Public Law 107-71-Nov. 19, 2001." 19 Nov. 2001. 8 Oct. 2005 (PDF)

Richard W. Rahn. "The Case Against Federalizing Airport Security." Cato Institute. 20 Oct. 2001. 8 Oct. 2005

"Security Costs," Subcommittee on Aviation, Hearing on The Financial Condition of the Airline Industry, 8 Oct. 2005