Deregulation

Soundbite

The Deregulator.

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As head of the Civil Aeronautics Board in the '70s, Alfred Kahn, once an interventionist, opened air travel to competition. In Lessons From Deregulation: Telecommunications and Airlines After the Crunch, published last year by the AEI-Brookings Joint Center for Regulatory Studies, Kahn assesses the deregulatory legacy. He spoke with Assistant Editor Julian Sanchez in January.

Q: Why did Consumer Reports claim in 2002 that deregulation failed?

A: The benefit of deregulation has been the direct savings to consumers. Airline consumers have saved over $20 billion per year, which has brought air travel within reach of people of modest means.

Consumer Reports didn't deny that rates had fallen. They just argued that rates had already been falling before deregulation. But you had had huge technical innovation then, especially during the '50s, when the propeller engine was replaced by the jet engine, and nothing of comparable magnitude later. All you have to do is look at the introduction of discounting in the '70s and '80s. Before, maybe 15 percent of air travel was discount fares. After, it was about 90 percent. You have to be willing to deny the nose on your face not to see that it was competition that created this revolution.

Q: What do you make of Howard Dean's call for a massive "reregulation" of American industry?

A: I'm distressed, particularly since I'm sympathetic to Dean. He's responding to a general revulsion against competition, especially foreign competition, which puts pressure on high wage earners. The isolation from competition in the airlines, for example, led to wages high above what the competitive level would have been. Monopoly profits can be earned not just by companies but by workers—not so much the flight attendants but the mechanics and pilots. I've heard a pilot express regret that I had recovered from a recent car accident!

Q: Do we need regulation to prevent network infrastructure owners from controlling online content?

A: I'm sympathetic to the argument that control over access to the Internet might be abused. But we've got a severe dilemma: The industry is confronting costs of tens of billions per year in infrastructure deployment. The introduction of regulations requiring them from the outset to make their facilities available to competitors at ridiculous rates threatens to kill the goose that is laying the golden egg. And you've got real competition between DSL and cable. It seems to me that government should be very cautious about entering markets where so much innovation is going on.