Lessons in bipartisan deregulation from 30,000 feet

Lessons in bipartisan deregulation from 30,000 feet
© Greg Nash

It's been almost exactly 40 years since former Sen. Ted Kennedy (D-Mass.) and a professor on leave from Harvard — now-Supreme Court Justice Stephen Breyer — teamed with President Jimmy Carter to identify sectors of the U.S. economy that could benefit from lighter government regulation without compromising health or safety.

Their success, with the leadership of President Carter and bipartisan congressional support, demonstrates how a major industry can thrive in a free-market system in which government oversight remains important to assure that market forces serve the public as well as corporate profits.

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Their first target was America’s cosseted airlines, which operated in a heavily regulated environment, protecting them from competition at the expense of the flying public.

Breyer compiled evidence in a book-length report to Kennedy and the president, who absorbed it thoroughly. After months of wrangling with Congress, Carter signed the landmark Airline Deregulation Act on Oct. 24, 1978 with Republican and Democratic support.

Thus began the process during the Carter administration of unshackling the entire American transportation system — trucking, railroads, buses — that enabled the telecommunications industry to usher in the cable era and even allowing the rise of the local craft beer industry by eliminating Prohibition-era rules. All this offers a powerful lesson for today’s ideologically polarized Washington.

Carter, a small businessman by experience and a consumer populist by inclination, was committed to deregulation and had to fight Washington’s Iron Triangle of the protected airline industry and its unions; their bureaucratic regulators and members of Congress, who fed off the cozy transportation cartels.

The airline industry, a virtual child of the federal government, was first sustained by subsidies for carrying airmail in the 1920s.

A decade later, the independent Civil Aeronautics Board (CAB) was formed, ostensibly to protect the consumer, a rationale based on the pretense that competition among carriers would endanger safe and reliable service.

By the 1950s, the industry was mired in an antiquated regulatory system that led to empty seats, plunging profits and high fares for travelers.

The CAB set insurmountable hurdles for new carriers, ticket prices and the costs for shippers and controlled airline routes. Thus, deprived of the ability to compete, airlines vied for customers on frills alone, including lavish onboard meals supervised by famous chefs, sometimes served by stewardesses in hot pants.

But even that was limited when the CAB regulated of the size of in-flight sandwiches. From 1969 to 1973, the CAB accepted no new routes; Continental Airlines fought for eight years eight years to gain approval for service between San Diego and Denver.

By the time Carter appointed economist Alfred E. Kahn to chair the CAB in 1977, he faced a logjam of more than 600 pending applications for new routes. Customer choice was limited, with just 10 airlines carrying more than 90 percent of the nation’s interstate air traffic. High fares grounded most Americans.

In 1976, adjusted for inflation, the cheapest available round-trip fare from New York to Los Angeles was $1,442. Only 55 percent of airline seats were filled, and only one-quarter of the population had ever boarded a commercial flight.

Even as Kahn started approving new routes,, Kennedy proposed bipartisan legislation. A constituent from working-class East Boston asked the senator why he was devoting time and energy to deregulating the airlines when “I’ve never been able to fly.” Kennedy replied: “That’s why I’m holding hearings.”

The press also was uninterested until the staff announced what it privately called “frozen dog day” — a hearing exposing how airlines transported dogs. The poor animals often arrived frozen stiff after hours in the cargo hold, a scandal that made headlines across our pet-friendly country.

Kennedy, Breyer, Kahn and members of my White House Domestic Policy Staff, were sparked by a young whiz kid, Mary Schuman.

All played their parts in bringing air travel to the middle class, while cargo carriers such as FedEx and UPS were able to provide efficient, cross-country delivery service that is now part of America’s business infrastructure.

People flocked to airports in record numbers as fares fell. Airline revenue per passenger adjusted for inflation has halved from 34 cents in 1976 to 17 cents in 2015. The number of passengers leaped from 107 million in 1974 to 721 million in 2010.

By 2014, three-quarters of the population had flown at least once in their lifetime. Protected union workers were hit as hard as their employers, but airline jobs increased exponentially. Airlines for America, the industry’s trade organization, concluded that 511,000 full-time and 105,254 part time workers were directly employed in 2016, a 50-percent increase since 1976.

This history may do little to comfort a passenger jammed into an increasingly narrow seat, but at least he or she has made the tradeoff between comfort and price. Over the years, our government has failed to upgrade airport infrastructure to meet the increased demand.

The airlines have been the major beneficiaries of a lack of robust antitrust enforcement that has reduced them to an oligopoly of a four major companies. 

Still, market forces allow low-cost carriers such as Southwest and JetBlue to put downward price pressure on the major carriers. But the goal of competition set by Carter and Kennedy needs to be renewed. 

One unexpected beneficiary of airline deregulation also underscores the loss of bipartisanship today. Carter set aside his bitterness over Kennedy’s divisive 1980 primary challenge to appoint Breyer to the First Circuit Court of Appeals.

Incoming Senate Judiciary Committee Chairman Strom Thurmond (R-S.C.) supported him in a lame-duck session, indispensable to Breyer’s later elevation to the Supreme Court.

Stuart E. Eizenstat was chief White House domestic policy adviser to President Jimmy Carter (1977-1981) and the author of the new book, "President Carter: The White House Years."