Political Entrepreneurs

The Economic Engine of Political Change

Airline Deregulation: Political Entrepreneurs at Work

July 7th, 2014 by Gary McDonnell

Policy ideas do not always bear fruit in the real world. What was different with 1970s transportation deregulation?

In a previous post I noted that political entrepreneurs find ways to use ideas to break down resistance to change, to overcome “structure-induced stability”. Ed and Wayne write in Madmen  that, “political change happens when entrepreneurs notice and exploit those loose spots in the structure of ideas, institutions, and incentives” (134). As noted by Rodrik, political entrepreneurs will seek to loosen policy constraints and enhance economic efficiency if by doing so they can enhance their power, influence, prestige, etc.

In my last post I described how the political climate had changed by the mid-1970s, during which time there was widespread dissatisfaction with government. Some of that dissatisfaction was generated by the behavior of regulators at the Civil Aeronautics Board (CAB). For example, to curtail competition that was making it difficult to maintain airline industry profitability, the CAB required the airlines to reduce their number of departures, significantly inconveniencing passengers. This brought regulatory policy and its rent-seeking characteristics into the spotlight.*

Senator Edward Kennedy seeking to “strengthen his record of legislative achievement” was convinced by his aides to bring airline regulatory issues before the Subcommittee on Administrative Practice and Procedure, which Senator Kennedy chaired. The ideas of academic scribblers were an important part of this process. Senator Kennedy used the testimony of economists, consumer groups, and others to highlight the dysfunctional nature of airline regulation, along with highlighting the too cozy relationship between business and government—that the CAB was more concerned with protecting the airlines from competition than protecting the interests of consumers.  This was an issue that brought Senator Kennedy favorable publicity.

Senator Kennedy’s committee could not change the statutes governing the airlines, which was probably a calculated advantage. Since Senator Kennedy’s committee did not have direct ties to the relevant interests, it was less constrained in how it addressed the issues. But the committee’s actions did change how regulators interpreted the law. With the “intellectual underpinnings” available, regulators began to experiment with discount fares that proved to be popular with the public and profitable to the airlines. This chipped away at some (though not all) of the support for the status-quo. Even Senator Howard Cannon, a previously consistent supporter of protectionist policies and chairman of the Aviation Sub-committee (which was responsible for crafting any legislative changes), eventually moved toward supporting reform–due in part to Senator Kennedy’s efforts. **

There is more to this story, of course. President Carter appointed Alfred Kahn as chairman of the CAB. He was both an economist and a charismatic individual with a “vested interest” in ideas. His actions and rhetoric helped to “collapse” industry and political opposition to change. In addition, industry interests were too fragmented to have influence on crafting a new bill—hence the eventual elimination of the CAB.

In short, ideas and and the incentive to employ them conspired to make change possible. My forthcoming article in the Independent Review discusses many of these issues in further detail.

In my final post I will offer some thoughts on current policy issues and the role ideas play in political change.

*See Noll and Owen 1983. The Political Economy of Deregulation. Washington D.C.: American Enterprise Institute.

**See Derthick and Quirk 1985. The Politics of Deregulation. Washington D.C.: The Brookings Institution

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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