Wednesday, August 5, 2009

The bizarre airlines “bailout”.

There have been a series of bizarre events over the past few days in the Indian domestic airline sector. What triggered it off though was not. The government owned airline, Air India which was facing dire losses asked the government for a bailout for about Rs 20,000 crores. The government was aware of the losses and the finance ministry made it mandatory for all government officials to fly Air India while travelling on work, on both domestic and international sectors. A couple of days later the airlines popped the big question – "Could we get some of that booty you stashed away from the taxpayers?" The aviation minister, Praful Patel went to the extent of saying that a government bailout was on the cards for Air India with the only condition being that the government would only dole out a fraction of the requested amount.

Watching this trend, the domestic private airlines jumped in and apparently asked to be bailed out with the ultimatum that if the government failed to bail them out – all services were slated tp be terminated on August 18th or worse – even indefinitely if the government refused. Barely a day after the airline chiefs announced that they wouldn't fly on August 18, Delhi based low-cost carrier Indigo withdrew from the industrial action. The government flatly refused to yield and even cut Air India's bailout "which was on the cards" and the other airlines gave in.

In my opinion, the airlines demand does not even constitute a bailout in the first place. Responding to a question in an interview Ajay Singh, Director, Spice Jet said,

"Let me just clarify. You said when introduced the story that the airlines were looking for a bailout. The airlines are not looking for a bailout. Essentially, what the airlines are saying is that let us create an environment for aviation in which the cost of aviation in India is comparable to the cost of aviation anywhere in the world. Today, airlines in India are paying 60-70% higher tariff on aviation turbine fuel (ATF). Sales tax is averaging 26-30% and we are requesting that this sales tax be put in a level of which is sustainable and which is comparative to any other airline in any other part of the world. Similarly, airport charges landing and parking fees are very high. There is a new ground handling policy, which increases the cost of aviation further. We believe that we should be in terms of cost put at the same level as airlines in other parts of the world."

The private airlines are not asking for a positive – i.e. a sum of money from the government but on the other hand are asking for a negative – to cut back breaking taxes which are making it impossible for the aviation industry to stay in business. Praful Patel, Minister of State for Civil Aviation said, "The government understands the difficulties of the sector and also would see whichever way we can be of help. We understand aviation is very important to the economic development of the country but to say we will cause inconvenience to the passengers and to the people, I think, that is not acceptable." If the government really understands the difficulties of the sector and would like to be of service, why don't they simply roll back all the crushing taxes they have enacted in the first place?

The answer to that would most likely be that government needs the revenue from taxes to fund all the programs that they would enact in favor of the "public good". Even speaking only in terms of free market economics and "public good", one could point out that taxes have the seen and the unseen effects as illustrated by Frédéric Bastiat in the Broken Window fallacy. Were the money from the airlines not snatched away then they could have more money to spend on building their business which would result in creation of more jobs, cheaper air fares and more "public good" than any government program could ever attain. If anyone ever doubted the efficacy of freedom in a market, one simply has to look at India before and after 1991 – and what's more, all the fruits were a result of only partial freedom that was allowed to seep in.

But the good as the minister puts is that the individuals in the airlines industry should self-sacrificially work themselves and run a business that is hardly profitable but what's "unacceptable" in the whole matter is that they may "cause inconvenience to the passengers and to the people". Mr. Minister, could we please ask how do you expect any good if you pursue policies that are contrary to man's life such as the initiation of force against private individuals who decide to sell their product at a particular price? What is "unacceptable" then is for people to ask the question: "What's in it for me?" As long as the airline industry is willing to slave away, devoid of any profit to their own selves, for the general public – they are moral and good and to the extent that they would like benefit from their own actions, they are immoral or at best amoral. I think this is the root cause that is literally plaguing mankind on earth. All welfare programs that are eating away the freedoms of individuals eventually justify themselves that they are noble because the beneficiary of one's actions is somebody else.

If the airlines are to stand a chance the next time around, it is the principled stand against such arbitrary power they must take. They should do precisely what they are omitting to do now – assert that the governments function is to protect individual rights from agencies that initiate force which includes the government also. If the principle is conceded that the government may initate force and collect taxes – the question then is only how much should it tax or take away. How much of taxation is permissible is only a measurement with the principle conceded. They should not employ pragmatism by conceding that such taxes are great in theory but impractical in reality. It is not merely the "non-initiation of force principle" that they should invoke but also assert that being moral consists of acting in a fashion that promotes man's life and that anything that thwarts it is evil – and deserved to be condemned to be so. As Leonard Peikoff puts it his famous essay, "Health Care is not a Right",

"This is not a case of noble in theory but a failure in practice; it is a case of vicious in theory and therefore a disaster in practice. I want to focus on the moral issue at stake. So long as people believe that socialized medicine is a noble plan, there is no way to fight it. You cannot stop a noble plan—not if it really is noble. The only way you can defeat it is to unmask it—to show that it is the very opposite of noble. Then at least you have a fighting chance."

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