Friday, July 20, 2007

Don't fight the laws of economics

Paulo Brum hopes that this blog is not turning into a political outlet. He is absolutely right. It shouldn't. Yet, some things need to be said, before moving on:

First, sometimes neutrality means omission. Tobias Lengsfeld, a tt30 & Club of Rome member for whom I have enormous, utmost respect, once explained to me how Switzerland, his nation, was criticized for being neutral during WWII. By being neutral, the Swiss had been helping Adolf Hitler's moves. Sometimes neutrality means omission. As someone who has written, previously to this mess, about our air-transport in a policy book & in the journal of air transport management, I want to state my position. As the finger-pointing circus goes on; there is only one place to point the fingers: president Lula. He is not guilty; but he is responsible for these deaths. He has looked the other way when a government report warned, from ambassador José Viegas, that serious investment was urgently needed; and that the security of the air system would be compromised. The report was ignored. He has backed up his political team through all their pathetic adventures in this crisis. He is not guilty, he is responsible.

Finally, the decision-making biases involved here are worthy of attention. The wrong questions are being asked. People are talking about the danger of Congonhas, the lack of grooving in the track, the rain, the possible problems with the aircraft, and on and on and on. These are the wrong questions, because they do not explain countless other quasi-catastrophes we have been having. It does not explain why another plane has slipped in that same track the day before. It does not explain why, some months ago, two planes crashed their wings, while still on the ground. By sheer luck they did not explode with everyone inside. It does not explain why the Santos Dummont airport in Rio was under fire the same day the plane would crash in São Paulo. It does not explain the huge delays, the traffic controller strikes, the numerous alarms sounding before this second crash.

None of these questions can explain the impossible accident in the Amazon airspace. The territory of the Amazon is larger than Britain, Portugal, Spain, France, Italy, Germany, Switzerland, Belgium, and Greece, all combined! Even if planes fly through established "tracks", a mid-air crash in the middle of nowhere cries out for explanation. The enormous amount of minor incidents previous to this second crash just points out that this was an tragedy waiting to happen. It was no accident. It is the fruit of acts of negligence. This administration created a governance and operating context in which everyone is in control; this, of course, means that nobody is in control. Fingers are being pointed the wrong ways. The man on the 3rd floor of the executive palace deserves all credit.

Unfortunately, realpolitik teaches that this president is staying, despite the few people who call for impeachment. So how could we get out of this mess?

Today the government announced minor tweaks and minor changes of policy. A new airport somewhere in São Paulo, a minor change here, a minor tweak there. They're killing the hub-and-spoke system in Congonhas, which does not alter anything of consequence besides the economic repercussions. Is this supposed to mean that if, instead of going for a connection, that plane would return to Porto Alegre, then it would not have crashed? A plane can crash regardless of its numbers of connections. These questions do not shed light in anything that would ever change the facts that the first plane crashed in the Amazon, the huge flight delays, or that air traffic controllers strikes.

So what lesson can we take?

"Don't fight the laws of economics".

Why is an airport overcrowded and another empty? Because the laws of supply and demand do not hold. Because the airports are not private, and are government-run, their prices remain either the same or closely aligned. So what is the incentive for a passenger (or an airline) to go to a worse-positioned airport? Better positioned airports should be able to charge much more. A ticket from empty airport Galeão in Rio to empty airport Guarulhos in São Paulo costs the same price of a flight from Santos Dummont in Rio to overcrowded Congonhas. This may not seem as central as it is, but it shapes the demand, and that's why one airport is overcrowded while others remain empty. Without the price signal, there is no incentive to move elsewhere.

Since Southwest Airlines's outstanding success, the low-cost low-fare model uses secondary, lower-cost airports. In Brazil, that does not happen. Ask yourself why. Then look at Lula's ideological team.

Instead of killing the hub-and-spoke system, they should let prices signal demand. Basic economic laws should dictate policy. Airports should be privatized, and criminal responsibility should be placed where it rests. We need accountability, incentive systems, justice, governance, and market forces. This government is unable to provide those, and without them we're at our own luck.

Don't fight the laws of economics. We have tried in the past to kill inflation by prohibiting price increases. We failed.

Don't fight the laws of economics. Those people are dead because ideology and political convenience dictate policy. With this, I hope to end writing about this whole catastrophe. At least until the next plane falls.

(Some people are speaking it out)


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