Transatlantic Lessons in Aviation Deregulation: EEC and US Experiences

• Author: Kenneth J. Button,Dennis Swann
• Published date: 01 March 1992
• Date: 01 March 1992
• DOI: http://doi.org/10.1177/0003603X9203700110
• Subject Matter: Article

The Antitrust Bulletin/Spring 1992

Transatlantic lessons in aviation

deregulation: EEC and

US experiences

BY KENNETH J. BUTTON* and DENNIS SWANN**

I.

Introduction

207

Since the mid-1970's in both the United States and in the Euro-

pean Community the topic that increasingly dominated microeco-

nomic policy discussions was the possibility of, and the potential

benefits to be derived from, rolling back the frontiers

of

the state.1

Within the states that comprise the European Community- the

debate first began to gather pace in the United Kingdom and fol-

lowed the electoral defeat sustained by the Conservative Party in

*Professor of Applied Economics and Transport and Director

of

the

Applied

Microeconomics

Research

Group,

Loughborough

University,

England.

** Professor

of

Economics, Loughborough University, England.

1See

THE

AGE

OF

REGULATORY

REFORM

(K.J. Button &D.

Swann

eds. 1989); D.

SWANN,

THE

RETREAT

OF

THE

STATE

(1988).

2

Current

members are Germany, France, Italy,

United

Kingdom,

the

Netherlands, Belgium, Spain, Greece, Denmark, Portugal, the Irish

Republic and Luxembourg.

e1992 by Federal Legal Publications, Inc.

208 : The antitrustbulletin

1974.

The

party had strayed into the

interventionist

territory

under the Heath government and out of office it sought to find a

new philosophy and a new role. The new direction it ultimately

identified was one that involved adetermined retreat from state

microeconomic involvements in industry. Subsequently the debate

became Europe-wide> largely as a result of two factors. The first

was the considerable interest aroused on the continental mainland

by the privatization program introduced by successive administra-

tions presided over by Margaret Thatcher in the United Kingdom.

The

second

was the equally considerable attention

evoked

in

Western

Europe

by the deregulatory initiatives

of

the United

States Congress in the Carter and Reagan years and by the think-

ing that lay behind those actions. The draconian nature

of

the con-

gressional approach to federal air passenger transport regulation

in particular attracted keen, indeed universal, interest.

As we have already indicated, the transatlantic debate was

much concerned with the potential benefits of both deregulation

and privatization. In the United States the focus was on the dereg-

ulatory aspect since economic regulation had been the preferred

vehicle of control whilst public enterprise was relatively unimpor-

tant as compared with the position in Western Europe. In Western

Europe on the other hand, a good deal of economic activity in the

post-war period was conducted through the medium

of

the public

enterprise. As a result, European policy-makers were particularly

attracted by the possible benefits of privatization since there was

considerable scope at the national level for a change in the pub-

lic/private balance

of

activity. However, economic regulation was

not absent from the scene and the possible benefits

of

aderegula-

tory stance did not escape the attention of European governments.

At

the European Economic Community level the founding Rome

Treaty does not question the right

of

member states to conduct

economic activity through the agency of public enterprise. As a

result, the Rome Treaty does not empower the policy-making

Council of Ministers to introduce programs of Community-wide

3More recently interest in this approach has spread to Eastern

Europe following the collapse of various Communist regimes.

Aviation deregulation :209

privatization.' However, as we shall see, the Rome Treaty does

contain provisions that have the potential to undermine systems

of

regulation and in due course the relevant powers were brought to

bear.

The focus

of

this article is on scheduled air passenger opera-

tion in the United States and in the European Economic Commu-

nity. Both were highly regulated in the post-war period. As is well

known, the US Congress chose to deregulate federal air passenger

transport when in 1978 it passed the Air Passenger Deregulation

Act. Almost adecade later the European Community Council

of

Ministers decided to progressively deregulate scheduled air pas-

senger operations. An initial package

of

liberalizing measures was

introduced in 1987 and was followed by a further deregulatory

initiative in 1989.

It

should be emphasized that the Community's

initial deregulatory program was concerned with international

operations within the European Community and did not directly

impinge on domestic regulatory systems. There is therefore a par-

allel here since the 1978 congressional measure was aimed at fed-

eral-Le.,

interstate operations. Intrastate

systems-some

quite

liberal (e.g.,

California}-were

not directly involved.

The

purpose

of

this article is to

explain

what factors

ulti-

mately led to the adoption

of

aCommunity-wide deregulatory

program and to

layout

its main features. This will then provide an

opportunity to compare the US and European measures and to

draw lessons from their experiences.

Before we proceed to address these questions it is necessary to

set

the

scene.

Firstly,

since

we

propose

to

discuss

European

deregulation we need to identify what it is that is being deregu-

lated. Secondly, since the European deregulation has emerged

within the context

of

the European Economic Community, we

need to identify the key treaty powers upon which the deregula-

tory program is based. Thirdly, European deregulation is taking

place against astructural background and the main features

of

that industrial structure need to be highlighted.

4Public enterprises are however largely bound by the same compe-

tition rules as apply to private enterprises.