Airport expansion: We need Coasean bargaining, not political horse-trading

I did not pay much attention to London’s mayoral election campaign. I lost interest early on, as soon as I realised that the campaign would be dominated by different variations of identity politics, combined with the usual unedifying pandering to the Nimby vote. From then on, the leaflets that kept arriving went straight to the bin.

Yet in an indirect way that I hadn’t thought of, the election result might yet make a difference to one of the UK’s most protracted policy areas, namely, airport expansion. In a perceptive piece in the Telegraph, Allister Heath explains why the election of Sadiq Khan could change the political dynamics around the expansion of Heathrow.

On the face of it, the election has only replaced one anti-Heathrow mayor with another anti-Heathrow mayor, who has just defeated an anti-Heathrow runner-up. But Chancellor Osborne, Heath reckons, is in favour of expansion, not least because of the political capital he has invested in his ‘infrastructure plan’. Had he tried to force through an expansion against Boris Johnson or Zac Goldsmith, it would have sharply divided his party. Now that the battle lines coincide with party lines, it would no longer have that effect. Heath suspects that Khan’s opposition to expansion does not run that deep, and that he might accept it in return for an increase in his public transport budget.

Regardless of how this will play out, what Heath’s article makes clear is how much of a political horse trading bazar this whole policy area has become. I would obviously say that, but I think this adds more weight to the case made in my IEA Discussion Paper ‘Depoliticising Airport Expansion’, namely that decisionmaking powers about airport infrastructure should be wrestled from the national government’s hands altogether.

The conventional wisdom is that the marketplace is governed by egoism and greed, while the political sphere is – or rather, could be, if ‘better politicians’ were charge – the sphere of high-mindedness and public-spiritedness. The market works for the corporations and the plutocrats. The state, however, is there for us, The People. As Simon Jenkins puts it: “corporations and capitalism […] must be subordinate to an overriding public interest and not mere money-chasing. Heathrow lobbyists […] are in it for the money.”

And so they are. But then, the airport expansion story has never been about ‘the common good’. It has always been a tug of war between different factions pursuing their own self-interest, even if ‘self-interest’ does not always have to mean ‘corporate profit’. Residents oppose expansion because they want to prevent an increase in noise levels, and a decrease in the value of their homes. These are perfectly understandable, and perfectly legitimate aims, but there is no need to glorify it with the usual, lame ‘people before profits’ rhetoric. The pro-expansion politicians want the tax revenue that an expansion would generate. Most of us, meanwhile, are happy to bash airlines and airport operators as greedy profiteers, but the only reason why airport expansion would be profitable at all is, of course, that we want to be able to travel abroad conveniently. If we were all happy spending our holidays in Blackpool, there would be no demand for additional flights, and no profit to be made from investing in airport capacity. We want to travel to sunny shores with great food and wine. We just don’t want other people to do likewise, and while we want the means of transportation and the infrastructure to be provided, we don’t want those who provide them to make any money from it.

There’s another interest group in this mix, less often recognised as such but no less vocal: those who oppose mass tourism, which they see as tacky and vulgar, for aesthetic reasons.[1] They hide behind environmental arguments, but these are easily recognisable as the excuse that they are: Rates of Air Passenger Duty (APD) already exceed any empirical estimates of the social cost of carbon. The latter is already fully priced in, and thus sorted out. But by successfully depicting flying as sinful (other people’s flying habits, that is; my own case is different), they have created a climate in which politicians no longer dare to make the case for aviation openly. So they feel obliged to defend airport expansion in roundabout and unconvincing ways, thus ultimately undermining the case for it.

In short, the example of airport expansion shows that if you exorcise market mechanisms, you don’t get a happy-ever-after People Power Kumbaya; you get political horse-trading, tactical manoeuvring, interest group activism and organised hypocrisy. It would be far better if we could get the politics out of this altogether. Airport expansion should be a local planning issue, combined with compensation mechanisms. How about a fusion of direct democracy with Coasean economics: Airport operators could put forward an expansion plan, coupled with a compensation offer for the residents affected by aircraft noise. The latter would then have the final say over the matter in a local referendum. Another option would be a localisation of the tax revenue generated at and around the airport, or simply a general programme of fiscal decentralisation.

The main reason why we should adopt a policy along those lines is that it would work. The massive growth that air travel has experienced over the past three decades is a phenomenal economic success story, but we now risk choking it to death by blocking the delivery of the necessary infrastructure. But an added bonus would be that this approach would restore some honesty. Coasean bargaining is bargaining between negotiation parties who honestly and openly pursue their own self-interest, without any waffling about ‘the public interest’. Give me the haggling of the marketplace over the horse-trading of the political sphere any day.

Read IEA Discussion Paper ‘De-politicising Airport Expansion’ here.

[1] Simon Jenkins is, of course, one of them: “Just because more people want an airport does not mean a runway must be built. More people want motorways but we do not build them. More people want houses. […] Demand is not God.”

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

2 thoughts on “Airport expansion: We need Coasean bargaining, not political horse-trading”

  1. Posted 17/05/2016 at 14:14 | Permalink

    No need for a referendum: just allow the airport management bid for the land they need without the artificial advantage of compulsory purchase.

    You would soon see whether or not the project was worthwhile.

  2. Posted 19/05/2016 at 09:46 | Permalink

    Because the landing slots at Heathrow and Gatwick have a scarcity value, and reduction in APD will not result in lower airfares, it will only make the slots worth more.

    There is an argument that being the case APD should go up not down. However, an auction of those slots would be more efficient.

    A simple 100% land value tax would sort out any planning externalities via the market.

    It’s an understandable mistake to think that such taxes should be local. However if that were to happen, they would act as a pure subsidy, distorting the market, misallocating land and capital resources.

    Local taxes are a bad idea in general. Incentives are better aligned with as many services as possible being locally devolved, with an equal per capita grant.

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