About a couple of weeks back, in a random conversation with a colleague, I happened to mention that airlines should never have been opened up to the private sector. I am sure that sounded blasphemous to him: a frequent flier, there’s rarely a week that goes by when he isn’t travelling Kingfisher / Jet on official business – and I, on the other hand, avoid air travel like the plague, preferring to travel by good ol’ Indian Railways instead. One would assume that that alone would be enough to disqualify my views from serious consideration, apart from the fact that I was so obviously a crazy Red who was spouting socialist nonsense – the kind that leads protest marches against industry, and stubbornly refuses to usher in reforms. But the fact is, I usually don’t take sides in the capitalism vs. socialism debate, simply because both systems encourage ill-considered behavior that works beautifully in the short term, but come back to bite you in the long.
Why do I bring this argument up suddenly? In my last post, I pointed out how America’s obsession with capitalism led to unchecked, unfettered and ugly finance practices that finally did them in. In a similar way, I am seeing increasing instances of policy decisions that are made by Indian politicians without any eye to practicality and long-term implications. Take the airline example. I have always believed that essential services should be controlled by the State, because as an end – equal distribution of and access to essential commodities and services – it is a noble-enough goal. The primary argument, at least in India, against the public sector is that it is usually a lumbering behemoth, riddled with bureaucracy and ineptitude. The capitalist’s promise instead, is that once we open these sectors to private players, we will see competition-driven efficiency, and nimble companies that will provide the citizenry with efficient service. But reality has been a far cry from these glorious promises. Let’s take an example.
I am no expert on the aviation scene in India before privatization was ushered in, but I am willing to assume the worst: the national carriers, Air India and Indian Airlines, were presumably disastrous: bad service, late flights, no responsibility or accountability, babudom stamped all over, no managerial independence or efficiency. And then the private players came in, after a bitter privatization battle. With PYT air-hostesses, cushy seats, great management, increased flight frequency and punctuality and world-class service, all the hall-marks of private service. And even later, came the low-cost carriers that ‘revolutionized’ the flying experience. As the number of airlines entering the fray increased, what followed was a bitter war over fares, with each airline trying to out-do the other in offering low fares to the customer. Of course the customer was overjoyed, and clapped his hands in glee over the boon that privatization truly was. People who had hitherto never dreamed of flying, took to the skies with the ease of a swallow in summer.
But where are we today? All major airlines are in the red, and have posted losses that run into thousands of crores. The low-fare promise is a thing of the past, and airlines aren’t even willing to pass on fuel subsidies to the customer. As fares increased, airline customers went back to travelling by 2AC trains. And the aviation industry is, reportedly, in a slump. When Jet tried to go about damage control the way most private-sector companies do – by firing staff – they faced stiff employee resistance and it took political goons in the form of MNS to get them to announce that no staff would be fired. Incidentally, or ironically, as you may view it, I was one of those few who actually supported Jet’s move to fire employees. While I hate to see people lose jobs because of stupid decisions their management made in the past (and Jet tops my list of companies with stupid management), I also realize it is only practical (there, that word again!) for them to take any measure, as they deem fit, to get back on their feet again. Even if it involves firing employees. But the employees obviously were the kind who wanted the pay packages and glamour of a private sector airline job, but the job security of a public sector airline. And the political action of the MNS confirmed my view of the short-sightedness of our decisions – we are ok with a company bleeding to death and affecting thousands of jobs and the aviation industry as a whole, than letting a couple thousand employees go jobless. The short term always wins over strategic long term. A lesson we have yet to learn is that pulling dazzling pelvic moves doesn’t always make you Elvis; it sometimes just makes you a loser with a broken hip. Gross analogy as that may be, I think that’s the situation with aviation today.
Now, here’s how I see what went wrong: It is no rocket science to figure out that there is a fixed cost to flying a plane between a set of destinations. And its pure math to figure out how much to charge per customer once you have factored in these fixed operating costs and your profit margin. But where the airline game got risky was when they took the low cost of fuel for granted. In the past, when ATF prices were low, it was feasible to give away dirt cheap airline seats, but as the price of fuel moved upwards, airlines first chose to ignore it, lavishing customers with hefty discounts, steadily losing money on each flight they made. When fuel prices shot up further, the difference was passed on to customers, with the result that air fare became increasingly steep, and airlines could no longer afford to charge 5k on a flight that cost them 8k per passenger. Low cost travel was an illusion fostered by private players to capture market share – however, this illusion came with a price: it leaves a sorry mess of failed airline companies with whopping losses, who are now begging the government for a bailout with taxpayer money. And airline travel, becomes, again, a distant dream for the average Indian.
Could this have been avoided? I think, yes, and here follows my pro-public-sector argument which will undoubtedly irritate most of you, but if you give me patient hearing, you may just see the sense in my argument. In India, despite our attempts to believe otherwise, the poor and the lower-middle-class far outnumber their richer brethren. And I like to think that ensuring affordable travel to this majority is also a State responsibility. We experimented with privatization in the airlines, but what we found was that most airlines, in their blind bid to capture market share, often promote practices that prove unfeasible in the long run. And it is too much to expect a private player, who enters a sector to make profit, to worry about nobler goals such as connectivity and affordable travel. On the other end of the spectrum, is as good a representative of a public sector unit, in terms of size, operations and reach, as you will ever see – the Indian Railways.
Now, making profits is not the foremost goal of our railway systems. And I doubt if it even makes any – though Lalu claimed that the Railways made a profit of 25,000 crores in 2007-’08. But the Indian Railways has certain ‘duties’ that it can never shirk from – providing affordable travel and ensuring connectivity to all parts of India. Contrast this with private sector airlines – who fly only on profitable routes, and who owe no duty to the public to keep fares realistic. The point is: when it comes to essential services, it is always better to leave the State in control, because the essence of such service is not to post a profit, though that is always welcome, but to provide the benefit of that service to the widest possible range of our population. My personal opinion, as a citizen, is that I am ok with the government-owned Railways or Airlines not posting profit, as long as it serves its purpose: that of providing transport to all segments of our population and all regions of our country – the taxes we citizens pay will more than make up for any revenue that our public sector earns. Unfortunately, the rules that govern the private and public sectors are different: the government is forced to stay on in the aviation sector to service routes that private airlines won’t touch with a 10-foot pole; it bends over backwards to introduce policy changes that benefit these private players and helps them make profit, and yet these miserable dolts mis-manage and bring in losses to such an extent that they are forced to go to the very same Government with begging bowls to finance them with our hard-earned taxpayer money.
But the stiffest opposition to government control, though it seems the more sensible option, comes from people who fear babudom will take over, and bring down the overall efficiency of the system. But we often forget that it takes an active citizenry to clean up a political mess. As voters, we do have the power to reward or punish policy-making – putting in accountable airline management and having them account for public funds and initiatives, is very much within the realm of our rights as citizens. But hailing the private sector simply because our citizens are too lazy to demand responsible governance, well, that’s just foolish. I would rather beat the national carriers into reasonable shape and get them to perform, than invite profit-seeking players to trample all over and leave us to do the cleaning-up act.
