Monday, December 05, 2005

The Mixed economy and Air Canada

Air Canada has always got my blood boiling and here is a longer post detailing what it means to subsidizes business with coorporate welfare. The NDP should be all over this type of stuff, but they only get upset when businesses are successfull???

Thanks to the lawful court of Canada and their “bankruptcy protection”, the good folks at Ace Aviation Holding were free to take over the failing airline, while wiping out seventy-five per cent of the company’s debt. Business owners everywhere should be thankful that our benevolent government provides such a thing as bankruptcy protection. Oh wait, there is not? There is only something known as “bankruptcy protection” when your board members have political ties you say!

Whenever Air Canada finds itself in financial trouble based on poor decisions and mismanagement, it’s consistently bailed out with favorable legislation, including bankruptcy protection, guaranteed loans, and tax breaks. These breaks come at the expense of smaller, successful companies that make wise and responsible business decisions, but don’t have board members with strong political ties -- companies such as WestJet and Jetsgo. These productive, responsible companies are penalized for the very virtues that made them successful for the sole purpose of paying for the failings of “nationally supported” and “well connected” companies. What standard of fairness is this type of principal based upon? How are these principals of fairness arrived at?

Furthering the corruption is the statist and mixed economy advocate’s (liberal) favorite viewpoint, which uses the insulting argument which describes Air Canada as culturally essential, that there is danger of losing our identity without a national airline. Dubiously implying that Canadians would rather pay twice the amount for a plane ticket to Hamilton as long as the wings are red and the pilot is bilingual. Then, once we’ve been exposed as vacuous and culturally lacking by our benevolent government, we’re treated to the next altruistic message: protection for the workers! They fear monger, claiming that thousands of jobs would be lost forever if Air Canada went out of business, forsaking the facts of competition and reality, in favor of a system dishonesty and immorality.

Let us examine a mixed economy more closely with the dichotomy of West Jet and Air Canada in order to reveal whom policies of altruism favor. The article will do so through the asking of one crucial question: of benefit to whom?
For decades, Air Canada’s favorite competition strategy has been hiring high priced lobbyists to work in Ottawa, for the sole purpose of gaining favorable legislation. How else is it that a company’s outstanding debt gets reduced from twelve billion dollars to 2.8 billion dollars if not for favorable legislation? Favorable legislation is achieved through hiring corrupt attorneys and lobbyists to influence, or more astutely pay off even more corrupt bureaucrats, government officials and politicians. This allows Air Canada to do things like default on creditors, which means you and I, to the tune of nine billion dollars. Compare this to the fact that smaller companies cannot afford to divert millions of dollars for the unproductive purpose of hiring Ottawa lawyers and politicians. Their money is spent on increasing capital, the amount of workers they can afford to hire, and furthering their research and development. An increase in productivity is the sole method of expansion for the small airline. This means achieving more with less. So when the government is allowed to pass legislation granting special rights for some companies at the expense of others under the banner of “for the greater good”, we ask ourselves for “the benefit of whom”? To the benefit of the self made pilots and entrepreneurs that first started, and organize West Jet and Jetsco, that started their companies with their own wealth or to the benefit of the lazy, unproductive managers, corrupt lawyers and bought lobbyist of Air Canada? To the benefit of the taxpayers and investors, which are being paid back ten cents on the dollar owing on Air Canada’s outstanding loans. Loans I am sure at some point were guaranteed. Allowing Government to control competition with the monopolistic use of legislation is morally wrong. A company’s fate shouldn’t be dependent on the arbitrary whim of bureaucrats and politicians. Government interference into the market paves the way for a system that redistributes wealth into the hands of the most corrupt instead of to the most productive, stagnating an entire industry’s growth, and eventually an entire country’s.

What types of business man is attracted to such a system of competition, where his success is dependent on achieving favors instead of increasing production based on his industry knowledge and experience? Possibly, the type of manager that has no way or interest in increasing production or advancing an industry’s technology, but is attracted to free “easy” government money. This type of manager stays in business for three to five years, collecting a generous taxpayer subsidized income at the expense of his “self made” competition and the taxpayer. Eventually this type of business man files for bankruptcy, claiming capitalism too ruthless (a complete misrepresentation of capitalism), then moving onto a new subsidized (statist) industry, and paving the line for the next wave of corruption to begin again, with an even fatter bank account, to buy more lobbyists. Once again we ask ourselves: fair to whom?

The end result of a stagnant, unproductive government protected company without the threat of competition is higher prices for fewer services, which are ultimately passed onto the unsubsidized public for a second time. It is no coincidence, or feat of luck why West Jet and Jetsco flights are cheaper than Air Canada flights, no matter what leftists try to tell you. West Jet and Jetsco are better organized, more efficient and productive than Air Canada, and yet they are penalized for these very virtues in the name of altruism.

The final cliché of altruism is based on the idea that Air Canada has to have “bankruptcy protection” for the benefit of the thousands of workers, whose livelihoods depend on the airline. This is only true for the droves of lawyers and lobbyists, and obsolete management that depend on Air Canada for “illegal” paychecks. Whenever any company goes into actual bankruptcy, the first thing a court does is appoint managers to run the company and recover as many assets as possible, in order to meet as much debt obligation as possible. Even if Air Canada ceased to exist as separate identity, its facilities, planes, manufacturers and workers would be contracted out to smaller companies left competing to fill the void left by Air Canada. And at the very worst, another company buys all of Air Canada’a assets at ten cents on the dollar and begins anew. Not too worry, mechanics, pilots, baggage handlers, traffic controllers, and stewardesses are skilled workers that are not easily replaced and thus will be in high demand from whichever company would replace Air Canada and take over its airports, warehouses, repair and manufacturing facilities. Government would have you believe that they create jobs, but in truth it is people that create jobs, more specifically: entrepreneurs create jobs, through their own means of increased production and expansion. West Jet’s expansion comes at the expense of nobody but the entrepreneurs and investors who were willing to invest, unlike government sponsored expansion, which comes at the expense of everyone but the company doing the expanding.

A system based on and decided by the arbitrary whims of individual bureaucrats instead of the objective laws of capitalism succeeds only in creating an internalized war between lobby groups, each looking to succeed at the expense of another person’s production: the taxpayer and businessman. A system that provides welfare to certain companies at the expense of the others, is a system that punishes the productive, the ambitious, and general public and rewards the corrupt, inefficient, lazy, and well connected. Fair to whom?

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