07 August 2007
Should BAA be broken up?
Patrick Crozier
A queue

Things are not going well at Britain’s airports.  Queues so long people are missing their flights.  Millions of bags going missing.  And yellow signage.  Jeff Randall - usually as robust a free-marketeer as you get in the national press - is calling for BAA* to be broken up.

This causes me some difficulty.  I am not usually in favour of enforced competition (warning: short).  But there does seem to be a problem here.  Usually when there is a market failure it turns out that it is in fact a cunningly disguised government failure.  The railways are a good example of this.

But, if so, what has the government done to produce this fiasco?  I suspect the answer lies in planning (again), in that if you wanted to go into competition with BAA you’d have to spend the rest of your life just getting the planning permission.  But I am not sure.

Any other suggestions?

* Does BAA still stand for British Airports Authority?

UpdateIt seems that it doesn’t.  It’s one of those acronyms that has outgrown its constituent words and taken on a life of its own.

Update 25/04/08

  Version 2 of this posting is now available.

  1. If it has a life of its own, BAA, could we all just agree to pronounce it “Bah”?

    Posted by dearieme on  08 August 2007 at 02:10 am

  2. The trouble is that Britain’s privatisations (like those in most other places) were structured in such a way that they would get the highest price for the treasury rather than to promote competition. In most industries this created large quasi-monopolies that faced little competition, and where a public sector mindset persisted. (It also provided a continuing role for the government, as regulation of monopolies can be justified in a way that regulation of genuinely competitive markets cannot).

    What should have been done was for government owned industries to have been broken into many pieces before privatisation. These would have competed with one another, and if they were smaller in size new entrants would have been able to compete better with them. (Also, if only by luck some of them would have developed a private sector mentality, and these would have eaten those that didn’t and hopefully the private sector mentality would have prevailed.

    In some industries, a competitive market has gradually come into being anyway, in others it hasn’t. In some instances this is perhaps just luck (I am perfactly happy with my electricity company, but the gas company is awful). In others the outcome really could not have been predicted. (Britain has possibly the most competitive telecommunications market in the world, because BT was so unbelievably hopeless that it was unable to compete with much smaller companies with fewer natural advantages. When I tell foreigners that former incumbent telco has maybe 1% of the mobile business and about 25% of the ISP market, they are amazed, as the usual pattern (which is followed in France, Germany, Italy, Spain, and Australia, amongst other places) is for the former incumbent to remain dominant in both businesses).

    Although some would argue that airports are natural monopolies, I don’t really buy this, certainly in a place like London that has five of them. (In truth, when I think about it I don’t think it applies in many places. One of the many refreshing things that Ryanair has demonstrated is just how many alternative airports there are when an airline refuses to pay monopoly rents to airport operators). I think in truth the trouble with BAA is simply that it was a silly idea to privatise airports in such a way that a single company owned all the country’s major airports, including the three biggest in London. I don’t believe that service would be anywhere near as bad if Heathrow, Gatwick, and Stansted had different owners. 

    I think in cases where there is still little competition, poor customer service, and a public sector mentality 20 years after privatision, it has to be said that privatisation was a failure. Whether this justifies a government forced restructuring of the industry (which in truth amounts to renationalisation and then reprivatisation) is hard to say. This still does ultimately amount to a government taking control of private assets, and it is not to be done lightly.

    Still, I doubt it would make things much worse.

    Posted by Michael Jennings on  08 August 2007 at 02:48 am

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