‘After years of sustained increases in demand for locally brewed beer, London’s brewery industry is facing a formidable capacity crisis, which is set to worsen as the expansion in demand is forecast to continue. Breweries have done what they can to use their brewing coppers more intensively, but there is only so much that can be extracted per copper. It has long become clear that there simply are not enough brewing coppers installed in London’s breweries, so at least one of them will have to expand. But there is no agreement about which of the breweries that should be, and in what way its expansion should take place.
Fortunately, the government has set up an expert advisory body, the Brewery Commission, to evaluate proposals for brewery expansion. The commission has received over fifty submissions from the breweries themselves, academics, think tanks, local governments and independent experts, which it is currently in the process of reviewing. By 2014, the commission is expected to settle on one of those proposals, and if the government heeds the commission’s advice, that proposal will receive the green light.
It is not an easy feat, because the collection of proposals is highly diverse. Some argue that economies of scale in the sector are so large that only a very large brewery could realistically be expected to be up to the job, so the permission to expand should be given to one of the big players. Others argue that recent technological developments make the economies of scale argument increasingly outdated, and that many small expansions of many small breweries are preferable to one large expansion of one large brewery. There is also disagreement about the optimal location of brewing activity. Breweries in the inner city argue that they should be given the go-ahead, because they have a natural hinterland. Breweries located further outside, however, argue that the permission to expand should be given to them instead: since they are placed in less congested areas, they argue, ingredients reach them faster, while there is also simply more space for expansion around them. The commission is carefully weighing these arguments. Perhaps the most radical proposal, backed by the Mayor of London, involves closing Fullers Brewery and constructing a whole new mega-brewery from scratch.’
Does this passage read like made-up hogwash? Of course it does, because it is made-up hogwash. However, replace ‘breweries’ with ‘airports’, and the specifics about brewing with specifics about aviation, and it could be an extract from any national newspaper. There is no Brewery Commission, but there is an Airports Commission which reviews competing proposals for airport expansion, and it will be for the government to decide which of these proposals will become a reality. For a market economy, this is a very odd arrangement.
Since the mid-1980s, aviation has, by and large, been moved from the political sphere into the sphere of voluntary exchange. Airlines and airports have been privatised, and the sector has been deregulated. The result has been a huge expansion in air travel. Competition, innovation and productivity improvements have made a former luxury good accessible to low-income earners – a great free-market success story. But airport capacity is the one key variable which has remained in the political sphere. This is what leads to the current awkward situation, in which the national government has to get involved in what is quintessentially a business decision, not a political decision. The submissions to the Airport Commission deal mostly with matters like logistics, engineering, business administration etc. – not matters we would normally entrust politicians, or, for that matter, economists, with.
In my new paper Depoliticising Airport Expansion, I develop proposals for how the aviation capacity issue could be wrestled from the government’s hands, creating a setup in which an Airport Commission is no more needed than a Brewery Commission. I am not proposing a free-for-all for airport operators. Aviation does involve negative externalities, and many of the concerns raised by critics are real. Rather, the proposals are about internalising those externalities via market mechanisms, aligning incentives, and creating an institutional framework which enables stakeholders to negotiate mutually beneficial agreements. It is about taking the national politics out of the equation altogether, and replacing it with fiscal decentralisation, local autonomy and direct democracy.
The development of aviation over the past three decades has been a remarkable success. But airport capacity constraints have now become the sector’s bottleneck. If we want the success story to continue, we need a free-market solution to this problem.
Kristian Niemietz is the author of Depoliticising Airport Expansion: Market-Oriented Responses to the Global and Local Externalities of Aviation.
For more details of the proposals, see his article, 'National government should get out of airport investment decisions' , for ConservativeHome.