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 #161  

April 1997


Does the U.S. Senate Care About Creating New Jobs?

by Amy Moritz Ridenour

 

Does the U.S. Senate care about new job creation? Anyone watching a recent Senate hearing on the airline industry could be forgiven for wondering. At issue: a proposed operating alliance between American and British Airlines that, if approved, will likely bring with it a long-awaited opening of British skies and airports to American commercial aircraft.

Most consumers don't realize it, but since 1977 the British government has made flying to and from Britain very expensive and extremely inconvenient for Americans. Few Americans are aware, for instance, that the British government allows only two U.S. carriers to land at London's Heathrow airport. Few realize that Britain sets the prices American carriers must charge to fly Americans to Britain -- and that the British government sets these prices artificially high so Americans will be inclined to fly on British carriers. Few Americans understand that many U.S. major cities, cities as large as Salt Lake City and Las Vegas, cannot lawfully receive service from London because of British regulations.

Happily, the British government now has an incentive to end these onerous rules. Britain wants the United States to approve an operating alliance between American Airlines and British Air that will permit these airlines to book passengers on each other's flights. The Clinton Administration is signaling that it is likely to do so if Britain ends the regulations that have worked against Americans, and replaces them with open competition by signing an "Open Skies" agreement to cover air travel between the U.S. and Britain.

Should the Clinton Administration's strategy work, the following benefits will result:

· More tourism and travel dollars for Americans: The artificially high prices presently mandated by Great Britain have reduced the flow of tourists from Britain and other locations into the United States. By the fifth year, the lower prices made possible by this agreement is expected to generate 9.4 million new on-board passengers annually between the US and London, amounting to $9.1 billion extra to the U.S. economy annually from foreign visitors.

· Economic benefits and new jobs: Over the next five years implementation of this agreement is expected to generate a cumulative total of $108 billion in additional economic activity, including: $11.8 billion in expenditures by airlines, $28.9 billion in new U.S. aircraft purchases, $25.6 billion in additional annual exports of US-manufactured goods (and a substantial but unquantified increase in U.S. service industry exports), and $11.4 billion in additional annual job-creating foreign investment in the United States. This increased economic activity, combined with the $30.2 billion extra in the first five years to the U.S. economy from foreign visitors will create 152,833 additional U.S. jobs.

· Traveling cost and convenience: Implementation will decrease ticket prices for air passengers and increase travel convenience. 6-12 U.S. cities will receive non-stop service to London for the first time; 12 U.S. cities will have a choice of carriers for trips to London for the first time; and 29 cities will see new or additional service to London Heathrow. A total of 463 new nonstop round-trip flights will be added between the U.S. and Britain, a 86% increase. This new supply of flights will cause prices -- which will already be lowered due to the elimination of Britain's price-raising regulations -- to fall still further.

So what's the problem? Only the Senators involved can say for sure, but at a recent hearing of the Senate Judiciary Committee's Subcommittee on Anti-trust, Business Rights and Competition, the three Senators who showed up didn't seem all that enthusiastic about the new jobs this agreement would create. The Committee limited testimony in favor of the agreement to one representative of American Airlines, despite the willingness of a consumer's group to testify about the agreement's benefits. Seven of the eight witnesses permitted to testify downplayed the value of the agreement but none testified that the potential economic benefits to Americans weren't real. Their main concern seemed to be that the agreement would benefit American Airlines. But is this a viewpoint that should drive U.S. policy? No, because all but one of the witnesses against the agreement were testifying on behalf of other airlines -- United, USAir, Delta, Continental and Virgin -- which compete with American.

The Senate's role in this issue is merely advisory. The final decision will be made by the Department of Transportation with the input of the Department of Justice. This may be fortunate. The three Senators who attended this hearing represented Ohio, Wisconsin and New Jersey. This agreement, if approved, by its fifth year would provide $704 million dollars in annual economic benefits to Ohio, $14 million to Vermont and $1.4 billion to New Jersey. These are economic benefits that translate into jobs -- yet the Senators seemed unimpressed. Such a cavalier attitude leaves this commentator, normally no fan of the Clinton Administration, pleased that this is one decision that will be left to the executive branch.

Amy Moritz Ridenour is president of The National Center for Public Policy Research.

 


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