The Profit Incentive has made Air Travel Safe and Crashes Rare

Posted by PITHOCRATES - July 7th, 2013

Week in Review

During the height of the Cold War people feared the might of the Soviet Union.  And nuclear war.  As those were scary days.  For the Soviet Union had some awesome military power.  And was the only nation that could threaten the United States.  But you know what was even scarier?  Flying on a Soviet jetliner.

The Soviet Union lost the Cold War because communism is a terrible economic system.  The Soviets couldn’t feed their people.  Or keep enough toilet paper and soap on store shelves.  As their command economy did such a horrible job in allocating scarce resources that have alternative uses.  So you never had the best of anything in the Soviet Union.  Which is why people from the West dreaded flying into the Soviet Union on Soviet jetliners.  For they had a tendency to crash.  The Soviets stole as much technology from the West to improve their technology as they could.  And many of their aircraft designs looked similar to those in the West.  But they were Soviet made.  And Soviet maintained.  In the same economic system that couldn’t keep toilet paper or soap on store shelves.

The problem with the Soviet Union was that there was no profit incentive.  When money is at stake everything is better.  Like in the West.  But when you don’t have profits you don’t have to please customers.  And you don’t.  Everything is like standing in line waiting to renew your driver’s license.  And if a plane crashes it doesn’t change anything.  Planes will keep flying as they were before.  And everyone’s pay will be the same as before.  So everyone will do the minimum.  Just enough to avoid punishment.  This is why Soviet air travel was among the most dangerous air travel in the world.

This past Saturday there was an Asiana Air 777 that crashed while landing at San Francisco International Airport.  Of the approximate 300 on board 2 people died.  Some were injured.  While many were able to walk away from the crash.  Cable television has been covering this nearly 24/7 since the crash.  Even though only two people died (a terrible tragedy but a tragedy that could have been far worse).  And one of them may have been accidentally driven over by the first responders arriving on scene.  Why the intense media coverage?  Because accidents like this are so rare these days.  Especially when they involve big airplanes.  And the 777 is about as big as they come.

In the aftermath of this crash we can see why flying has become so safe under a profit incentive.  Unlike in the former Soviet Union (see Asiana Air Crash May Bring New Safety Regulations in Korea by Kyunghee Park posted 7/7/2013 on Bloomberg).

“Asiana’s accident is going to damage the image of not just Asiana, but all Korean airlines,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “It only takes one incident to undermine years of work Korean airlines have made to get a solid, accident-free record. This will prompt the government to call for stricter safety measures…”

Shares of Asiana, South Korea’s second-largest airline, slumped to the lowest level in more than three years in Seoul trading today. The stock plunged as much as 9.6 percent to 4,630 won, the lowest price since April 2010…

All South Korean airlines, including budget carriers, were ordered to ensure safety, the transport ministry said in an e-mailed statement yesterday. The country had no fatal air crashes between December 1999 and July 2011, when an Asiana freighter crashed, the ministry said…

A Korean Air 747-200 cargo plane crashed in December 1999 shortly after taking off from London’s Stansted Airport, killing three of its four crew members on board. That was eight months after the airline’s MD-11 freighter crashed in Shanghai in April and killed eight people, including those on the ground.

The accidents prompted the government to tighten safety standards at Korean airlines, as well as foreign ones flying into the country. It also strengthened regulations on pilot and maintenance licenses.

Pilots were required to be trained and evaluated at an international center, and airlines were required to fly more hours on domestic routes before obtaining a license to fly overseas. The government also strengthened safety regulations at domestic airports.

The U.S. Federal Aviation Administration downgraded South Korea to Category 2 safety rating in August 2001 following the accidents. The rating was restored to Category 1, which allowed Korean carriers to open new routes in the U.S. and resume marketing alliances with American carriers, in December that year.

In the Soviet Union there was no profit incentive as they put people before profits.  Which made Soviet air travel among the most dangerous in the world.  But look at what happens when there is a connection between safety and profits.  After a series of crashes and a downgrade by the U.S. to Category 2 South Korea tightened safety standards.  To improve their safety record.  For the fewer accidents you have the more profitable you will be.  A very strong incentive to be safe.  Which is why South Korea enjoys a better safety record than the Soviet Union ever had.

When people say that we need government to keep us safe from the greed of corporations all we need to do is look at the former Soviet Union.  And how their government failed to keep their flying public as safe as in countries that use a profit incentive.  For no corporation wants to see their stock price fall 9.6 percent.  Have a nation block them from opening new routes into their country.  Or have people perceive that their planes are not safe.  Things the former Soviet Union did not have to worry about.  As the Soviet people had no other alternative but to fly on those dangerous planes.  But there are many airlines flying between Asia and the United States.  And if one has a poor safety record people will book their flight with another airline.  This is what the profit system gives people.  Choice.  Where people can choose not to fly on an unsafe airline.  Something the Soviets couldn’t do.  Because there were no profits in the Soviet Union.

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