Economy & Business

United Airlines’ Lesson in People Power

(Reuters photo: Carlo Allegri)
In free markets, consumers punish bad behavior and get better results than government agencies.

There’s a lot we can learn from the incident earlier this month in which a United Airlines passenger was beaten bloody by security guards for refusing to give up his seat when the airline said it needed it to accommodate some of its employees. That is, aside from the obvious fact that assault is a less-than-optimal customer-service strategy.

First let’s be clear. The treatment of the passenger, Dr. David Dao, was reprehensible. Set aside the fine points of contract law and property rights, and the question of whether removing Dr. Dao was legally permissible (it’s in dispute), or whether he should have complied with the air crew’s orders. There is simply no excuse for the level of excessive force used against the doctor.

That’s a lesson some conservatives should keep in mind when they justify the overreaction of police when confronting a suspect who fails to comply. The use of force, especially by those in authority, should be proportional to the offense. Being stubborn, impolite, or defiant isn’t grounds for assault.

But there’s an even bigger lesson for liberals. The market — not government — is often the best mechanism for addressing business misconduct.

Look what happened to United as a result of its behavior. They received billions of dollars in bad publicity. Customers threatened to take their business elsewhere. Stock prices declined, losing 4 percent — $770 million — of its value in the week after the incident (it has since partially recovered). The CEO, Oscar Munez, stands to lose $500,000 in bonus money if customer satisfaction doesn’t improve.

In response, Munez has now apologized. But more significantly, United will change its procedures. It will no longer allow seated customers to be displaced for crew members or other employees. And it will no longer ask law enforcement to remove passengers except when it is a question of safety or security. The airline has also implemented a new training program for gate agents.

In addition at least one of United’s competitors announced that it would dramatically increase the amount of the voucher offered to passengers who voluntarily give up their seats. Delta will now offer volunteers as much as $9,950, plus rebooking. Other airlines are also expected to respond. And the security officers involved have been suspended and may be fired.

It didn’t take Congress or the president to force these changes. It wasn’t the courts (though lawsuits are pending). We didn’t need a new law or regulation. It was the pressure brought by individual consumers and investors acting on their preferences (and self-interest) in a free market.

This is hardly the first time that companies have had to respond to consumers pressure. From both right and left, consumer boycotts, bad media, and shareholder activism have forced companies to improve workers’ rights, product safety, political bias, the treatment of women and minorities, and more. Neither conservatives nor liberals will always agree with the purpose of such campaigns, but no one can deny that they work.

Abuse your customers, they won’t buy from you. Abuse your employees, they won’t work for you. Produce a lousy product, someone else will produce a better one and put you out of business. That’s the power of free-market competition.

Produce a lousy product, someone else will produce a better one. That’s the power of free-market competition.

Compare this to how government responds when it fails. We are still waiting for the Veterans Administration to change its behavior or punish those responsible for its various scandals over many years. The public schools fail year after year, decade after decade, and their response is to demand more money and try to prevent parents from going elsewhere. The IRS, the TSA, the NSA, even your local DMV provide example after example. Whether ineffective, inefficient, or outright abusive government programs, agencies, and institutions are immune from the pressures and oversight that markets impose on a daily basis.

Indeed, to the degree that laws and regulation reduce business flexibility, increase costs or decrease consumer choices, or erect barriers to entry for new competitors, government is more of a hindrance than a help in ensuring that business acts responsibly.

Obviously markets are not perfect. Often they are agonizingly slow when it comes to correcting inequities or abuses in our society. This is compounded by the fact that too often consumers are indifferent to or complicit in those abuses. In some cases, the inequities are so severe and so deeply imbedded in society that consumer power is not enough to change things. Or at least we cannot wait for markets to change. Think of the Jim Crow South. In those cases, we do need government to intervene. But in most cases, especially over the long term, consumers have more power over businesses than government ever can or should.

The Left often portrays the market as the enemy in the search for social justice. As is often the case, they have it precisely wrong. The free market doesn’t just create the wealth that makes justice possible, it gives all of us a voice in enforcing it. That’s real power to the people.

Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis. You can follow him on his blog, TannerOnPolicy.com.

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