‘MANAGED COMPETITION’ IS NO COMPETITION.

The Economist has a lovely obituary this week for Herb Kelleher, one of the founders of Southwest Airlines, a pioneer in the once revolutionary but now commonplace option of low-cost air travel. Time was when the people who founded airlines were former or even active pilots. Juan Trippe, who started Pan-american Airways, trained as a U.S. Navy pilot in World War One. Charles Lindbergh, who helped build Transcontinental Air Transport, which eventually merged into TWA, had been… well, he had been Charles Lindbergh, the most famous pilot of all. TWA’S early slogan was “The airline run by flyers.”

But Herb Kelleher was a lawyer. He studied English and philosophy at university in Connecticut, went to law school at New York University and then, at his wife’s urging, set up shop in Texas. His bios don’t record whether he had any flying experience, but it didn’t matter. After joining with the operators of a tiny Texas commuter airline to form Southwest in 1966, he and his partners spent the next five years in court before actually putting planes in the air.

What were they charged with? What was their crime? Competition. Existing operators argued airline service in Texas was already adequate, satisfactory, attuned to the public interest — whatever the regulations of the day stipulated as the targeted standard of service — so more competition wasn’t needed. Anything beyond the status quo would be “disorderly” and would cause harmful disruption to the industry and therefore, supposedly, to consumers.

Yes, before deregulation took off in the mid-1970s (thank you president Jimmy Carter, senator Ted Kennedy, and Alfred Kahn, the Cornell University economist turned regulator who oversaw the reform) people actually talked that way. Competition had to be limited to serve customers better.

Kelleher and his colleagues eventually won their court cases, Southwest started flying and the industry was disrupted forever. The revisionist folklore of deregulation is that it turned flying into a crowded, chaotic nightmare, but of course the main reason conditions changed is that with lower fares, many more people flew. Airports often couldn’t cope with the upsurge.

You’d think lessons learned through hard experience wouldn’t be forgotten. But this idea that competition has to be carefully managed, supposedly in the interests of consumers, still walks the land, zombie-like. Several provinces are carefully managing the legalization of marijuana, to the extent, in Saskatchewan, of deciding how many private retail outlets each town and hamlet can tolerate. (It’s a good thing restaurants are already legal in Saskatchewan or maybe the government would try to manage the number of them, too.)

Ontario has been doing the same thing with the private sale of beer and liquor, micro-managing its introduction to a ridiculous degree. The country’s telecom sector is run on the same basis, with a careful balancing of consumer and producer interests. In dairy and poultry we cosset producers so consumers supposedly will benefit —as long as they don’t care about price or choice. Today’s cheese-eating is like yesteryear’s flying: a wonderful experience people would do a lot more of if only it weren’t so expensive.

New entrants want to try something out-of-the-box? The box and its lawyers strike back, big time. Are there any industries in Canada where, if you were going into business, your first hire wouldn’t be a lawyer?

Only last week Ottawa announced a new “review into the merits of open banking,” together with a consultation paper. Consultation papers used to be white papers but this one is multi-coloured, strewn with drawings of happy little stylized Canadians engaged in financial transactions on their cellphones and computers. At first blush, “open banking” sounds like banking where the vaults aren’t locked, which doesn’t seem a very good idea. Or maybe it’s banking where there’s free entry of competitors, which does. In fact, it’s banking where people allow financial institutions to share data about their transactions, so human and artificial intelligence can devise new ways of serving their financial needs and improving their lives without destroying their privacy. But do we really need a federal review before any of this happens? How about if a bank or other financial institution simply offers consumers that alternative? If people like it, it takes off. If they don’t, it doesn’t.

Managed competition isn’t really competition. And if existing competitors — sometimes called “stakeholders” — have a dominant voice, as they always do in these kinds of consultation, it’s even less likely to be competition.

The Incumbents’ Creed, that “Mine interest is thine interest,” is so much hooey. As Herb Kelleher himself put it, smothering competition in regulation and lawsuits “was an affront to my idealism. If you’re going to let these guys get away with this, it’s a radically different type of country from the one I wanted to believe in.” Capitalist idealism. There’s an idea that could fly.

WANT TO TRY SOMETHING OUT OF THE BOX? THE BOX AND ITS LAWYERS STRIKE BACK, BIG TIME.