Thursday, January 21, 2010

Replace TSA Incompetence with Market Efficiency

Arnold Kling and Nick Schulz have a great column in USA Today explaining why we should let private companies be in charge of airline security. As a frequent traveler, I wish this would happen, but governments rarely give up power once they have expanded into a new area:

After the underwear bomber's attempted mass murder, Americans are losing patience with the airline security system. It is bad enough that our screening process makes innocent people work far too hard to prove that they are not terrorists. It also manages to make it too easy for actual terrorists to be treated as innocent. ...The security process needs several things it is lacking. It needs continuous adaptation, with a strong focus on satisfying customers and improving results. It needs to find new and better methods of meeting the demands of customers who value safety as well as speed and efficiency. It needs to function in a dynamic environment, disciplined by rigorous competitive pressure. In short, it needs the market. ...Responsibility for the design and implementation of airline security should be handed back to the private sector. ...A post-9/11 market system would combine the benefits of a competitive system with the much-stricter federal oversight necessary to ensure a basic standard of travel security. Airlines would select firms to screen passengers who will fly on their planes. Let's say that it would be up to each airline to contract with at least one security firm at each airport. The airline would pay the firm a set dollar amount per passenger, and this cost would be passed along through ticket prices. ...Several incentive mechanisms, some of them market-based, would keep private sector firms focusing on safety. First of all, the flying public may show a preference for airlines that employ security firms with rigorous procedures just as today many drivers prefer safer cars that get lower gas mileage. Second, if a private firm were to allow a single failure or even a near-miss, it would immediately lose the confidence of fliers. Airlines would switch to other suppliers, and the flawed firm would go out of business. Security companies also could be required to be liable for damages up to, say, $25 million from terrorism, and to post bond to cover that liability. (It is harder to sue the government for damages than the private sector.) The government's role would include two functions. It would collect intelligence on high-risk suspects (as it does today) and share this intelligence with private airline security firms — which will require the firms to have robust data security. And government would audit private security companies, with the power to impose fines if lapses are found. The government could still ensure, for instance, that every firm at least meet the minimum standards that the TSA employs today. ...good solutions are more likely to emerge regularly and consistently under a robust market dynamic than under government monopoly. Competition will force even the lowest-quality provider to raise standards year after year by adopting the good ideas that emerge from their competitors. This is why even a cheap automobile today has more amenities than a luxury car of 30 years ago.

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