Published in Insights, The New Zealand Initiative’s newsletter, 4 March 2016
When businesses make investment decisions, they should make them on their own. Taking risks and reaping the rewards: that is what entrepreneurship is all about.
What companies should not do is make decisions and expect others to pay for them. Nor should they seek to stop other players from pursuing their plans. Neither is compatible with the idea of competition.
Competition and entrepreneurship: These are the cornerstones of the market economy.
In such generality, hardly anyone would disagree with this proposition. It gets more complicated when we talk about real life examples. Wellington Airport’s runway extension comes to mind.
The proposal would allow larger planes to fly to the capital. This could open routes to new destinations, particularly in Asia.
The question about the airport expansion should be simple: Will increased international traffic justify a $300m investment?
As such, it is a normal investment decision. Businesses have to make such calls all the time. Companies need to determine if the extra revenue is larger than the extra cost.
Why should it be any different for Wellington Airport? Because its owners claims that the extension will also benefit the city. Yet that hardly justifies a public subsidy.
Plenty of things that companies do have spill-over benefits. Car manufacturers increase mobility. Farmers keep the population healthy. Newspapers lead to better informed debates (at times).
The existence of public benefits is not a good enough argument for a subsidy. It is for companies to figure out how to capture some of these benefits.
The airport’s owners should be good entrepreneurs. They should accept the risk that comes with their investment. They should not ask anyone else to underwrite it or prop it up.
Other airports and airlines, meanwhile, should be good competitors. They should let Wellington Airport reach its decision on the extension on its own.
Of course, existing airlines using the airport should not have to pay for the extension. Their existing landing fees should stay the same. They should not pay for their new competitors’ ability to fly to Wellington. Nor should they be able to stop them from doing so.
Put in such simple terms, the runway extension is not a big political conundrum.
Competition and entrepreneurship: This is how economies grow. This is how markets develop. This is how they best serve consumers.
Let’s hope the decision about the runway extension will be based on sound economic principles.