The Betrayal of the American Dream (22 page)

As the “no government” ideas of the ruling class gained momentum, basic industries such as airlines and trucking were deregulated, with disastrous results for the industries and the families they once sustained. Nevertheless, deregulators pushed on, with cataclysmic consequences for the housing and mortgage industries, and they continued to lobby for unrestricted free trade to prevent any interference in their ability to ship jobs offshore.

Deregulation is one of the greatest triumphs of America’s ruling class, but for middle-class workers and their families the fallout has been devastating:

• The average earnings of airline flight attendants, adjusted for inflation, have declined 31 percent since 1983, based on data from the Bureau of Labor Statistics and the Association of Flight Attendants. Attendants earned $27,160 on average in 1983, according to the association. If their pay had kept pace with inflation, they would earn $61,000. BLS estimated their annual earnings at $41,720 in 2011. That means that since 1983, over nearly two decades, they have lost almost $400,000 in earnings.

• Trucking deregulation, which was enacted to spur economic growth, has caused unprecedented instability in the trucking industry: 43,863 trucking companies have gone out of business since 1990. If truck drivers’ annual earnings had kept pace with inflation, they would earn $65,000, adjusted for inflation. Their annual wage in 2011 was $39,830, according to BLS. A trucker working steadily during this time would have lost half a million dollars.

• Abuses in the deregulated financial industry, coupled with other factors, will have caused millions of Americans to lose their homes by 2014.

With isolated exceptions, the economic elite who populate Wall Street, corporate executive suites, and law firms have suffered none of the pain we see in the middle class. Their pay only goes up. A survey by the Institute for Policy Studies (IPS) found that, even after adjusting for inflation, CEOs at fifty companies that laid off the largest number of workers from the beginning of the crash until 2009 walked away with almost $12 million each in 2009.

THE HAVOC BEGINS

The popular perception is that Ronald Reagan was the great deregulator, but airline and trucking deregulation was pushed through Congress by his Democratic predecessor, Jimmy Carter. Many other prominent Democrats who professed concern for working people, including the late senator Edward Kennedy, bought into deregulation and jumped on the bandwagon. It was a mark of how ingeniously the ruling class and like-minded economists and supporters in the media framed the issue: legislation that would unravel the comfortable middle-class lifestyles of hundreds of thousands of Americans was presented as beneficial to the country.

President Carter spoke for politicians from both parties when he signed the airline deregulation bill in 1978: “It will also mean less government interference in the regulation of an increasingly prosperous airline industry.”

Backers said the Airline Deregulation Act would stimulate competition, reduce fares, and open up air travel to more Americans. For a brief spell it looked like that might happen. Freed to set fares and schedules, airlines embraced deregulation. New airlines began service, and existing carriers extended routes to new points. Fares went down. Service went up. Competition increased.

It didn’t last. In an unregulated market, those with the financial muscle to dominate soon did—the big airlines swallowed the little airlines. New airlines found that they lacked the financial resources to compete. And many long-standing airlines were grounded by excessive competition.

In 2012, there is less competition in the airline industry than before deregulation. In 1978 the ten largest airlines accounted for 88 percent of the revenue from passenger miles flown by U.S. flag carriers. Three decades later, there aren’t ten large airlines left in the United States, and the three largest—American, United, and Delta—control two-thirds of domestic air travel. In many markets, airlines have little or no competition, and prices reflect it. In 1977 it cost as little as $86 to fly round-trip from Philadelphia to Pittsburgh; in 2011 the cost was $530—the equivalent of $160 in 1977 dollars.

As predicted, deregulation sparked the birth of many new air carriers, but few survived. The chronic rise and fall of so many airlines has kept the industry in a constant state of upheaval. Since 1978, an estimated 150 low-cost carriers have gone into and
out of
business. New airlines that were once portrayed as deregulation success stories have either collapsed or been absorbed by rivals. In the airline industry, the unregulated free market has been eating its own.

The industry has been hit by wave after wave after wave of bankruptcies since 1978. Pan American, founded in 1927 and the flagship of U.S. carriers, went bankrupt and was liquidated. Eastern Air Lines, also founded in 1926, went bankrupt and was liquidated. Braniff, founded in 1928, filed for bankruptcy three times before it was liquidated. Midway Airlines, founded in 1976, ended up in bankruptcy court and was liquidated. Trans World Airlines, founded in 1925 and one of the nation’s most glamorous airlines for decades, went bankrupt and was liquidated. Most of the surviving major airlines—Delta, United, US Airways, Continental, and American—have paid visits to bankruptcy court, some more than once.

Under airline deregulation, bankruptcy costs, operating losses, and other factors have cumulatively drained tens of billions of dollars out of the industry since 1978. Some fares went up, not down. Competition became destructive, not productive. Service was cut back. The increase in air travelers was lower in the decade after deregulation than in the decade before it. Airline travelers overall have fewer choices, and they are often more expensive.

Airline workers have had an even harder time. Since 1978, their wages have gone down, their benefits have been cut, and many have lost their jobs. They must work more hours to earn the same pay. Under pressure from management, work rules have been watered down so that crews for some airlines only have a few hours of rest between international flights—something that wasn’t allowed years ago. A study by Demos, a New York think tank, concluded in 2009 that Department of Transportation data showed labor costs falling by one-third on average between 2001 and 2006 for five major airlines—US Airways, United, Delta, American, and Northwest.

For pilots, the cuts have been even deeper. Chesley “Sully” Sullenberger, the heroic US Airways pilot who ferried 155 jet passengers to safety with his remarkable emergency landing in the Hudson River in 2009, saw his pay cut by 40 percent and his pension terminated in the years leading up to his sensational landing. In testimony before Congress in 2009, Sullenberger blamed airline deregulation for placing “pilots and their families in an untenable financial situation.”

Robin Gilinger, the United flight attendant we met in Chapter 6, has watched her earnings and those of her coworkers steadily decline over the twenty years she has worked for the airline.

“I’m making less than I made fifteen years ago,” she said. “And I’m working more.”

For Robin and other airline employees pounded by deregulation, United’s bankruptcy filing in 2002 allowed the airline to shred its labor agreements with employees and cut their wages.

“We still are living underneath our bankruptcy wages right now,” she said. The only bright spot for her is that because of her seniority she’s not worried about losing her job, but the working atmosphere in a once glamorous field has deteriorated markedly.

Despite having negotiated substantial givebacks, employees are constantly pressed by management to give up even more. Robin said the company is pushing for workers to accept more changes in their work rules that some fear could jeopardize safety. The pressure pits worker against worker, she said, as current employees fight over United’s dwindling resources. However it is finally settled, she said, the result will be the same.

“They’re making the worker work more to make less.”

By nearly every measure, airline deregulation has failed. No one has summed up the adverse consequences better than the longtime head of American Airlines, Robert Crandall, in a 2008 op-ed piece:

Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time. Airport congestion has become a staple of late-night comedy shows. An even higher percentage of bags are lost or sent to the wrong airports. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable.

Nonetheless, the rule-makers hold firm to their contention that deregulation has worked. A paper published by the Cato Institute twenty years after airline deregulation confirmed its unwavering belief in the process: “Despite the criticisms, airline deregulation has provided—and continues to provide—enormous benefits to the average traveler.” The Cato paper went on to contend that whatever problems the airline industry had did not stem from “too much reliance on market forces, but from too little.”

One of those “market forces” in play will drive down wages even further. The major airlines are rapidly shifting maintenance work on jet aircraft to repair shops offshore. The next time you are on a plane, you might wonder where the aircraft underwent its last major overhaul. Chances are it was at a repair shop in El Salvador, Brazil, or somewhere in Africa. An audit by the inspector general of the U.S. Department of Transportation in 2008 found that 27 percent of heavy airframe maintenance on the largest carriers is outsourced to repair shops outside the United States, many in developing countries. This is the most extensive type of maintenance performed on jets, and it often entails a complete teardown of the aircraft’s fuselage over a period of weeks.

The Federal Aviation Administration (FAA) has certified about seven hundred repair shops in seventy countries to work on American jets. Because the FAA’s inspections budget is so tight, the agency basically relies on the airlines to police themselves. Even when the FAA does inspect one of these offshore facilities, the plant is alerted ahead of time that inspectors are coming.

Mistakes made in some of these offshore repair shops have caused a few close calls. In January 2009, a US Airways jet flying to Phoenix made an emergency landing in Denver after the pressure seal around the main cabin door began to fail. Authorities later determined that mechanics at a repair shop in El Salvador had installed the seal backward. In another incident, workers at the same El Salvador facility accidentally crossed the wires that connect cockpit gauges to the plane’s engines. The mistake was caught by an airline employee before takeoff, avoiding a potential disaster.

Crucial safety work is offshored solely to save money on wages. Airline mechanics in the United States are among the higher-paid blue-collar workers, earning on average $55,000 a year, according to BLS data for 2010. Many earn $100,000 or more. At overhaul bases in Central and South America, mechanics earn only a fraction of that. There are still about 117,000 of these good-paying jobs in the United States, according to the Labor Department in 2011. The department estimates that employment in that sector will be mostly flat in the next few years. But if past outsourcing trends are a guide, and if current policies remain the same, that prediction will turn out to have been wildly optimistic.

In trucking, it’s been a similar story. Deregulating the industry was a chief goal of the free-market think tanks and their advocates, who contended that it would make trucking more efficient and produce savings. President Jimmy Carter signed the trucking deregulation bill in July 1980 using words that sounded much like those he had employed two years earlier when he deregulated airlines: “The Motor Carrier Act of 1980 will eliminate the red tape and the senseless overregulation that have hampered the free growth and development of the American trucking industry.”

Rather than correct the defects in the regulatory system, Congress threw out the entire system—an overreaction somewhat akin to responding to flawed calls in a football game by eliminating all the referees instead of merely replacing them.

As promised, the law unleashed new competition—on a scale even more destructive than in the airline industry. New trucking companies surged onto the highways by the thousands—and then abruptly ceased to exist. The 43,863 trucking companies that have failed in the last two decades include only companies with five or more trucks. No one has any idea how many smaller trucking companies have come and gone since 1980.

Nearly every large trucking company that was in business at the time of deregulation has either foundered, merged with a competitor, or downsized. Most of those remaining are perilously close to collapse.

The nation’s largest trucking company, YRC Freight, is typical. YRC was formed in 2003 by the merger of two of the oldest and most venerable companies in the history of American trucking, Yellow Corporation and Roadway Express, whose roots go back to 1924. Both had struggled for years amid the rapacious price wars set off by deregulation. The merger created a huge company with 36,000 employees and $6 billion in revenue by 2010. But even that didn’t work. From 2008 to 2010, YRC lost $1.9 billion. The company avoided bankruptcy court in 2011, at least temporarily, by restructuring its debt and shedding thousands of employees.

The fragile state of the trucking industry has had a dramatic impact on the lives of drivers and their families. Working conditions are more stressful and pay is lower. Like flight attendants, drivers must work more hours to earn the same money. Many are paid according to how many miles they drive, not how long they’re on the road. As a result, some have to work as many as eighty to ninety hours a week, living out of the cramped cabs of their trucks and being away from home for weeks at a time. Adding to the stress is the fact that the operating margins for many trucking companies are so narrow that companies cut back on maintenance and replacement of trucks. Truckers’ blogs are filled with references to unsafe trucks that are constantly breaking down or posing hazards on the highways.