Canada's Middle Eastern Airline Debacle (Print Version)
by Harry Valentine*
Le Québécois Libre, October
15, 2010, No 282.

While economic regulation may serve a short-term political objective and win favour with voters or politically connected industries, it has serious shortcomings over the long term. It may in fact achieve the very opposite of what was intended. There is a plethora of evidence that conclusively proves that economic regulation ultimately fails over the long term.

To take one example, Canada's economic regulation of the airline industry gave rise to an international debacle after Air Canada objected to Emirates Airlines increasing the number of international flights between the Middle East and Canadian destinations. The amount of international patronage that Air Canada stood to lose to Emirates Airlines between Canadian and Persian Gulf destinations varied from minimal to non-existent. Furthermore, the claim that there is insufficient patronage to warrant allowing Emirates Airlines to increase the number of international flights to Canadian destinations is belied by many business precedents.

In his landmark treatise on entrepreneurship and innovation, renowned business theorist Peter Drucker pointed to the alleged non-existent market for trans-Atlantic travel when Boeing unveiled the first Boeing 707 commercial passenger jet. Critics at the time claimed that there were barely enough travelers patronizing the trans-Atlantic passenger ships and the propeller-driven aircraft that traveled the routes between the Eastern United States and Europe. Drucker revealed that within a decade of the introduction of the Boeing 707 to trans-Atlantic service, the number of people who traveled across the North Atlantic increased tenfold.

In a market that was free from economic regulation, Emirates Airlines would have introduced its planned services if there were space at the airports and if air traffic control could accommodate the flights. Then the market would have decided if demand was sufficient or not.

Bargaining Power

In negotiations with Canadian officials, the United Arab Emirates had a powerful bargaining tool at its disposal. The Middle East needs to increase electric power production and is introducing nuclear-electric power. The technology will include the General Electric AP 1000 nuclear power station and similar designs from France and South Korea. The region plans to introduce long-distance trains and high-speed trains and the likely suppliers may include Siemens of Germany, Alstom of France, Breda of Italy, Hitachi and Mitsubishi from Japan and possibly Hyundai from South Korea. The region plans to invest heavily in solar and wind energy over the next several years, with technology evidently being supplied by European, Asian and perhaps a few American companies.

Dubai employs some 30,000 Canadians who each earn over $100,000 for a grand total in excess of $3 billion. There is also much Middle Eastern investment in Canada, including in the transportation sector. Air Canada management took advantage of a long-obsolete economic regulation that resulted in federal officials limiting the number of flights that Emirates Airlines could operate into Canada. Only after enforcing the obsolete regulation did Canadian government officials realize that the UAE had a powerful economic bargaining card up its sleeve.

The government of one Middle Eastern nation has begun to play that card, and others may follow suit, especially in view of Canada's perceived change in Middle Eastern foreign policy. The government of Canada had earlier indicated its intention to leave Afghanistan by 2011. The Emirates' response to the airline regulation (and its demand that Canada vacate its Camp Mirage military base in the Emirates) sends a strong message in support of that intention. Politically, that not-too-subtle message about Canada's impending departure from Afghanistan and changed Middle Eastern foreign policy will be noted across the Middle East and into the Far East.

Policy Blunders Old and New

The Emirates airline debacle indicates that Canadian officials are capable of making policy blunders. It was a policy blunder on the part of the last Viceroy of India, Lord Louis Mountbatten, to partition India on the eve of its independence from Britain, which resulted in mass genocide. In his final years, Mountbatten admitted that it might have been an error. The Colonial Office in London committed a policy blunder when it drew an international borderline on the map that Empire troops could never enforce, across the Pashtun homeland that occupies parts of both Pakistan and Afghanistan. The Pashtun tribes have never recognized that borderline, and neither did the United States during the USSR-Afghan war.

There is a segment of the Canadian population, including some elected federal officials, that wants Canadian troops out of Afghanistan. The decision regarding the Canadian military base in the Emirates supports such sentiment. Canada could never hope to rectify the policy blunders of the last Viceroy of India and the Colonial Office in London regarding the region that lies to the northwest of India. Contemporary events occurring in that region today can be traced back to those policy blunders. A retired CIA officer named Hank Bearden authored a book entitled Blowback, in which he details the results of failures in American foreign policy, while in the US Congress, Representative Dr. Ron Paul has regularly spoken out regarding the fallout of failed American foreign policy around the world.

The Canadian debacle involving Emirates Airlines may be the tip of a growing international political iceberg. It is a debacle that is unproductive and was entirely avoidable. While expanded commercial relations can promote peace and prosperity between nations, a regime of economic regulation has the potential to limit, if not ruin, such prospects. The economic health of Canada's leading trading partner to the south is not good. Canada needs to forge economic and commercial ties with other nations in these very challenging economic times. Strained international diplomatic relations are unproductive if they ultimately undermine economic links and commercial exchange with other nations.

Several years ago, a libertarian served as the federal leader of the opposition and took the liberal government of the day to task on one of its many contentious policy blunders. He subsequently stood before the microphones of the news media during an interview and said, "The government that governs least governs best." A Canadian government that administered such a policy might allow India and the region that lies to its northwest to resolve the policy blunders of the Colonial Office and the last Viceroy of India without any outside foreign intervention. A government that governs least in economic matters would have been able to avoid the Emirates Airlines debacle altogether.

* Harry Valentine is a free-marketeer living in Eastern Ontario.