United Airlines’ “Chairman’s Flight” Is an Example of Extortion, Not Bribery

Stories about government officials getting perks from those with business before them aren’t exactly rare today. Remember those amazing loan deals Senator Chris Dodd received from Countrywide Bank while he was the Chairman of the Senate Banking Committee? Or the millions in donations made to the Clinton Foundation by foreign governments and companies that stood to benefit from arms deals with the U.S. while Hillary was Secretary of State?

The latest example involves United Airlines and the Port Authority of New York and New Jersey:

Last week, Jeff Smisek, the CEO of United, resigned in connection with allegations that the company had revived a defunct flight from Newark Airport to Columbia, South Carolina at the demand of the former chairman of the Port Authority, David Samson. Apparently United had been pushing the Port Authority for several years to lower its fees at Newark and to add some enhancements to facilities there. During these negotiations, Samson apparently suggested that he would be more open to the company’s requests if it revived the flight to Columbia so he and his wife could easily visit their vacation home there. According to Bloomberg, the demand was met with an awkward silence from the United team, who ultimately complied even though the flight was an obvious money-loser. (United employees later came to refer to the flight as “the chairman’s flight.”) Fortunately for United, Samson resigned about a year and half later in connection with the George Washington Bridge lane-closing scandal, which allowed United to discontinue the flight a few days later. You can read more about the story in the Wall Street Journal here and here, and in this column and this article in the New York Times.

Most business writers and even many businessmen blame the companies in situations like these, on the grounds that if they didn’t have expensive perks or campaign contributions to dangle in front of officials, this sort of corruption would not happen. I take the opposite view. This is not an instance of bribery by the company, it’s an instance of extortion by a bureaucrat. Bureaucrats hold the same kind of power over companies that a mobster holds over the victim of a protection racket — the power of physical force. The Port Authority controls all the airports in the New York metropolitan area, which means a guy in Samson’s position can cost United millions. Any “request” from such a bureaucrat amounts to an offer the company can’t refuse. We wouldn’t accuse a business owner of “corrupting” a mobster if he paid protection money rather than having his business destroyed. So why blame a company in United’s position? It’s unjust regardless of what kind of guy Smisek is.

I’m happy to say that I’m not the only one who takes this position. Holman Jenkins makes a similar point in his weekend column. And Peter Schweizer, president of the Government Accountability Institute, has written a whole book on the subject, appropriately titled Extortion, that is well worth a read. His point is that politicians and bureaucrats use their power to extort money and perks out of businesses far more often than businesses try to influence them. Most businessmen, in Schweitzer’s estimation, would prefer to be left alone than to deal with government officials at all. They can’t afford to ignore officials, however, because in today’s regulatory environment, government holds vast power over every business. Ignoring them means risking higher taxes, anti-competitive laws, and costly attention from regulators. As examples of this power in action, consider the federal government’s lawsuit against S&P for downgrading its credit rating, the fine against Bank of America after it took over Countrywide at the government’s request and the threat to banks like BB&T and other banks that initially rejected TARP funds. (John Allison discusses this last example in his book, The Financial Crisis and the Free Market Cure.) So many business leaders play along, contributing to politicians when they come calling or succumbing to “requests” such as the one made to United. “Cronyism” is far too tame a term for this sort of thing. “Extortion” is much better. So is “thuggery” or “legal plunder.”

Does this mean that businessmen never seek out men like Samson and try to take advantage of the power they hold — say, by clamoring for subsidies or laws that clamp down on competition? No. Unfortunately, far too many businessmen like that exist these days. The problem is that the common conceptions of corruption and cronyism don’t distinguish between people who influence government to extort and steal (the class includes far more than just businessmen) and those who do so out of self-defense. That’s a profound mistake that obscures the real cause of cronyism and the injustice it represents.

The cause of cronyism is a big topic that I’m not going to tackle in depth here. Suffice it to say that cronyism is an aspect of any government whose power is not limited to the protection of individual rights. The principle of rights is the only way to insure that the power government possesses — which is the power of physical force — is used to protect individuals who want to produce, thrive and pursue happiness from those who want to threaten, extort and plunder. To the extent a government’s power is not limited to the protection of rights it operates on the principle of might makes right. Whatever those who wield power think is right is whatever they can try to accomplish, at the point of a gun. When others hold arbitrary power of your life, your work and your wealth, your only hope is to curry favor with them. That’s cronyism, or, as Ayn Rand called it, pull peddling. The solution is not to complain about “influence” but to understand the difference between those who try to influence government to plunder others and those who do so to defend themselves. The reason the former thrive is not that government is “too big” but that its power is not limited in principle to protecting rights.

I’ll write more about this in the future. In the meantime, be sure to read Ayn Rand’s essays “The Pull Peddlers,” “The Roots of War,” and “The Cold Civil War,” all of which deal with this subject. And you can watch talks I’ve given on cronyism here and here.