NOW FOR MICRO-MARKETIZATION Privatizing government activities has fought its way to acceptance, and has shown its benefits. Governments around the world are selling socialized firms to private buyers. Renters are buying public housing units. Private firms run city jails and fire departments. The intellectual battle is over, though the possibilities for privatization have only been scratched. Micro-marketization -- or just "marketization" -- is the logical next step. Many activities now run bureaucratically or politically could be operated more fairly and more efficiently by creating a small market to allocate the goodies. An auction often is the most effective among such market processes. Ivory-tower ideas sometimes do come to pass. Decades ago, economist William Grampp suggested that airlines be permitted to buy and sell airport landing rights, known as "slots." This year, his scheme was adopted. New airlines can now enter and compete. True, they have to buy their way in. But before this scheme was put into effect, there was no way at all a new airline could get into business at busy airports. And competition was sluggish for the lack of new competitors for market share. Another advantage of a landing-slot market is that the airlines which can make best use of a slot, by flying the biggest payloads of customers to the most profitable destinations, have an incentive to bid a high price for the slot. This promotes efficiency, and thereby advances the public welfare. The landing-slot market illustrates the key to micro- marketization and auction schemes: The resource ends up in the hands of the people who put the highest value on it and who will make the best economic use of it. That is, an auction allows self-selection by those persons who can best exploit a resource. This is better than a bureaucracy or politics allocating the resource to personal favorites, or to those who have the most influence and knowledge of how to bend the system to their desires. The volunteer system for handling airline oversales is another example of how markets improve life for all. Betty Glad, who had been an airline stewardess, told me in 1959 how they were instructed to deal with the situation when there were more ticketed passengers than seats: Deny boarding to the elderly and to servicepeople, because they would be the least likely to complain. One day in 1965 as I was shaving and mulling a sad story of a friend who had been arbitrarily thrown off a plane, it occurred to me that an auction could solve the problem. Simply ask each person the lowest amount he or she would be willing to accept to wait for the next plane, and select the lowest bidders. It took until 1978 for the scheme to be adopted when, in the form of Alfred Kahn, an economist for the first time headed the CAB. (Up to then, I could not get even one airline to try the scheme at one gate for one day. They said that I just did not understand their problems.) Now everyone is delighted with the various versions of the plan that the airlines use. The people who care least about waiting for the next plane select themselves to get a payoff that they prefer to flying as scheduled. Neither arbitrary airline agents nor bureaucratic policy decide who gets thrown off, willy nilly. And the airlines have increased their efficiency by being able to safely overbook to a much higher extent than before, and therefore they now fly with fewer empty seats. Let's consider some other candidates for micro- marketization: **Cable television franchises. Auction them off instead of having city councils allocate like a beauty contest. Almost all economists agree. But the politicians continue distributing the goods politically because it gives them additional power, and often a chance to get a subtle or not-so-subtle payoff. **Hazardous waste sites. Have communities bid to supply locations, instead of forcing some unwilling locations to accept the waste. Many communities have already indicated their willingness if the price is right. And of course this avoids political hassle and the cry that some communities have been unfairly used. **Cellular telephone franchises. Stop giving them away by lottery. The plums fall into the laps of lucky winners, who can then turn around and sell the rights for a fortune to someone else. An auction would collect the windfall gains for the taxpayers. **Television channels. Why should a few individuals who are skilled at making themselves look good at hearings be the sole possessors of this valuable monopoly given them them by the government? Of course it would not be fair to change the rules immediately. But if an auction were announced for five or seven years from now, for licenses lasting perhaps five years, no one could complain. The taxpayers would gain much of the abnormal profits that the stations now make. And the government would not need to police the stations to be sure that they are performing the "public service" that they are supposed to supply in return for their licenses. **Immigration visas. Sell them to the highest bidders, allowing people to pay out of future income, instead of having 80% of the visas go to people who have the proper connections to relatives here. The present system is grossly unfair to people abroad who have no family connections. And the U. S. foregoes the opportunity to acquire the most productive new citizens. **Another airline application: Allow people who have no reservations come into the boarding lounges and offer to buy seats from those who have tickets. Even better, have the airlines run the system and take a cut, as well as create happy customers. **States could pick up a nice piece of change for universities or other worthy causes by auctioning off the numbered license plates. Number l goes to the person who bids the biggest donation, number 2 to the next biggest, and so on. Give the mayor (or governor) and other muckamucks plates that say "MAYOR," "COUNCIL," and so on. **In universities, faculty members scuffle about who will teach which courses. Departments could allow the faculty member who teaches the biggest course to have first pick on her or his other course, the second-biggest course teacher the second pick, and so on. Faculty members would then vie to teach the biggest courses. This will make the big courses attractive to teach, whereas now everyone tries to avoid them. This plan also will cut down faculty scuffling. Every situation in which a public agency allocates a resource by handing out licenses, or in which a private organization allocates resources among its workers, is a potential candidate for micro-marketization. A few minutes of thought will probably bring to mind a good many candidate situations. In short, micro-marketization rations with price rather than by bureaucratic policy or by political favoritism and log- rolling. This is inevitably fairer, and it also is more efficient, because requiring payment identifies the candidates who most value the opportunity because they expect to make best use of it. It is the logical next step after privatization. page 1/article9 marketiz/June 6, 1990