Humans are irrational creatures. And that also applies to MPs and ministers. They are fooled by what in psychology it sunk cost fallacy is called the sunk cost effect. So much time and effort has already been put into saving KLM that it can no longer be stopped, although there is a good chance that the money will disappear into a bottomless pit. That is why another 220 million euros will be added for the purchase of new shares. In this way, KLM will be able to put it off for a while – or the agony will continue for a while.
The sunk cost effect occurs if someone has bought two tickets to an ADO Den Haag game to please a friend. But that friend gets corona at the last minute and has to cancel. The donor goes there himself, although he doesn’t like football at all, let alone ADO, just because money has been put into it.
Marketers know how to exploit it cleverly, such as sellers of printers or coffee machines. They sell their products at a low price, but then charge a considerable amount for the ink cartridges or coffee pads. But no one will leave the printer or coffee machine, even if it would be rationally best, because it has already been paid for.
It is difficult for companies and governments to accept that a project has failed. They keep putting money into it in the vain hope that it will turn out to be something. As a result, even more money is rushed through, as has happened with many infrastructure projects.
In the 1970s, the government kept investing money in saving numerous industrial concerns that were doomed to collapse, such as Van Gelder Papier, construction group Ogem and shipbuilder RSV. In the eyes of the cabinets there was no way back. The French, British and German governments continued to spend billions on developing the supersonic Concorde for the same reasons, although it was already clear that the money would never be recovered. In those countries, the sunk cost effect is now also referred to as the Concorde pitfall.
This was only stopped after a sensational parliamentary inquiry into the demise of RSV in the 1980s. Aircraft manufacturer Fokker was the victim. The government got rid of it and the company went under in 1996. Then Europe intervened. In Brussels, it was decided to ban state aid to companies in order to prevent a fatal subsidy race between Member States, which would lead to overcapacity.
But, as is inevitable in politics, there are also exceptions, such as for the banks in the credit crisis and now for the airlines in the corona and Ukraine crises. In many countries, including the Netherlands, the national carriers are still national heritage. It does not matter how many times KLM has already been helped. No one dares to turn around the crippled swan, just like no one in The Hague dares to carry ADO to the grave. There is no rationality in football and flying.