The further to the left or the right you move, the more your lens on life distorts.

Saturday, March 22, 2014

Protection Rackets

What do Uber, Airbnb, and Tesla all have in common? At first glance, not much. Uber is the urban answer to finding a conveniently available ride from point A to point B. Using your mobile phone, you call up Uber cars in you vicinity and off you go. Airbnb is a peer-to-peer method for finding a place to stay just about anywhere. Someone wants to rent their place for a day, a week or a month, and someone else want to stay there. Develop a high tech website, and everyone is happy. Tesla is an innovative electric car company that sells high-end vehicles that have recieved just about every award in the book—best, highest performance, safest. Without one dollar spent in advertising, they sell as many cars as they build. And they do this without a dealer network, direct to the consumer.

So what do the 21st century companies have in common? Big government—at the behest of special interrest groups—is trying hard to kill each of these innovative 21st century companies. It's crony capitalism at its worst. Nick Gillespie comments:
What the Invisible Hand of free-market innovation giveth, the Dead Hand of politically motivated regulation desperately tries to taketh away.

That’s the only way to describe what’s happening to three wildly innovative and popular products: the award-winning electric car Tesla, taxi-replacement service Uber, and hotel-alternative Airbnb. These companies are not only revolutionizing their industries via cutting-edge technology and customer-empowering distribution, they’re running afoul of interest groups that are quick to use political muscle to maintain market share and the status quo.

The battle between what historian Burton W. Folsom calls “market entrepreneurs” and “political entrepreneurs” is an old and ugly one, dating back to the earliest days of the American experiment. Market entrepreneurs make their money by offering customers a good or new service at a good or new price. Political entrepreneurs make their money the old-fashioned way: They use the government to rig markets and kneecap real and potential competitors.
In the case of Uber, Airbnb, and Tesla its the taxi cab industry, the hotel industry and the automobile dealers associations that play the roll of political entrepreneurs—and it's big government, this time at a state or city level, who look at political contributions, sales taxes and other $$$$ and side with those who want to crush the innovators.

After all, if a company comes up with an innovative business model, they have no right to compete again the crony capitalists, do they? The public has no right to choose what they want or aquire a better product at a potentially attractive price, do they? Only the crony capitalists can play, right? That why states and cities are passing special restrictive legislation to bar Uber, Airbnb, and Tesla from doing business in their locale. Money talks.

Gillespie has it right when he writes:
If mobsters were pulling these sorts of stunts, we’d recognize the attacks on new ways of doing business for what they are: protection rackets, with state regulators rather than professional hitmen creating and enforcing rules to benefit well-connected businessmen. The real losers are not just the next generation of innovators but also customers who lose out on more ways of getting what they need or want.
Just another reason to downsize government at every level.