Regulation

"The Government Is a Hitman: Uber, Tesla, and Airbnb Are in Its Crosshairs"

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I've got a new column up at Time, all about ridiculous regulatory attempts to squelch disruptive business models such as Tesla, Uber, and Airbnb. Here's the start:

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…. 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.

I cite historian Burton W. Folsom's distinction between "market entrepreneurs" and "political entrepreneurs." The former capture customers and profits by delivering new and better products and services. The latter rely on governments and regulators rigging or freezing markets to their advantage (bonus frustration: market entrepreneurs routinely transmogrify into political ones after gaining a big market share). In Folsom's telling, the 19th-century steamboat pioneer Robert Fulton exemplifies both categories, first by improving a technology and gaining a market and then by locking in a state-granted monopoly for steamboat traffic in New York. In the end, though, real markets do win out, though:

Folsom's study of political and market entrepreneurs also suggests that political entrepreneurs are ultimately unsuccessful. Indeed, in 1817, Fulton claimed that his monopoly meant that no one could ferry passengers to New York City from neighboring states. A young Corneilius Vanderbilt was hired by a Jersey businessman to challenge Fulton not in a court of law but on the Hudson River, ferrying passengers from Elizabeth, New Jersey and Gotham. Vanderbilt cheekily flew a flag from his ship that read, "New Jersey must be free." While evading capture, Vanderbilt lowered prices and changed the business climate.

It turns out that New Jersey must be free again — to sell Teslas. And New Yorkers should be free to rent out their rooms if they want to. And Uber to drive you where you want to go. The Invisible Hand of free markets shouldn't have to spend so much of its time slapping away the Dead Hand of political entrepreneurship.

Read the whole thing.

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  1. Hasn’t Tesla been surviving under crony capitalist energy subsidies? How did they get on the Boss’s wrong side?

    1. They’ve run afoul of more established crony capitalists.

    2. Different Boss.

      Feds are still subsidizing them. It’s the state government that won’t let them sell their cars directly, but instead insists they go through franchises.

      1. Also they are ripping off other automakers to the tune of $60 million. Basically, Tesla is being given renewable energy credits by state fiat, and then other automakers have to by those credits in order to meet state requirements to do business within the state.

        So if 40% of the credits Tesla gets are fraudulent, that’s 30% of the entire California market. In fact, it’s probably more than 20% of the entire US market. And that’s assuming the rest of the system is clean.

        In short, the ZEV mandate is a joke.

        So here we are, fifteen months after Tesla started getting carbon credits for the battery swap. The company has already cashed out, probably for more than $60 million. Without building a single swap station, or demonstrating the feature in consumer cars, or bothering to provide any sort of explanation.

    3. Live by the sword, die by the sword.

      Taking on the dealership franchising system is a big deal. They are firmly ensconced just about everywhere and they donate.

    4. That was my first thought. Live by crony capitalism, die by it?

      1. AlmightyJB|3.20.14 @ 11:52AM|#
        “That was my first thought. Live by crony capitalism, die by it?”

        Musk will get my sympathy right after GM does.

  2. Ah, different Family, that’s why.

  3. Yeah, I wouldn’t promote Tesla as the poster boy of free market capitalism. Their whole business model is based on Federal subsidies.

    1. NJ is going after them for direct sales, but that’s about it. Rich people problems.

    2. “Tesla’s success would have been impossible without a big assist from government: a $465 million, low-interest Energy Department loan (since repaid); substantial tax credits for purchasers; tens of millions of dollars’ worth of air-pollution credits awarded by California regulators to Tesla and sold to competitors who, under state law, had to buy them.”

      Not exactly the poster child for free markets.

      1. Local Motors might be a better example?

        1. Rally in a box?

          I’ll take two please. Very cool.

  4. The Regulation Singularity is coming. More work done to comply with the government than to actually run the rest of the business.

    http://www.coyoteblog.com/coyo…..arity.html

    1. Interesting that Robert A. Heinlein wrote “The Cat Who Walks Through Walls” before Vernor Vinge coined the the term “The Coming Technological Singularity”

  5. At least some parts of the comment system is still FUBAR’ed.

  6. Seattle’s successfully gone after Uber and I think Lyft. Innovation has literally become the enemy of the state.

    GODDAMN SQUIRRELS CAN BLOW!

    1. Stasis is the lifeblood of the state and the well-connected.

  7. This is why things like bitcoin and bittorrent are such great disruptive technologies. No centralized body for the state to go after.

    I am surprised Airbnb has been allowed to operate in places like NYC though, not only pissing off the hotel consortium but also avoiding the ~18% taxes and fees. Maybe there have been some crackdowns that just haven’t made the news.

  8. And the Time commenters are nothing if not predictable:

    The confusion here is that you’re talking about state and local government, not federal. Tesla is running into issues in Christie country and other manufacturers are telling Christie to put a break on direct selling since it skips the middle man.


    And you know what.


    That’s the historic case about most government abuse; on a state and local level you’ll find a bribed politicians doing what campaign donors want. Which is no different than say a majority political party rubber stamping pollution in a state through legislation because the major campaign donor (for governor and other politicians) is the polluter.


    This is not about stifling free market innovation; it’s is generally what happens when the traditional market is allowed to own our political system and write its laws.

    If we just had a stronger centralized government, this never would’ve happened!

  9. If the Yellow/White pages company had been smart they would have paid for a lobby to regulate the searching and advertising of companies on pages. We would, of course, be without the commercial version of the internet. The politicians would have been happy with their payoff, not realizing the potential that existed. Pretty much the defining flaw of most regulations and community planning based governments.

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