California

Car-Sharing Bill Typifies California's 'Crony Capitalist' Approach to Innovation

Rental-car companies are facing the same challenges as other established businesses in the internet age. One state lawmaker wants to protect them from change.

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Real capitalism is a tough sport where entrepreneurs risk their capital in hopes of winning customers.

The "crony" version of it involves politicians rigging the rules to assure that the "right" people are winners. We see this ugly process on high-profile national issues, such as when Donald Trump promotes tariffs to boost steel makers at the expense of companies that use steel products. But most of this nonsense proceeds quietly in legislative committees, without garnering any headlines or vocal opposition.

One awful but illustrative example popped up recently in the California state Capitol. Assembly Bill 2246, by Assemblywoman Laura Friedman, D-Glendale, apparently is part of a national effort by rental-car companies to snuff out a burgeoning industry that just happens to be threatening its business model. The bill would redefine "personal vehicle sharing" companies as "car rental companies"—and then slam them with reams of new regulations. Similar measures have been proposed in Idaho, New Hampshire, Maryland and Maine.

Rental-car companies are facing the same challenges as other established business models in this internet and app-based age. Capitalism—the real sort—is defined by "creative destruction," as economist Joseph Schumpeter called it. New companies are free to offer better products and services that appeal to customers. This is creative as new ideas flourish and consumers get a broader choice and lower prices thanks to competition. But it's also destructive. Complacent old companies suddenly are forced to improve their offerings or shut their doors. The consumer is king.

For example, I recently grabbed a taxicab rather than my usual Uber and noticed the oddest thing. The cabbie had a modern app-based system for taking my credit-card payment. Until recently, paying by credit card was a hassle because cab services didn't really want to take your card. I've also noticed a fleet of nice new cabs around my city. And the cab I took even sent an email with a receipt and a rating system. Sound familiar?

The cab companies have been forced to step up their game. But let's not give them too much credit. They have lobbied at the state and local level to impose new regulations that would hobble the ride-sharing companies that have forced them to operate more efficiently and to better cater to drivers and consumers. The taxicab cartel, which was a creation of crony capitalistic rent seeking in the first place, limits competition. The cab companies whined that it was unfair that these upstarts could skirt all the cab regulations—but the clever app-based workaround is the entire reason consumers are no longer stuck riding in decrepit cabs.

Likewise, room-sharing applications such as Airbnb continue to deal with limits and bans by cities, some of which are backed by the hotel industry. No one believes that these hoteliers simply are concerned about possible noise and parking issues in neighborhoods. They are worried about losing some of their vacation market share, so they have turned to lawmakers rather than the marketplace. It's another example of the crony capitalist approach.

Now, companies such as Getaround offer a similar deal. I know someone who rents her car through one of these services, which provides an app, insurance and everything needed for people to easily borrow her Mini Cooper for an hour or a day. I'm too particular about my car to let strangers drive it, but for some people it's a great way to make extra cash. It provides tourists with a nifty way to rent cars at various locations rather than going to the rental-car center and paying steep prices.

"By including personal vehicle sharing programs within those terms, the bill would make personal vehicle ride sharing programs subject to the rules and regulations applicable to rental car businesses, including provisions of the Consumer Automotive Recall Safety Act," according to the Friedman legislation. In other words, by defining these non-rental-car companies as rental-car companies, the bill would strangle this entrepreneurial model in the back seat, so to speak. It's appalling. It's so typical of how business is done in the Legislature that it doesn't even make many waves.

The vehicle-sharing companies are backing Assembly Bill 2873. It's an understandable, defensive measure that exempts them from being considered rental-car companies, but expresses the legislative intent to boost regulations. That's par for the course. Entrepreneurs have to propose new regulations on themselves to avoid getting hammered with unreasonable, industry killing regulations by their competitors.

AB2873's author is Evan Low, a Democrat from Silicon Valley and co-chairman of the California Legislative Technology and Innovation Caucus. Most of the exciting new business models are coming from the tech sector, and virtually all of them are facing pushback from old-line companies that find it easier to hire lobbyists than focus on improving their products or services. Here's hoping this committee can become a bulwark of capitalism in a world of cronyism.

This column first appeared in the Orange County Register. Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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  1. While I agree in principal with the arguments you’ve made about crony capitalism, and in particular the tendency of the old guard to hide behind legislation rather than innovation, let’s not forget that the old-guard industries themselves already face a myriad costly, progress-hampering regulations from which the upstarts aim to be exempted. This problem runs in both directions.

    1. So let the established companies lobby against unnecessary regulations on them, instead of lobbying for more regulation of their competitors.

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    2. Bullshit. Trying to escape government regulation is in no way comparable to trying to ensnare competitors in government regulation.

      Oh woe is them the poor cronies who have embraced government regulation instead of fighting it, now they have no chice but to drga others down into the pit with them. Oh woe!

      Fuck off, slaver.

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  2. Chute_me is correct. If the “sharing” businesses are exempt from a regulation, then the regulation should be rescinded.

    But then we’d have to ask ourselves if we really want a rental car fleet full of faulty airbags.

    1. That argument would be a lot more plausible if the flood of regulations actually had anything to do with real safety.

    2. I once rented a car in Salt Lake City and drove a tiny little road far up into the mountains. When I turned around to come down, the brake light came on and when I did a quick check under the hood I found I was mostly out of brake fluid.

      I rented a car in Wyoming and took off down the road and was pulled over about the time the sun set for not having any rear lights.

      I call BS on rental car companies being more or less likely to having faulty car issues than private owners.

  3. It’s so typical of how business is done in the Legislature that it doesn’t even make many waves.

    Consumers deserve to take it in the butt if they allow their lawmakers to give it to them in the butt.

    1. So if you’re in the 49% who don’t vote to get it in the butt, tough shit?

      1. Exactly. Learn how to convince your neighbors or live with their ignorant choices.

  4. The cab companies have been forced to step up their game.

    There is no way cabs can compete with Uber on a level playing field. A professional is always going to have to charge more than a person doing something in their spare time using skills they already have and equipment they already use in their personal life. They could steal some customers away with super-luxurious ride experiences that wouldn’t be possible in an amateur’s car, but that’s a small niche, and I’m not even sure the numbers would work out even in that niche.

    The sharing economy doesn’t force existing market players to step up their games, it destroys them. I know about creative destruction and all, but you need to be honest about the consequences. The Model T didn’t force buggy whip manufacturers to step up their game and build better buggy whips.

    1. The sharing economy doesn’t force existing market players to step up their games, it destroys them.

      If it destroys the existing market players, then what that is demonstrating is that the existing market players where doing a (in comparison to the sharing economy player) a very shitty job of meeting the needs of the consumers, and presumably they were able to get away with it only by the grace of government prohibiting consumers from having any other alternatives within that market.

    2. By that logic, professional bakers will never be able to outcompete the amateurs who are willing to bake you a birthday cake in their kitchen and professional accountants will never be able to outcompete your brother-in-law who does some bookkeeping on the side. In fact, that logic says that no professional anywhere will ever succeed outside of a “small niche”.

      Clearly, that doesn’t happen. Professionals, even in the taxi industry, can always exploit economies of scale to provide better, different or just cheaper service than amateurs. They could, for example, use their size to negotiate bulk discounts on fuel or maintenance. They could invest in better technology for more efficient route planning, in better advertising, etc.

      The truly sad state is when an industry gets so complacent and so inefficient that even amateurs can out-compete them. These companies deserve to die.

    3. Buggy whip companies ended up making the fan belts for cars, they evolved

    4. I’m not sure I’d use the word professional to describe many, if any, of my experiences in a cab.

  5. That recall bill doesn’t seem onerous at all to me. It just prohibits the rental of a car subject to a mfr.’s recall. Why would you even want to be driving such?

    Seems to me you’re quick to choose sides in this, calling 1 type of regulatory bill defensive.

    1. There are two bills mentioned

      The first, supported by Avis/Enterprise/etc which is basically a means of banning car sharing by saying anyone who occasionally loans out there car for a fee is a rental company subject to a textbook full of rules, reporting requirements, and the exorbitant costs of complying with those rules, and so on.

      The second bill is supported by the car-share people which says that anyone that occasionally loans out their personal vehicle for a fee is not actually a rental company, but people who offer their car for a car-share need to comply with a considerably smaller rule book

      The first bill is specifically intended to kill car-sharing.
      The second is to give car-sharing a modicum of ‘being regulated’ in hopes that it slakes the thirst of regulators and keeps them from going overboard.

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  8. Entrepreneurs have to propose new regulations on themselves to avoid getting hammered with unreasonable, industry killing regulations by their competitors.

    They also do that in order to protect their own markets from newcomers.

    It’s crony capitalism all the way down.

  9. What the author really saw when he took a cab was the effect of liberalization of taxi regulations by his local city or state. Much of the reason taxicabs were dispatched the way they were despite technological advances, was archaic city and state taxicab regulations. Most major cities imposed specific, technologically archaic dispatch rules on cab companies until the cab companies screamed loud enough. Along with the unreasonable dispatch rules were reasonable safety rules for vehicle inspection and driver background which Uber chose to ignore, putting their riders at risk for Uber’s profit.

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  11. With all due respect, I think you did yourself harm by letting the taxi company know who you were. One of the great freedom advantages of taxis is that you can get a ride anonymously and pay for it with cash.

    Because Uber does not respect our privacy, I refuse absolutely to be a customer of Uber. Uber does not know about me as a customer and _never will_.

    But that is not enough resistance. Uber is running at a loss in the aim of wiping out competition, which makes it an active enemy of our privacy. I’ve decided to refuse to ride in an Uber car even if someone else has arranged it.

    Those of you who value freedom and privacy over convenience in the moment, please join me in making Uber respect our freedom and privacy, or cease operations.

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