Rent-seeking – Using the political system to prevent innovation

 Adam Smith

Auto dealers vs Tesla, taxi commissions vs Uber: Just the same damn rent seeking
[Via PandoDaily]

Sometimes this journalism stuff can be just too easy.

One reader has written in asking what’s happening in this fight between Tesla and the auto dealers in New York State. And then a PR agency sends me a blurb asking that I publicise their most recent campaign against Uber and Lyft.

As I say… too easy. They are both the same story: How incumbents, insiders in the political process, are willing to subvert that political process for their own economic gain. A gain, we should note, that comes at the expense of us consumers.

To the Tesla story, an outline of which is here:

ALBANY—Tesla would no longer be able to sell its luxury electric vehicles directly to consumers under a new bill in the New York State Legislature.

Groups representing the state’s automobile dealers met with Governor Andrew Cuomo in November to push a bill that would prevent automobile manufacturers from selling their vehicles directly to consumers, public schedules show. Deborah Dorman, president of the Eastern New York Coalition of Auto Dealers, was at that meeting and said Tuesday Cuomo aides told the group the governor would sign the bill if it passes.

That’s all pretty simple to understand. If car manufacturers have to sell through dealers then that means that dealers get a slice of the sale of every car. So dealers are of course going to campaign for manufacturers to have to sell through dealers, they’d be very odd indeed if they didn’t.


Of course these guys are going to use every possible trick to save their business and jobs, even as the economy changes. I bet the buggy whip makers would have done the same thing.

But government regulation should seldom be used to save a business model. It is almost never to the customer’s benefit.

Yet, because our system of government is tied to much to money, regulatory capture is a common thing throughout the system.

It is rent-seeking in its purest form – to increase one’s share of existing wealth without actually creating any wealth. It is making money simply by having money not by creating anything new. It is a parasitic outgrowth of capitalism.

It is a horribly pernicious policy arising from the collaboration of capitalists and politicians. The customer is never part of the equation so it is actually anti-capitalistic as described by Adam Smith.

We must work to stop this. Can we?