Now that SXSW is drawing to a close, the city of Austin, TX can take a step back to reflect on the experience. Normally a slow and tricky metropolitan area to navigate on a good day, Austin becomes congested beyond recognition every year during the two short weeks of its world-famous music festival, and 2014 has been no exception. This spring, tens of thousands of people packed into their cars and made the long drive to the Texas hill country, and - once again - there was not enough room for everyone. Alternative forms of transportation such as the Capital Metro bus service become similarly overcrowded, and shelling out the required $55 for a taxi is hardly an affordable alternative. Faced with such inadequate public infrastructure and transport systems, many festival-goers are turning to more innovative, efficient, and affordable private transportation solutions.
But the Austin Police Department has other plans.
In the run up to the festival this year, the official Twitter profile of the Austin Police Department warned tourists to “only use permitted transportation services,” prompting some users to ask whether Uber, a popular new car sharing service that allows users to conveniently share rides via a mobile app, would be allowed during the festival.
@JoshuaBaer No they are not.
— Austin Police Dept (@Austin_Police) March 8, 2014
Because Uber offers a far more competitive service than the existing alternatives in the city, officials have decided the company must offer its services at a minimum price of $55 per ride, in order to protect established interests in the transportation sector. According to representatives of the taxi industry, Uber’s more efficient business model places an unfair burden on taxi drivers, who cannot afford to lower their prices enough to compete.
Though the taxi industry may suffer temporarily, all the money that would ordinarily be wasted on higher transportation costs can now be reinvested into the economy, paying for better food, better housing, better healthcare, and other societal goods. Far from being ‘unfair,’ Uber’s competitive advantage is a perfect example of ‘creative destruction’, whereby less efficient providers of goods and services are slowly outcompeted and replaced by more efficient providers in a never-ending process of innovation in the a capitalist market economy. All technological achievements, from the light bulb and the factory assembly line, to the iPhone and the Tesla Model S, have come about through this dynamic process, and representatives of Uber, Inc. are reaching out to the people of Austin to protect it from being infringed by the government.
“To date, innovation in this space has been stifled by regulations that shield the taxi industry from healthy competition at the expense of consumers who can’t get where they need to go and drivers who are unable to making a good living or build their small businesses,” the company wrote in a post on its blog.
Only time will tell whether Uber will survive in Austin. However, they are not alone.
All over North America, it appears that wherever upstart capitalists enter an industry and upset older and less efficient ways of doing things, the government intervenes to stifle innovation and protect cronies and established interests. When life gives you lemons, we can count on the government to try to ban lemonade. Year after year, the most conspicuously successful companies find themselves on the government’s bad side and meet the same fate.
Continuing this theme, let’s count down some of the most prominent examples of government obstructionism in the free market in recent months:
#4 Lyft and Sidecar
The story of Lyft and Sidecar is similar to that of Uber, if only for the reason that all three companies leverage social media technology to create more profitable business models. Unlike Uber, which operates primarily as an alternative to taxi services, Lyft and Sidecar also compete with car rental companies like Hertz, and have begun operations in a number of American airports. Ordinarily, when an air traveler drives a car to the airport, the car sits unused and vacant in an airport parking garage for the duration of their journey. When a customer signs up to Lyft or Sidecar, their car is instead loaned to other customers while the owner is away. In exchange, the customer is loaned another customer’s car in their destination city as long as they are there. These swaps are impossible to coordinate using conventional means of communication, but social media paves the way for a computer-operated system of car swaps that leaves no customer stranded without a car, and returns every car to its proper owner at the end of their journey.
These companies faced heavy initial opposition from entrenched interests, most notably from existing car rental companies, who argued that their business models violated industry regulations and constituted unfair competition. In the state of California, these efforts were almost successful. In one of the biggest wins for free enterprise in 2013, the state government doubled back on this push in September, and changed its regulatory framework to allow these companies to legally operate in California.
Using a similar business model, a bed-and-breakfast network company known as Airbnb had the same experience as Lyft and Sidecar in the state of Michigan. On Airbnb, users can offer up their homes, rather than their vehicles, to be used by other customers in their absence. In exchange, the user is given another customer’s home to use in another city for the length of their trip. Such swaps were previously impossible to coordinate on an individual basis, but Airbnb’s innovative business model has used the power of the Internet to make the system run smoothly.
When the City Commission of Grand Rapids, MI was presented with a motion to ban companies like Airbnb from operating within the city limits, established hotel and hospitality companies were strongly supportive. However, due to the efforts and petitions of ‘sharing-economy’ activists at Peers.org, the motion was unsuccessful. In November of last year, the city government unanimously rejected the proposed regulation, and Airbnb is now legally free to compete with the rest of the hospitality industry in Grand Rapids.
#2 Private Security Providers in Mexico
Departing from the theme of the ‘sharing economy,’ a number of private security providers, mostly militias composed of citizens, former soldiers, and mercenaries, have sprung up in the most war-torn states of Mexico to do what the government so far hasn’t been able to accomplish. The drug cartels have long had a stranglehold on the Mexican government, and have corrupted entire divisions of the military, local police forces, and the Justice Department. At present, the cartels now control over 30% of the country’s arable land, and the military does not appear to be making any headway
As previously reported on The Libertarian, the Mexican government was initially opposed to these mercenary forces, despite their immediate successes in the war against the cartels. However, officials were quick to reverse this opposition when it became apparent that there were few remaining options in the conflict. The private militias have now been officially licenced by the Army, and are currently joining the struggle to restore order in the country.
#1 Tesla Motors
Topping our list of regulatory obstructions of the free market, the plight of Tesla Motors is one of the most widely reported struggles in the auto industry. Because Tesla operates according to a direct-to-consumer sales model, much of the costs incurred by the addition of car dealers and other middlemen are avoided, and Tesla’s luxury electric vehicles are more affordable than those of their competitors. Feeling the pressure, car dealers across the United States have doubled down on state legislatures, passing a variety of measures to ban or restrict sales of Tesla vehicles.
Early last week, it was revealed that the government of New Jersey, led by Gov. Chris Christie (R-NJ), has caved to the demands of car dealers in the state and banned Tesla Motors from operating its own dealerships or selling its vehicles directly to New Jersey consumers. Tesla Motors CEO Elon Musk was quick to protest the move, accusing state officials of corruption and conflicts of interest.
“When Tesla came along as a new company with no existing franchisees, the auto dealers, who possess vastly more resources and influence than Tesla, nonetheless sought to force us to sell through them,” Musk said.
“The reason that we did not choose to do this is that the auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none.”
Tesla now faces such restrictions in 48 states, but public opinion is beginning to swing in their favour. Supporters of free enterprise have the opportunity to win a major victory, and set an even more major precedent, if the courts and voting public throw their efforts behind Tesla. Looking forward to the rest of the year, the fight for Tesla Motors is gearing up to be one of the most important news stories for libertarians to watch out for in 2014.
Image credit to the Foundation for Economic Education