Anti-competitive bureaucracy isn’t new. But the Internet has changed everything

By Michael Carney , written on June 28, 2013

From The News Desk

Innovation is rarely welcomed by those whose business model is being disrupted. This is perhaps more so in the good ole boys clubs of the automobile and transportation industries as in any other. Without fail, as startups and technology companies have tried to disrupt these century-old industries they’ve time and time again run into aggressive cronyism and anticompetitive bureaucracy.

This is no less true today as it was generations ago. What is different this time around is that social media and online journalism give the masses a forum that did not exist previously and have left these bad actors much with less cover to hide behind. As a result, with politicians dependent on voters to stay in office, the policy negotiations and court decisions have begun to fall in the favor of innovation.

Still, the entrenched powers continue to fight against change, and we’ve seen a number examples of anti-competitive behavior recently. First, Uber, SideCar, and Lyft are fighting with taxi and limousine regulators in New York, Washington DC, San Francisco, Los Angeles, Philadelphia, Austin, Chicago, and likely other markets that I’m not aware of. And second, Tesla Motors, Elon Musk’s award-winning, paradigm-busting electric car company, has been embroiled in a fight of its own with car dealer associations in North Carolina, Texas, New York, and Illinois over its right to sell direct to consumers, via either company showrooms or online.

In each of these cases, the underlying theme is the same. An old, entrenched industry sees the disruptive writings on the wall and turns to poorly written laws, in most cases still on the books from a time before the personal computer, with the hopes of blocking newer entrants from competing.

Fortunately for consumers, startups hoping to shake up entrenched industries, and the local and national economies, this new generation of anti-competitive intervention is failing more than succeeding. In many of the above cases, the legality of Uber, Tesla, and other similarly disruptive services is being upheld not solely through the letter of the law, but equally through an uprising of support from concerned consumers that led regulators to act in favor of innovation. Courts are not typically swayed by public opinion, but it’s hard to imagine the regulators being so accommodating in changing existing laws without the loud public outcry in favor of these popular companies.

In the case of Uber, SideCar, and Lyft it has been less the case that the services are legal under current law than that current law doesn’t address their existence one way or another and that new law must be written to regulate these new, modern businesses. Nonetheless, Uber has had its bans overturned in New York, DC, and California – although LA recently ignored a statewide authorization by the Public Utilities Commission (PUC) in attempting to shut down the company’s operation within the city.

Earlier this week, Angelinos flexed their muscle in response, created a petition at backing Uber, SideCar, and Lyft, which is quickly approaching its 10,000 signature goal and which has been cited in both news coverage and during a hearing of the city Board of Transportation with regard to the car sharing services.

Similarly , a Tesla shareholder started a petition on the White House's "We the People" website, asking the president to "allow Tesla motors to sell directly to consumers in all 50 states." (The petition has yet to gather its targeted 100,000 signatures signature heading into its July 5 deadline, but has already received numerous national news headlines and drawn a significant amount of attention to the issue.)

Today, we heard the good news that a North Carolina House committee reversed course on a campaign by the state’s automobile dealers to block direct-to-consumer Tesla sales in the state. The company achieved a similar but less definitive outcome in New York earlier this week. Tesla still faces a similar battle in Texas and Illinois, but given the trend elsewhere and the wisdom from legal scholars which calls into question the constitutionality of such opposition – pointing to the Commerce Clause, (Article I, Section 8, Clause 3) which gives the federal government, not the states, the right to regulate interstate commerce – it seems reasonable to expect a similar outcome.

These outcomes were anything but a foregone conclusion. When faced with similar opposition, Chrysler chose to sell a dealer-owned Los Angeles showroom in 2011. Ford also lost a US Circuit Court case challenging a Texas law preventing the company from selling used cars through its own website in the state.

The situation was much the same a century ago. Shortly after the turn of the 20th century, Los Angeles had one of the nation’s largest cable car networks, before automobile and petroleum conglomerates purchased and soon shuddered the network, and those in other states, allegedly for anti-competitive reasons. Around the same time, city officials also banned the increasingly popular jitney cab, a predecessor to today’s ride-sharing businesses, in a move was seen as a protectionist one in favor of bus and rail companies.

On a national scale, the trucking industry long ago convinced Congress to enact tariffs on rail freight, which is largely responsible for the sorry state of the US rail system – and the fact that our roadways are clogged with trucks belching fumes, tearing up roads, and carrying goods goods less efficiently and more expensively than would be the case by rail without the tariffs.

At the end of the day, legacy businesses will inevitably fight for to protect their livelihoods. And in many cases this will result in anticompetitive and cronyistic bureaucracy. What’s different today is that consumers are more empowered than ever before to make their opinions heard. As we’ve seen with events of global importance, like the Arab Spring and SOPA, and more commercial intrigue, like Netflix’s creation and rapid shuttering of spin off Qwikster, when provoked the masses can be a powerful force.

Hopefully, more often than not, it's a force that will be used to foster innovation and fair competition.