AEI: Block All Rent-Seekers, Entrenched & Innovative
|July 7, 2014||Posted by Staff under Editorials|
This 2014 excerpt of the American Enterprise Institute’s Tech Policy Daily, July 2, by Jeffrey Eisenach.
Entrenched incumbents often fail to see outside their traditional business models. Human nature (being comfortable with the familiar), institutional dynamics (the first instinct of any bureaucracy is self-preservation), and simple economics (milking a cash cow) all create a bias for the status quo among those currently in power. It’s not that big companies never innovate (look at Apple for one obvious example), but rather that they tend to innovate as a result of competition – because “only the paranoid survive.”
Incumbents lobby for government regulation to deter entry by potential competitors – Ma Bell’s attempts to use its pet regulatory agency, the Federal Communications Commission, to cut off competition from Hush-a-Phone, CarterPhone, and later MCI is the classic example. Uber’s battle with taxi regulators is today’s cause celeb.
Entrants have also figured out the rent-seeking game. They too seek laws and rules that tilt the playing field in their favor, and history suggests they are pretty good at it: Dwayne Andreas securing literally billions of dollars in ethanol subsidies for Archer Daniels Midland, or FCC Chairman Reed Hundt falling for Competitive Local Exchange Carriers (CLECs, resulting in billions being wasted on stadium naming rights while venture capitalists walked off with still more billions in IPO proceeds), etc.
It is often difficult to tell the difference between the disruptive innovator and the creative rent seeker. Take Tesla for example. Incumbent auto dealers seek to prevent competition from Tesla by opposing direct sales. But Tesla also gets $7,500 in direct Federal tax subsidies to support every sale and tens of thousands more from states and various other indirect subsidies so wealthy buyers can pay less for their $90,000 “superluxury” sports cars.
Using government power to enrich those who deploy lobbyists and contribute to campaigns is wrong. Having a level playing field that forces firms and business models to face dynamic competition is great public policy. The idea of disruptive innovation is gaining currency in conservative/Republican policy circles.
Ed. Notes: There are more conservatives and Republicans than there are true libertarians so it’s great to see them catch up.