Don’t Let Incumbents Hold Back the Future

Harvard Business Review

Like many other people, I thought the (thankfully temporary) decision by the French Council of State to force Uber and other app-based car summoning services to bake in a 15-minute delay, so as not to compete unfairly with taxis, was a classic example of Eurosclerosis, of Gallic dirigisme run amok, and lots of other bad and un-American things.

But then I read James Surowiecki’s recent column about the regulatory barriers that geek chic car company Tesla is facing as it tries to set up its own showrooms in New Jersey and many other states, and I became a lot less confident that we in the U.S. are doing a great job of letting innovation flourish without counterproductive meddling and stonewalling.

Surowiecki quotes Yale economist Fiona Scott Morton as saying that “There isn’t a rational argument for why a new company should have to use [existing] dealers. It’s just dealers trying to protect their profits.” So why is it the case in 48 states today that “direct sales by car manufacturers are restricted or legally prohibited, and manufacturers are often prevented from opening a dealership that would compete with existing ones?” Because that’s how today’s auto dealers want it, and they’re organized and affluent enough to sway the lawmaking process. Opensecrets.org, for example, lists the National Auto Dealers Association as #19 in its list of ‘Top All-Time Donors’ to candidates, parties, and leadership PACs.

The dealers say that they couldn’t compete if the car manufacturers were allowed to sell directly to consumers (the examples of successful dealers in countless other industries evidently give them no confidence or playbook) and that they’re standing up for “family-owned businesses.” But ‘family-owned’ definitely doesn’t mean ‘small’; in Texas, for example (the stage for another battle involving Tesla), a prominent political contributor is a billionaire who “owns the world’s second-largest Toyota franchise and operates in Texas, Oklahoma, Louisiana, Mississippi and Arkansas.”

Whether or not you care about Uber and Tesla, you should care about business innovation and disruption because they’re a primary way that progress happens and that people become better off over time.

Incumbents, of course, don’t want to be disrupted. And they’ll throw up all manner of barriers and smoke screens to try to prevent it from happening. They’ll enlist politicians, regulators, PR agencies, and everyone else they can think of to help with their campaigns to maintain the status quo.

They’ll do this all over the world, even in innovation-friendly countries like the U.S., and they’ll do it more and more often as we head deeper into the second machine age and the scale, scope, and pace of technology-based innovation and disruption pick up.

They’ll work hard to, as my friend Tim O’Reilly puts it, protect the past from the future. We should work hard to oppose this trend, and to protect the future from the past. A first step in this work is to be skeptical of claims from incumbents that when they protect themselves from upstart disruptors they’re also helping us out. Most of time, they’re not.

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