How industry enlists government to thwart change

  • Article by: TOM KEANE , Boston Globe
  • Updated: July 11, 2013 - 6:26 PM

How industries enlist government to thwart helpful change and innovation.

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Uber MSP car service recently launched in the Twin Cities

Photo: Renee Jones Schneider, Star Tribune

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If only the owners of horses and buggies had been more organized, they likely could have thwarted the introduction of the automobile. If the slide rule industry had ponied up for more campaign contributions, it might have stopped the handheld calculator dead in its tracks. And if travel agents had banded together and gotten some strict regulations in place, Travelocity, Kayak and the like never would have had a chance.

Disruptive technologies are tough on the old guard. Carriage rides are now a throwback curiosity, slide rules are collectors’ items and travel agents are a dying breed. The transportation industry is now going through its own purge as an array of new businesses, most of them grounded in the explosion of information and communication made possible by the Internet and handheld devices, threaten long-established companies. But unlike the examples above, these old-line businesses have been able to secure the favor of legislators and regulators, meaning they are protected by rules that keep competitors out and slow the pace of change.

The taxicab industry is beset by the likes of Uber and Sidecar. The oligopolistic automobile dealer industry is under attack by new manufacturers such as Tesla and the increasing obvious illogic that — of all consumer products — we can’t purchase cars online. And now along comes a new business model, called peer-to-peer car rentals or car sharing, that threatens to upend the dominance firms such as Hertz and Avis have enjoyed, particularly when it comes to on-airport operations.

Each of these industries has fought back, using the power of the state to beat back the new entrants. Municipal taxicab regulators tightly control the number of cabs and the prices they charge. Every state has laws in place prohibiting the sale of automobiles directly to consumers. And local governments and their airports have long offered rental firms a near-exclusive on travelers in need of a car while at the same time generating lucrative fees for themselves.

A quick explanation of car-sharing is warranted. Most of us own a car. Sometimes we’re not using it. When we aren’t, why not rent it out to someone who needs it? In a pre-Internet world, the logistics of matching owners and renters would have been nearly impossible, but new players such as FlightCar and RelayRides make it easy. Signing up to rent or be a renter takes moments. The companies take care of insurance, the entire transaction is done online (no queues, no counters and no salespeople loading you up with useless insurance!), and in some cases it’s possible to unlock the car and drive away with just a command from your smartphone. And because the market is robust — lots of people are happy to rent their cars — prices are far below the norm.

At first the peer-to-peer businesses focused on residential neighborhoods, but they are slowly starting to eye airports — where most car rentals occur. Disappointingly (although not surprisingly) there’s been a lot of blowback. Massport, which operates Logan Airport in Boston, worries about the upstarts’ “safety, security, and customer service.” San Francisco is suing peer-to-peer company FlightCar to stop it from operating at the airport. And in May, RelayRides had to suspend all of its operations in New York because the state is unhappy with the insurance it carries.

Boston, San Francisco and New York will argue that their true concern is consumer protection, but that’s a claim to be greeted with skepticism. More likely, it’s just about money. In San Francisco, for example, car rental companies pay the airport $25 per rental and 10 percent of their gross profits. FlightCar does not. That’s what really upsetting the City by the Bay.

Granted, no one likes to lose a comfortable and consistent source of revenue. But think of the absurdity of this. Governments are thwarting innovation because they’re trying to protect their own narrow economic interests. Indeed, for those who argue that government should be more “businesslike,” this is a sobering reminder that the public sector really isn’t business — and when it tries to be, it gets it wrong. Rather than fighting car sharing, states and localities should be getting out of the way, letting free markets do their stuff.

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