What the Invisible Hand of free-market innovation giveth, the Dead Hand of politically motivated regulation desperately tries to taketh away.
That’s the only way to describe what’s happening to three wildly innovative and popular products: the award-winning electric car Tesla, taxi-replacement service Uber, and hotel-alternative Airbnb. These companies are not only revolutionizing their industries via cutting-edge technology and customer-empowering distribution, they’re running afoul of interest groups that are quick to use political muscle to maintain market share and the status quo.
The battle between what historian Burton W. Folsom calls “market entrepreneurs” and “political entrepreneurs” is an old and ugly one, dating back to the earliest days of the American experiment. Market entrepreneurs make their money by offering customers a good or new service at a good or new price. Political entrepreneurs make their money the old-fashioned way: They use the government to rig markets and kneecap real and potential competitors. In his great 1987 book, The Myth of the Robber Barons, Folsom discusses how the 19th-century steamboat pioneer Robert Fulton quickly went from a market entrepreneur to a political one by securing a 30-year monopoly from the New York legislature for all steamboat traffic in the Empire State.
Especially in today’s sluggish economy, it’s more important than ever that market innovators win out over crony capitalists. Letting markets work to find new ways of delivering goods and services isn’t just better for customers in the short term, it’s the only way to unleash the innovation that ultimately propels long-term economic growth. After all, no country has ever regulated its way out of a recession.