Tesla's Business Model: Threat, or Free Market Triumph?

Over 90% of new car dealers in the United States are members of The National Auto Dealers Association (NADA), and are organized in state chapters. According to a Bloomberg report, for the past 10 years auto dealers have donated $89 million to state election campaigns, and an additional $53 million to federal election campaigns. To secure direct access to the political process on a federal level as well as provide support on a state level, NADA maintains a strong lobbying arm in Washington, D.C.

Auto dealers are experienced at playing politics. Knowing that their business can be protected via the political process from being challenged by a more efficient business model, they actively lobby state politicians.

When Netflix entered the DVD rental market several years ago, almost all Blockbuster stores closed. Yet instead of lobbying politicians to put barriers on Netflix, Blockbuster changed its business model. This is how markets operate: entrepreneurs shake up a sector, introducing new ideas and new business models in pursuit of profits.

The fundamental conflict here is not between Tesla Motors and independent car dealers. The much bigger problem is the deeper integration between government and economy. In a situation where the government is in a position to mandate how businesses should operate, and it is within a government’s reach to pick the winners of the marketplace, it becomes inevitable that a company, a group, or an industry association would actively lobby to protect itself against competition.

Politicians strive in an environment where they can change the rules of the game and effectively select winners. This is cronyism, and a direct assault on entrepreneurship. Market forces no longer guide entrepreneurs; they are guided by a need to gain access to a political office willing to provide special favors.

How can we avoid this trap? Yaron Brook, executive director of the Ayn Rand Institute in Irvine, CA, has a very simple yet effective solution: separation between government and economy.

Removing the ability to influence economic outcomes from politicians effectively removes the incentives of economic players from seeking special favors from the government. The economy should be left to the free market, where entrepreneurs compete freely in pursuit of a profit.

Related: “CBS’ ’60 Minutes’ admits to faking Tesla car noise.”