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The Petition of the Candle Makers: A Tale of Crony Capitalism

By       Message Reza varjavand       (Page 1 of 1 pages)     Permalink

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Some days, as I read the economic news, I can't help but reflect on the satirical tale of the "Candle Maker's Petition" written by renowned French economist, Frederic Bastiat. In this tale, Bastiat recounts how the candle makers petitioned the government to block the sun so that they could avoid formidable competition from the sun!

Previously on another online forum, I had posted a short opinion piece that inspired a healthy debate vis-a-vis crony capitalism. Although a ubiquitous problem, crony capitalism is a more serious phenomenon in developing countries than it is in developed countries like the U.S. Nonetheless, it has become a troubling concern in this country as well. It is usually fostered and often sanctioned by our government, self-serving politicians, and overbearing regulators who are often in bed with those they are supposed to regulate. Just a few days ago, I read a front-page story in a major national newspaper about a doctor whose license was revoked in state of Missouri because he defrauded Medicare of millions of dollars. He then moved to Illinois where he obtained his license and continued the sham practice for which he was punished in Missouri; however, this time his fraud was on an even bigger scale. This reminded me of the expression: "Fool me once, shame on you; fool me twice, shame on me." It seems like, in the case of government regulators, no matter how many times greedy manipulators fool them, the resulting "shame on us" is not enough for them to do anything about these unscrupulous people.

Likewise, many key industries, the automotive industry being one, are controlled by a few giant firms that have been able to utilize all sorts of ploys, such as collusive alliances and more recently bribing politicians for protection from would-be competitors, to fill their coffers. Recently, for example, some of these firms have spent a great deal of money to ban the direct sale of Tesla cars to American consumers, thus blocking this company's entry into their industry. Tesla is the latest fine addition to go up against the garden variety of automobiles sold in the U.S. It is a high-end electric car and one of the more expensive one; $70,000 is the average price. This car is manufactured by newcomer Tesla Motors, a non-traditional car manufacturing company founded by technology guru and entrepreneur, Elon Musk.

Succumbing to pressure exerted by car lobbyists, a few states so far have blocked the direct sales of Tesla. New Jersey is the third state, along with Texas and Arizona, to ban the direct sales of Tesla to American consumers. Ohio is considering a similar ban. Traditionally, automobiles are sold through dealers who often provide information and useful services to their customers. Such an arrangement is not unusual and has worked well so far in the U.S. market. However, there should also be nothing wrong with a manufacturer selling automobiles directly to consumers if they choose to do so. Tesla Motors is doing that. It sells its cars in its own showrooms. These showrooms are like Apple stores for automobiles, high-tech dealerships if you will.

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Frankly, cases like this represent a protectionist policy, another channel through which crony capitalism is promoted. The case of Tesla proves once again that government is beholden to the lobbyists representing the National Dealers Association, and seems to be cavalierly shirking off its duty to be accountable to U.S. consumers. The powerful auto manufacturers are using their economic clout to prevent the sales of Tesla through any means at their disposal. Various news media sources are saying that the decision of New Jersey Governor Christie "was urged on by lobbyists for the state's existing car dealerships." Similarly, according to a March 17, 20014 New York Times article, "Ohio lawmakers received more than $100,000 from the association representing Ohio auto dealers."

With beneficial technology progressing so fervently and people trying to be more cognizant of our planet and global warming, the sale of green products like electric cars should actually be encouraged by the government and not blocked. This is the car that is going to revolutionize the entire industry. It represents the ideal of possibly eliminating some of the pollution we are emitting into our atmosphere and other environmental damage stemming from the production and use of fossil-fueled vehicles. But it seems that right wing politicians do not believe in this ideal, just as they deny the detrimental consequences of global warming. Tesla Motors, I believe, should be able to sell its cars the way it wants and not be forced to deal with all of the problems caused by the selfish actions of politicians who are more interested in the perks handed out by lobbyists than they are in the future of us all.

Government should not dictate how manufacturers sell their products. Blocking the direct sale of Tesla by government is undemocratic and is against the spirit of the free enterprise system and the principle of consumer sovereignty. Not only should government help Mr. Elon Musk to promote his business, but it should also encourage others to engage in healthy competition that invigorates innovative endeavors and the production of environmentally friendly products. Preventing the direct sale of Tesla is not only bad for Tesla Motors because it prevents it from earning the additional revenue needed for the growth of the company, but this also harms the consumers. With the removal of unnecessary legal barriers, Tesla's increased sales would lead to eventual mass production of this car and to an ensuing lower price tag for consumers. As Mr. Musk mentioned in his 60 Minutes interview a week ago, he may be able cut the price in half in the near future.

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Understandably, such an abrupt change may be intolerable for dealers who are used to doing business in their traditional way; however, I think in the long run, changing the way cars are produced and sold in the U.S. will be necessary and rewarding for consumers as well as the economy. In the long term, forcing consumers to drive existing cars means they have to bear not only the costs associated with maintenance and repair, but also the social costs that come with environmental damage. This is tantamount to wasting consumer dollars and precious resources when a better alternative is available. Tesla is practically maintenance free because it does not have an engine, transmission, or other mechanisms of conventional cars that are expensive to maintain.

As I ponder all of this, I have to ask myself: Is our modern day automotive industry following in the footsteps of the candle makers of the past?

 

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Reza Varjavand (Ph.D., University of Oklahoma) is associate professor of economics and finance at the Graham School of management, Saint Xavier University, of Chicago. He has been an avid participant in many professional organizations and active in (more...)
 

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