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OpenMarket: Business and Government

  • The Tesla File: Government Favors Cut Both Ways

    October 16, 2014 4:57 PM

    Electric vehicle manufacturer Tesla Motors has become a fascinating case study in economic freedom in recent years, although the narrative is a complicated one. The most recent development for Tesla has come out of Michigan, where the state legislature has banned car manufacturers from selling vehicles directly to the public or from owning dealerships themselves, new restrictions that effectively outlaw Tesla’s entire sales strategy, at least in the Great Lakes State. Michigan is not alone, however, in erecting restrictions on marketing and sales of cars that seem to target or effect only Tesla. Arizona, Maryland, Texas, and Virginia also ban the company from selling its cars in their states, although they can operate showrooms and residents can make purchases online. Colorado, Georgia, New Jersey, Ohio, and Pennsylvania also have restrictions or are in legal disputes with Tesla over what they can and can’t do in those states.

    Having to fight for the right to sell an otherwise legal product to willing customers – legislature by legislature – has created what Tesla’s James Chen has referred to as “a game of whack-a-mole in every state.” Just as the company has made its case before one state’s officials, another state comes along and threatens to erect barriers that suspiciously seem to harm only Telsa while protecting market incumbents from increased competition. This can only happen so many times before it begins to seem like more than a coincidence. In this scenario, CEO Elon Musk is cast in the role of the victim of opportunistic legislation lobbied for by bigger, more entrenched rivals – the underdog fighting cronyism between big carmakers and state politicians.

  • Farewell to Our Friend, Leonard Liggio

    October 14, 2014 1:14 PM

    We are saddened to hear our friend Leonard Liggio passed away this morning. Today, the liberty movement has lost an intellectual champion. The Competitive Enterprise Institute has lost a colleague and ally. And on a personal note, I have lost a reliable, ever-present partner since I first started working in this movement several decades ago. 

    Leonard was long the Don of the free market community. Realizing that CEI needed to move out of its infancy stage and expand its board of directors in the early 1990s, Fred Smith approached Leonard, who quickly agreed to serve on our team. He continued with that board role for nearly two decades, moving to emeritus status only last year. Leonard was whimsical in his conversation, grounded in his idealistic commitment, and often bemused by CEI’s temerity in translating classical ideas into actual reform. And, he was always supportive. 

     I asked Fred to recount a few of his own memories of Leonard. Here is his reply:  

  • How Will the Future View the “Temples” of Eco-Theocrats?

    October 7, 2014 9:40 AM

    While vacationing in Germany recently, I noted many beautiful and now largely untenanted churches. Elegant, majestic against the sky, they are potent symbols of a religious system no longer observed by many. They are maintained now largely as historic and cultural artifacts. I also noted, framed against the German landscape, the “temples” of today’s eco-theocrats—gigantic engineering marvels dominating almost all ridge lines, the modern version of the technologies of the 15th Century—windmills. As a technocrat, I did appreciate their aesthetic nature and can only marvel at the deep beliefs that have encouraged the German government to spend hundreds of billions on their construction and on the electrical interconnections necessary to get that power to market.  

    As a result, energy costs have gone up dramatically, threatening the competitiveness of German industry (particularly the chemical and manufacturing sectors), encouraging firms to expand in nations with more affordable energy and raising consumer energy bills. Understandably, political opposition has mounted to Chancellor Angela Merkel’s grand “Energiewende” plan for moving Germany to greater dependence on wind and solar power. The current system is non-sustainable.

  • Must Every Product in the World Be Safe Enough for Children?

    October 6, 2014 10:14 AM

    The New York Times reported Friday on the David-and-Goliath battle of businessman Shihan Qu, the last of the rare earth magnet renegades. Mr. Qu’s company, Zen Magnets, is the last U.S. company selling the popular sets of unusually strong magnets that first became popular when marketed under the name Buckyballs® (named after inventor and designer R. Buckminster Fuller). These sets allow scientifically-curious customers to creatively experiment with different geometric forms. When Craig Zucker and Jake Bronstein started selling Buckyballs® through their company Maxfield & Oberton in 2009, they were immediately successful.

    Magnets this strong do have safety concerns, however, and some children have swallowed them and been injured as a result. This is why the companies selling them covered them in warning labels and didn’t supply the product to stores whose inventory is primarily targeted to children, like Toys R Us. Since the magnets require a fair amount of manual strength and dexterity to use, they were never marketed to children, gaining their following largely from popular science and geek-themed outlets.

  • Billionaire Diversity: Foreign vs. Domestic

    September 17, 2014 10:46 AM

    Brookings Institution scholar Darrell West, whose new book Billionaires: Reflections on the Upper Crust is being released later this week, has another intriguing graphic on the political influence of the extremely wealthy. Last week Brookings posted an interactive grid of the top players in domestic politics, the U.S. Billionaire Political Power Index. This ranking put Charles and David Koch predictably at #1, but followed by Michael Bloomberg and hedge fund manager/global warming activist Tom Steyer, with the likes of George Soros, Bill and Melinda Gates, Warren Buffett and Alice Walton filling out the rest of the list. As I pointed out at the time, the list shows that the exclusive club of politically active billionaires is hardly composed entirely of conservative or libertarian types, as some on the Progressive left would have us believe.

    This week the rankings go international as West releases the Global Billionaires Political Power Index. This one includes a few crossovers from the U.S. influence list, such as Bill and Melinda Gates (#1), George Soros (#2), and Rupert Murdoch (#7). Interestingly absent are the joint-ranked Koch brothers, who despite being West’s most politically influential billionaires in the U.S., didn’t manage to even crack the top 15 worldwide. It seems Charles and David are only a threat to democracy (so sayeth Robert Reich) here at home.

  • STB Reauthorization Bill Threatens Rail Investment

    September 16, 2014 3:31 PM

    The U.S. Senate Committee on Commerce, Science, and Transportation has scheduled a markup for tomorrow afternoon of the Surface Transportation Board (STB) Reauthorization Act (S.2777). If enacted, the bill (specifically, Section 14) would threaten much needed investment in railroad infrastructure and reverse three decades of progress on railroad regulation.

    Senate Commerce chair Sen. Jay Rockefeller (D-W.V.), irresponsibly joined by Sen. John Thune (R-S.D.), has for years sought to reverse the partial deregulation enacted by Congress over 30 years ago. Since 1980, when the Staggers Act was enacted, average real freight rates have fallen by nearly 50 percent, railroad employee productivity and safety have dramatically improved, and the industry is now healthy and reinvesting more than $20 billion of its own funds every year.

    But hydraulic fracturing revolution has led crude oil shipments to skyrocket in recent years—since 2005, originated carloads of crude oil on major railroads have increased by more than 6,500%. With continued steady growth in intermodal movements, new capacity investments are needed to ensure America’s freight rail system remains the envy of the world. Unlike road and air carriers, the railroad industry owns and manages its own networks and uses its own funds for infrastructure investment.

    While singling out the private railroad industry for its alleged sins, Sen. Rockefeller has often championed subsidies for other modes of transportation. West Virginia’s highway system has long been one of the most federally subsidized in the nation, and Sen. Rockefeller never misses an opportunity to protect wasteful taxpayer subsidies of government-owned Amtrak and the completely misnamed and unessential Essential Air Service.

  • Celebrate Billionaire Diversity

    September 12, 2014 11:15 AM

    Darrell West, a Vice President at the Brookings Institution, has a new book coming out next week on the political influence of the very wealthy, titled Billionaires: Reflections on the Upper Crust. West has come up with a savvy promotional idea by assembling a list of the top 20 billionaires (and billionaire couples) ranked by political influence. Bloomberg TV had him on yesterday to discuss the list and Philip Bump at The Washington Post wrote about it last week, taking issue with some of West’s choices.

  • Obama “Fair Pay and Safe Workplaces” Executive Order Will Punish Firms in Pro-Worker States

    August 25, 2014 11:01 AM

    Earlier, we discussed President Obama’s recent Executive Order 13,673, which “will allow trial lawyers to extort larger settlements from companies, and enable bureaucratic agencies to extract costly settlements over conduct that may have been perfectly legal.”

    But it turns out that President Obama’s executive order (which allows the Labor Department to cut off firms’ government contracts over state or federal employment law verdicts or fines against them) has another, more ironic effect: It penalizes companies based in states like California that vigorously enforce labor and civil-rights laws, leading to employers in those states racking up more fines and verdicts against than similarly-behaving employers in other states. That’s the conclusion of Warren Meyer, the head of a campground-operation company based in Arizona, who recently closed his operations in neighboring California to avoid lawsuits.

    He says that “government contractors would be insane to operate in California,” given its “regulatory and judicial culture that assumes businesses are guilty until proven innocent. If state labor violations or suits lead to loss of business at the national level, why the hell would a contractor ever want to have employees in California?”

    Whether a large company is sued for discrimination or labor law violations often has more to do with its location than whether it violated the law. A recent study shows that “California has the most frequent incidences of [employment-practices] charges in the country, with a 42 percent higher chance of being sued by an employee for establishments . . . over the national average. Other states and jurisdictions where employers are at a high risk of employee suits include the District of Columbia (32% above the national average) [and] Illinois (26%).” It’s because of their location, not because California employers are more racist or anti-union than employers in other states (indeed, California employers spend more time and money on compliance mechanisms than employers elsewhere).

    The president probably thought his order would incentivize compliance with federal labor norms (it allows contracts to be cut off for violations of federal labor laws and roughly “equivalent” state laws). But in effect it punishes employers in states that vigorously enforce civil-rights and labor norms through state laws that ban the same thing as federal law, but through much harsher penalties. (For example, federal law bans sex discrimination in hiring, but caps emotional distress and punitive damages for even the largest employers at $300,000 under Title VII of the Civil Rights Act. But California’s Fair Employment and Housing Act allows unlimited compensatory and punitive damages for the same exact discrimination, leading to multi-million dollar damage awards in some seemingly ordinary discrimination cases.)

    The variation between California and other states in how often workers sue reflects the fact that some parts of the country are much more generous to workers who sue their employer than other parts of the country. How many lawsuits an employer faces is a function of how much workers and their lawyers expect to recover if they win a lawsuit.

  • Duplicative New Affirmative-Action Rule Drives Up Taxpayer Costs and Restricts Competition

    August 20, 2014 4:42 PM

    Does it make sense to require a park campground operator that has a few hundred employees at 120 different locations to come up with 120 separate affirmative-action plans, one for each site? Just because it also receives a measly $52,000 federal contract to clean bathrooms used by tourists (which it does very cheaply, at cost, in order to make its nearby concessions more attractive)?

    To any economist, the answer would be “no.” But to the Obama administration, the answer is “yes.” If a federal contractor gets $50,000 annually from the federal government, or “serves as a depository of Government funds in any amount” or has “government bills of lading” worth $50,000, it generally has to have a separate affirmative action plan for “each of its establishments,” under a regulation issued by the Department of Labor in March 2014. 

  • The Not-So-Free Market at Work

    August 19, 2014 3:24 PM

    In the mail, I recently received a brochure from a firm called Solar Solution LLC, claiming to be the District of Columbia’s #1 solar installer. Included was the following table showing the initial estimated cost and then, in subsequent columns, the multiple layers of subsidies one might obtain. These include the 30 percent federal tax credit, the D.C. solar grant, and the Solar Renewable Energy Credit.

    The effects are significant – a system initially estimated at $29,400 translates into an out-of-pocket cost of only $6,300. Clearly, Solar Solution is doing a brisk business with their current business plan. Given their success, they may be tempted to branch out to other services. The list of technologies that would become commercially successful with a 79 percent taxpayer discount is long indeed.

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