Defending Privilege in a World of Disruptive Innovation

Two front‐​page stories in the Metro section of Monday’s Washington Post depict protected service providers desperately trying to fight off innovations that might serve customers better and threaten the comfortable incomes of the established providers.


First up, Tesla and the automobile dealers:

Don Hall, president of the Virginia Automobile Dealers Association, was making the hard sell.


Staring directly into the camera, using the language of war, he urged car dealers to unite against a force that he said threatened their livelihoods: electric‐​car‐​maker Tesla.…


The reason that Hall was sounding the alarm: Tesla, which sells its cars directly to consumers rather than through franchise dealers, is trying to open a second store in Virginia.


Car dealers in Virginia and across the country have been fighting Tesla, seeing the company’s direct‐​to‐​consumer sales model as a threat to the franchise system that they say protects consumers as well as their own business interests.

In Virginia, as in most states, it is generally illegal for manufacturers to sell cars directly to consumers.

Like all regulatory rent‐​seekers, the automobile dealers have some public interest rationales, such as the claim that customers benefit by being able to shop for service among multiple dealers of the same automobile. But their arguments may rest more firmly on the fact that “over the past decade, VADA has given Virginia politicians $4 million in campaign contributions.”

Private companies aren’t the only protected providers. Just below the Tesla story was one about advocates of the federally funded school voucher program in the District of Columbia hoping that a new president will be more supportive of school choice than President Obama has been. Defenders of the traditional school monopoly are not giving up:

The prospect of an expanded voucher program is not a welcome one among the District’s elected officials, who chafe as Congress — where the District has no vote — passes laws that shape the landscape of city education. Many also are ideologically opposed and worry that an expanded voucher program could threaten the progress and growth of the city’s traditional public and public charter schools.

“I’m 100 percent opposed to public dollars going to private schools like this,” said D.C. Council Member David Grosso (I‑At Large), who has spoken forcefully against the voucher program for years.

In a world where millions of students, especially low‐​income and urban kids, are getting a poor education, teachers unions and school bureaucracies have been fighting choice programs for more than two decades. Just like automobile dealers, they put their own interests ahead of those of their customers.


I should note that Clayton Christensen, who coined the term “disruptive innovation,” would probably say that these examples don’t qualify. Maybe I should just use the older term “creative destruction.” By any name, it’s people trying to protect their own lucrative position against competitors who think they can serve consumer needs better.