“Dealergate” is Really Just Business as Usual

Eyebrows went up when Chrysler announced that it would be shutting down 25% of its US dealers. Since the auto company doesn’t pay the operating costs of its franchise dealerships, it looked like a bad business idea. Why would an already troubled company go out of its way to reduce the availability of its product?

If you guessed “politics,” you guessed right: The closures appear to have been pushed on Chrysler by the Obama administration, which has considerable leverage with the company due to the “public investment in” (read: taxpayer bailout of) America’s auto manufacturers.

I’m shocked — shocked — to hear that there may be an additional political angle to the closures. It’s starting to look like Chrysler dealership owners who make campaign contributions to Republican candidates are taking it in the shorts, while Friends of Barack are seeing their competitors eliminated.

Surprised? I’m surprised that you’re surprised. When the state gets involved in the market, politics gets involved in the market. And when politics gets involved in the market, it should be no surprise that that politics proceeds to impart its distinctive taint to “market decisions.”

The auto industry may be the most glaring example of this truism. As a matter of fact, if I could pick only one market sector to demonstrate the perverse effects of the state, it would probably be transportation.

You’ve probably heard of “biodiesel.” If you’re the average American, odds are pretty good that you think of it as one of those new-fangled environmentalist ideas. In point of fact, Rudolf Diesel’s early engines ran on, well, “biodiesel” — vegetable oils in general, and hemp oil in particular. Petroleum-based “diesel” wasn’t synthesized to mimic “biodiesel” for a good ten years after the first Rudolf Diesel engine debuted.

One of Henry Ford’s prototype cars not only ran on biofuels (his company operated a biomass conversion facility in Michigan in the 1930s!), but its body was constructed of hemp resins.

How did petroleum get into the driver’s seat? Politics, of course. Politically connected businessmen (in particular newspaper magnate William Randolph Hearst and former Treasury Secretary Andrew Mellon, an investor in DuPont) who were heavily invested in non-hemp materials (wood pulp for paper and petroleum for fuel) ran a scare campaign against hemp and lobbied for legislation to outlaw its cultivation and use. They got what they wanted — and we got the war on drugs, the 1970s Arab embargo and, a few years back, gas costing $5 a gallon.

Of course, the automobile also had to overcome competition from mass transit. How did they manage it? Do you even have to guess?

At one time, many buses, trolleys, streetcars and train lines were privately owned. They represented an obstacle to the automakers’ eventual “two cars in every garage” revenue model. In order to sell that model, the automakers first had to sell politicians on using taxpayer money to build a far more robust road and street network that could carry the traffic they wanted to (profitably) put on it. So, they got with the lobbying. In 1956, the automakers hit the subsidy jackpot when President Dwight D. Eisenhower signed legislation creating the Interstate Highway System.

As a result, most remaining “mass transit” is now also subsidized by the taxpayer and those garages with two cars each in them are scattered over hell’s half acre of “suburban sprawl” (connected by those taxpayer-funded roads).

Have the consequences of state intervention in the transportation market been uniformly bad? Probably not. Might some of the same consequences have transpired in a a market environment? Probably so. But there’s every reason to believe that a market free of political influence would have delivered different, and overall better, results — and the ill effects of the political influence are too visible and onerous to ignore.

Given the incestuous relationship between the state and the business community, it should come as no surprise when Friends of [Insert Currently Successful Politician’s Name Here] get their competitors bulldozed or receive preferential “no-bid” government contractors — or when Enemies of [Insert Currently Successful Politician’s Name Here] look up and see a bulldozer or an IRS audit coming their way.

“Separation of market and state?” Great idea … but the only way it will work out in the end is if the state actually packs its bags and moves out of the house.

Translations for the article:

Free Markets & Capitalism?
Markets Not Capitalism
Organization Theory
Conscience of an Anarchist