The balancing act: how governments deal with market disruption

Tesla. Uber. Airbnb. Even Walmart.

What do each of these companies have in common?

They all face massive regulatory hurdles to effectively operating their businesses and providing goods and/or services to their customers.

Tesla wants to sell its electric cars directly to consumers, bypassing the auto dealership model that is statutorily safeguarded in most U.S. states. Walmart wants to sell liquor in its grocery stores, which is illegal in Texas, where no publicly traded company is allowed to sell spirits inside its stores. Uber and Airbnb, two young tech companies that are part of the growing "sharing economy," claim they just want to provide rides and cheap places to stay, are constantly fighting on the regulatory battlefield of municipal governments that seek to regulate nearly every aspect of their fledgling businesses.

The involvement of government in private business is an age old debate. Some of history's greatest economic thinkers have offered excellent arguments both for less and more regulation of private industry. Milton Friedman's disdain for government occupational licensure has always intrigued me. Philosophically speaking,  I agree that consumers should accept personal responsibility, do their own research, and take an active role in ensuring they are not victimized while engaging in commerce. I can also appreciate Freidman's contempt for paternalistic governance.  Depending on the government to develop licensing criteria and vet people who provide each and every service available certainly has its drawbacks. However, not every businessperson or corporation will choose to be a good corporate citizen, which is why governments have been called upon to stop the bad actors.

Increasingly, market disruption has become one of my very favorite policy areas. I'm fascinated by the awkward and reluctant dance that businesses and governments do as they struggle to work it all out. I also thoroughly enjoy watching elected officials equivocate, becoming increasingly frustrated, as they wriggle and squirm trying make their positions on regulation fit with their claimed ideology. It's quite difficult to espouse the virtues of free market capitalism while opposing allowing direct car sales, or allowing a publicly traded grocery company to sell liquor in its stores.  Of course, policy making is never black and white, and arguably, it shouldn't be.

The one thing I have concluded while watching this debate rage on in cities throughout Texas, and under the Texas Capitol dome, is that the onus is on both the business and the government to make a better effort to work through these issues.

Recently, Airbnb spent $8 million in an effort to defeat Prop. F. which would have imposed a number of massive regulatory burdens on the company and its users in the City of San Francisco.  Similarly, Uber has come under fire for its "my way or the highway" attitude in response to municipalities across the nation seeking to regulate its operations: Uber is known for ceasing operations in cities that pass regulations on ride sharing that it deems too onerous. When legislative efforts to allow liquor sales in its stores were thwarted, Walmart sought a legal remedy to its problem. Elon Musk, Tesla's creator, has struggled to sell the concept of direct auto sales, despite spending hundreds of thousands of dollars on lobbyists and campaign contributions in Texas alone.

All of these companies are going about reaching their goals the wrong way. These companies, especially emerging tech companies like Uber and Airbnb, need to realize (and quick) that they must prioritize hiring competent and experienced government affairs professionals to help them navigate the tricky politics of these regulatory entities. I don't mean hiring slick, high dollar lobbyists for a few months only when the legislature is in session, but investing in a highly qualified team of professionals who will develop strategies and work to educate elected officials and stakeholders over time. While success in business came quickly for most of these companies, they need to recognize that achieving success in public policy is a long game. They need to be willing to make this investment of time and money for the long-term success of their businesses.

Conversely, elected officials who head these regulatory entities need to become more open minded and work to learn all that they can about the industries they are attempting to regulate. Everyone fears change, but as leaders, these folks must embrace the disruption that comes with increasing advances in technology and work with sincerity to encourage these companies to succeed while providing for the protection of health and safety of consumers. If the elected officials are there for the right reasons, they will abandon their allegiance to the status quo and work to develop sensible policies that don't inhibit these companies as they seek to provide products and services that consumers clearly need. With a little effort the right balance can be struck. A willingness to compromise and an effort to work together can go a long way.