Never let a crisis go to waste

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The Model 3 Tesla

Last month, I’d have given Tesla an even chance at breaking into Connecticut’s new car market. The electric car maker has been trying for years, but has been blocked by the Connecticut Automotive Retailers Association. The trade group opposes exceptions to the state’s franchise laws. Tesla has been making headway, but nothing seemed certain.

Then came The Big News.

Connecticut’s estimated deficit over the next two years grew from around $2 billion, which was worrisome enough, to around $5 billion. Before, Gov. Dannel Malloy had said he did not want to hear the word “tax.” Now he’s thinking the sales tax might be key to getting out of a fiscal black hole.

I don’t mean raising the sales tax, though that could happen. I mean revenue generated by the purchase of luxury vehicles ($50,000 and up) taxed at 7.75 percent, not the normal 6.35 percent. All of this is likely to pressure lawmakers from both parties that CARA has counted on to fend off Tesla. I’d say the odds of seeing direct sales are growing by the minute.

It’s not every day that political circumstances force elected officials to do the right thing in getting rid of, or weakening, a set of laws designed to protect an entire industry from competition. They should have taken action a long time ago. But because CARA is a strong lobbying force in Hartford, lawmakers naturally weren’t going to act unless forced to.

Now may be that time.

Jim Fleming is CARA’s president. He has argued that Tesla wants special treatment. All of the other new car dealers have to live with the state’s franchise laws. Why not Tesla?

But Tesla isn’t the exception.

CARA is.

In every other economic context, we expect businesses to compete for our money. With more competition, consumers have more choice, because competition drives prices down.

That is not the case in Connecticut. To buy a new car, you must go to a dealer whose need to compete is limited given there are only so many dealers in the state and the state’s government shields them from out-of-state competition.

Put one way, this is price control.

Put another way, this is a monopoly.

Now it’s perfectly true that members of this monopoly employ lots of people, give back to their communities, and serve as loyal and valuable members of the respective Chambers of Commerce. But none of that justifies exerting extraordinary influence over the democratic process, as has been the case since Tesla starting knocking on our door. None of that is an excuse to keep prices artificially high.

Anyway, Tesla isn’t the issue. Honda dealers are not competing with Tesla. The real issue for CARA, I suspect, is direct sales for all cars. The weaker the franchise laws become, the weaker the political rationalizing for protecting Connecticut’s new car dealers from competition.

This is a good thing. Really.

The reason Connecticut’s economy is so sluggish — one major reason anyway — is because there is not enough dynamism. There are not enough people taking the risks necessary to start their own businesses. Without dynamism, economies stagnate. Ours is stagnating. And the reason for that is because the barriers of entry are enormously high.

These barriers include franchise laws, but they don’t stop there. Various occupations, like barbers and manicurists, have built-in requirements that prevent entrepreneurs from competing, thus protecting the interests of incumbents by keeping prices high. Why do new barbers need so much licensing? Because existing barbers want it that way.

Connecticut’s economy could chug along as it has for years with nary an inch of economic growth. But this fiscal emergency presents an opportunity to effect real change.

As they say, never less a crisis go to waste.

John Stoehr is a lecturer in political science at Yale, a business columnist for Hearst Newspapers, an essayist for the New Haven Register and a U.S. News & World Report contributing editor.

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