All Commentary
Thursday, February 1, 1996

No, Fred, There Is No Free Enterprise–At Least Not Here

North Carolina's Motor Vehicle Dealers and Manufacturers Regulations Code Is Legal Plunder

Dr. Ahlseen is Associate Professor of Economics at King College in Bristol, Tennessee.

Each passing year results in more government regulation and control over private sector production. It has become increasingly difficult for entrepreneurs to gain official approval to initiate and sustain an enterprise. Such impediments are a form of what Frederic Bastiat called legal plunder—when “the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong” or “benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”

We typically think of businessmen as enthusiastic supporters of the free enterprise system, as are “efficient-production” entrepreneurs, who make their living by providing a better or cheaper product or service. But with the expansion of government has come a new type of entrepreneur. Increasingly, businessmen are the first to lobby government for protection from unfettered competition. Today’s “rent-seeking” entrepreneurs have found it to be easier and less painful to seek government privilege than to compete. State assistance comes in various forms, such as direct subsidies, licensing/franchising, production quotas, and so on.

With the increase in federal spending and the expansion of governmental authority has come a corresponding increase in lobbying and other forms of political-profiteering. In 1947, there were 731 registered lobbyists in Washington, D.C. By 1985, this number had grown to 7,200. There has been a similar increase in Political Action Committee (PAC) contributions to congressional campaigns. These and other efforts are often directed at stifling the creativity of efficient-production entrepreneurs.

This phenomenon occurs at the state level as well. A recent example involved an acquaintance of mine (hereafter called Fred to protect the innocent) who lives in North Carolina. He wanted to begin a business that would allow him to spend more time at home with his wife and four young children. To this end, Fred planned to inaugurate “Autos by Owners.” He would rent space in a parking lot on a weekly basis to individuals who were interested in selling their used automobiles. Potential buyers could quickly examine 50 to 100 vehicles at one central location. They then could call several owners to arrange test drives at a convenient time. Sellers would avoid endless telephone calls and visits to their homes. Owners could also arrange to meet three to four potential buyers at the same time.

This type of business is not new; it has appeared in other states. Consequently, Fred is not a visionary, but he is still an entrepreneur. He located a parking lot and arranged lease terms. He printed brochures. He investigated potential advertising media.

He also checked North Carolina’s Motor Vehicle Dealers and Manufacturers Regulations. Part d of paragraph (11) of Section I, A, 20-286 defines a motor vehicle dealer as someone who “offers to sell, displays, or permits the display for sale for any form of compensation five or more vehicles in any 12 consecutive months.” But the code goes on to state that dealers must keep records of all titles that are transferred. This would be impossible for “Autos by Owners,” since there would be no way for Fred to know which vehicles were sold or withdrawn from sale. He therefore faced a “Catch 22.” Renting space for the display of vehicles defined him as a dealer. To be a dealer required him to transact titles. Since he did not transact titles he could not be a dealer. And since he could not be a dealer he could not start his business. His attempt to work with the state Department of Transportation to find a solution came to naught.

Fred received a decisive letter which, in typical bureaucratic understatement, explained: “While it is most unfortunate that you have invested monies to set up the type of business which you have described, I can only tell you that at this time, the General Statutes of North Carolina do not permit it.”

Why should any state prevent this type of business? Obviously, it is the rent-seeking entrepreneurs of North Carolina who had the foresight to lobby legislators to include a 2-line sentence in paragraph (11). And who might these rent-seeking entrepreneurs be? A good guess would be the motor vehicle dealers of North Carolina who, rightly, view businesses such as “Autos by Owners” as an unwanted source of competition. In short, North Carolina’s Motor Vehicle Dealers and Manufacturers Regulations code is legal plunder. However, the biggest loser in this situation is not Fred, but the consumers who must pay higher prices because their state does not allow genuine free enterprise in the automobile market.

This is just one of the many instances of government control over private enterprise. And it shows how very far we have to go before our society will be truly free.