Analysis: Getting State's Permission to Do Business

When upstart competitors challenge established businesses, they often call on state lawmakers for help, creating the fight card for the next legislative session.

This season’s innovators and usurpers bring their claims of a helpful new order, starting new technologies, storming entrenched industries and disrupting business as usual. Theirs is often a circle-of-life narrative where old ways are set aside.

The practitioners of the old ways do not like these upstarts and their stories. They do not like to be called dinosaurs. Many of the “inefficiencies” the new kids propose to fix are, to the established companies, essential elements of their avocations.

Take auto companies for example. Tesla Motors, the newest carmaker on the block, wants to sell cars in Texas but does not have franchised dealerships here as is required by state law. Tesla has storefronts in Houston and Austin, but cannot talk about pricing, offer test drives or refer customers to Tesla stores in other states.

Here’s another one: Companies like Uber and Lyft are trying to get a piece of the taxi business, allowing customers to hail a driver with a cellphone app and drivers to find customers the same way. Taxis are regulated, and the new jitneys are in many cases operating outside the regulations. When lawmakers gather in January, the companies will tell them that the state needs to be more accommodating to newcomers by removing laws that protect existing companies from competition.

Not all disrupters are small fry. The retailing giant Wal-Mart is massing a lobby invasion force to attack some of the most powerful protection laws on the books: the post-Prohibition regulations on who can sell liquor, where and to whom. In Texas, that is the business of privately owned package stores; everybody from Wal-Mart to mom-and-pop groceries would like to get into the market dominated by companies like Twin Liquors and Spec’s.

Others also want in; the Texas Package Stores Association is fighting to enforce a one-year residency requirement for companies that want to sell liquor under existing laws.

This is a not a one-sided argument. Taxi companies have to serve entire cities and not just the parts where people are most likely to have smartphones and large amounts of disposable income. The liquor laws were written to help regulate what amounts to a legal drug business that was once dominated by criminals.

The start-ups and interlopers use the word “cartels” a lot in the challenges as a way of saying the state should not be protecting existing businesses and to try to align themselves with customers who, they say, would benefit from the competition.

Companies love to invoke customers’ rights, especially if they think there is money to be made. And they often have to get the laws changed to break into markets. Not long ago, cable TV providers in Texas had to battle for exclusive city franchises, agreeing to serve all areas of a city and, in return, winning protection from competition for the term of their agreements. Cable service more open to competition now, and upstarts big and small continue to horn in on the information markets.

Tesla recently chose Nevada over Texas as the site for a new battery plant to build that essential piece of its electric cars. Texas’ sales restrictions probably did not help, but the company might have had more short-term leverage with the Legislature if it had invested in the state.

Wal-Mart is already here, as are the package stores. Teslas can be found on Texas highways in spite of the barriers to sales. The cabs and the livery cars are already here, too, and those promise to be the kind of business-to-business fights that make lobbyists cheer even as they make lawmakers and regulators sweat.

Lawmakers get a lot of attention when they battle over state budgets, social issues, schools and ethics. But wrangling over economic issues — telecommunications, electric utilities, the state’s civil justice laws, interstate and intrastate shipping and such — is often at center stage when the Legislature meets. The issues get high-priced lobbyists hired, justify campaign contributions in otherwise nonpolitical businesses, and link “reform” campaigns that seem to pop up simultaneously in many states at once — like, say, selling electric cars and giving people rides.

Disclosure: Tesla, Uber and Wal-Mart are corporate sponsors of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.