New Jersey: Not the Only Place Where the State Favors Anti-Competitive Protectionism

by Greg Reed

You’ve heard before that the customer is always right. Well, according to the New Jersey Motor Vehicle Commission, a customer who wants to buy a new car from anywhere besides a large dealership franchise is wrong. It’s illegal for innovative companies like Tesla, a pioneer in the electric-car market, to offer alternative car-shopping experiences, a win for the middleman at the expense of New Jersey residents. 

The State of New Jersey Motor Vehicle Commission’s new anti-competitive rule prohibits car manufacturers from selling directly to consumers, forcing them to partner with local dealerships. And not just any dealership — they must be at least 1,000 square feet, have attached service facilities, and display at least two cars at all times. As a result of this political favoritism, the existing dealership monopoly is protected while companies such as Tesla close their doors.

This is a simple case of politicians handing out special favors for their constituents. Unfortunately, economic protectionism does not stop at the banks of the Delaware River and is not limited to the motor-vehicle industry. Throughout the country, states are exercising their broad discretion to benefit political favorites at the expense of innovative companies offering improved customer experiences. In a case now before the federal court for the eastern district of Virginia, Dr. Mark Baumel is challenging the state’s certificate-of-need program that limits consumer choice. Dr. Baumel is already providing ground-breaking colon-cancer screening in Delaware and New Jersey, but in order to open an office in Virginia he has to receive a permission slip from the government. The process for getting certification amounts to a full-blown litigation and invites his would-be competition to interfere. Just like car dealerships in New Jersey, established Virginia businesses claim they have the customers’ well being in mind. In this case, it’s literally the customer’s well-being that is at risk in order to maintain the status quo.

Innovation should never be held hostage by the profit motives of government-protected industries. Unfortunately, courts have repeatedly abdicated their responsibility to uphold the Constitution and check government overreach. The judiciary has a responsibility to engage in real, factual analysis and should not be a rubber stamp to the whims of the legislature. Car-dealership handouts and similar anti-competitive protectionist restrictions are pervasive because the courts have been willing to turn a blind eye to government favoritism.

Economic protectionism has no foundation in the Constitution and only serves to hurt the people of every state where it occurs. Politicians may always be in the business of playing favorites, but courts can and do defend the Constitution’s promise of economic liberty.

— Greg Reed is an attorney with the Institute for Justice, which is representing Dr. Baumel in his challenge to the Virginia certificate-of-need program.