Today, April 14, 2021, a broad coalition of economic and legal scholars published an open letter asking state legislatures to repeal state laws that bar automakers from selling directly to consumers. These laws, in force to some degree in all 50 states, are transparently anticompetitive measures that protect dealers from competition from their suppliers. A relic from mid-twentieth century fears of “Big Three” dominance over small dealerships—before globalization smashed that dominance apart—the laws drive up the cost of cars and stymie new entrants into the auto market from gaining a foothold. They are similar to the “three-tier system” in alcohol production, forcing products to go through a middleman. Today’s letter focuses on electric vehicle manufacturers, such as Tesla and other companies, but is careful to point out that repealing these laws would benefit other automakers, such as Ford and GM, as well—and benefit consumers across the board.
The letter is very welcome. But it is also a reminder that if we had a judiciary that took our economic liberties even half-seriously these laws would have been declared void a long time ago. Instead, courts have repeatedly upheld these laws as permissible uses of the states’ police power. But they’re not.
You often hear that a state’s police power is “plenary” other than what is forbidden by the U.S. Constitution or its own state constitution. In other words, unless a law is unconstitutional a legislature can pass whatever it wants. But that’s not exactly true. Under the American understanding of sovereignty, the power a state has comes from its people. You can see this in the preamble to the U.S. Constitution itself: “We the People.” At the state level, the people “delegate” their individual sovereign power to the state government. But in delegating the people don’t give up all of their power. This puts American understandings of sovereignty at odds with English seventeenth century philosopher Thomas Hobbes, who argued that when people form a society they completely transfer their sovereignty to the ruler—Hobbes’ Leviathan. Here, Americans have gone instead with John Locke, who claimed that the people transfer a good deal of their sovereignty to the government, but only so much as is needed to create a civil society. (For more, see where I talked about this distinction in this video, made right when the pandemic was starting.)
We can bicker and argue about what that “right” amount of residual sovereignty is, but the key here is that it is not completely delegated. Thus, even before the people’s representatives begin writing a constitution, and legislators in turn start legislating, there is an understanding that there are certain powers the state (or federal) government simply doesn’t have.
Now, on top of that our state and federal constitutions have lots of protections in them—separations of powers, checks-and-balances, due process and equal protection, unenumerated rights clauses, and clauses enumerating protections of all kinds of rights such as speech, religion, contracts, etc. In fact, our constitutions have so many protections—often written very broadly, such as due process clauses—that they can be read to protect against that “residual individual sovereignty” without having to worry about it apart from the constitution.
Once you accept that we don’t live in Thomas Hobbes’ world, and that the people didn’t delegate every last ounce of their sovereignty to the government, you also have to accept that the government doesn’t have the power to take from one group of people simply to enrich another. That’s, of course, not the only power that we can all agree wasn’t delegated. Random executions, arbitrary property confiscations, and other horrific practices performed simply to please or amuse people in power are state actions that no sane people would ever delegate to their leaders. But, as Justice Samuel Chase recognized in 1798, if we consider “a law that takes property from A and gives it to B,” and which has no public benefit, it “is against all reason and justice for a people to entrust a legislature with such powers, and therefore it cannot be presumed that it has done it.”
Dealer-franchise laws are such an example. Force both manufacturers and consumers to use dealers in order to make dealers more money. There is no public benefit to this, other than some airy notion that dealers are good people and we want more of them around. That limitless argument, of course, proves everything and goes nowhere. And, on top of the fact that it is not in the legislature’s power in the first place to enact these laws, they’re also unconstitutional as they violate the right to earn a living, a right long recognized in American constitutional law, under both the U.S. and the various state constitutions.
Unfortunately, we—especially our courts—often forget about the people’s residual individual sovereignty and the constitution. Judges, state and federal, have repeatedly upheld dealer-franchise laws in constitutional challenges, most recently those involving electric vehicles. You can find a few of these failures in this article. The courts evade the issues I’ve detailed here with broad statements of judicial deference and how it’s, as you often hear, the job of the legislature, not courts, to change the law.
But what if the legislature doesn’t have the power to pass that law in the first place? That’s a question the courts are supposed to answer, but all too often abdicate their responsibility to do so.
Luckily, changes are afoot, and recent successes in challenging other barriers to economic liberty—that fans of the Institute for Justice are likely familiar with—may lead the way to successful challenges to dealer-franchise laws. And today’s open letter could help a great deal with that, whether in court or in legislatures themselves. But let’s remember in fighting these laws that it’s not simply a choice of the legislature to make. The people never gave it to their lawmakers in the first place.
Anthony Sanders is the Director of the Center for Judicial Engagement at the Institute for Justice.