Add Toronto to an ever-growing list of cities that, confronted by a disruptive technology company challenging entrenched interests, have initiated regulatory action against Uber. In November, the Canadian city requested a court injunction to force the ride-sharing service to either adhere to long-established laws that govern taxi companies or cease operations. Given that Uber’s scalability rests with its ability to vastly expand its driver base and convert everyday car drivers into UberX employees, it’s unlikely to settle for the former option.
By now, there’s an established narrative about why these cities keep cracking down on Uber and other mobile app ride-sharing companies: Uber moves into the city and taxi commissions, which have had long-standing control over the local transportation market and used their influence over the years to force protectionist occupational license laws through the local legislatures, band together against Uber, which they see as encroaching on their turf — and by extension providing unwanted competition. City legislatures, which have received donations and support from these companies for years, bow down to their monied interests and move to expel the unwanted competition. Because of this, consumers lose. They’re not able to efficiently utilize GPS and market forces to call the nearest Uber driver — choosing him, in part, based on consumer ratings that have held him accountable — and, because of this, human technological progress is artificially stalled.
Uber has become so effective at telling this narrative that it’s been successful in instigating mass outrage among its fans, mobilizing them to launch a fusillade of phone calls and angry letters to their local councilmen. In many cases, this strategy has worked; multiple cities have revised their laws to make room for Uber’s entry. But in explaining why this strategy has worked so well, Uber CEO Travis Kalanick made what I considered to be a very telling remark:
“Uber riders are the most affluent, influential people in their cities,” he told an Inc reporter. “When we get to a critical mass, it becomes impossible to shut us down.”
It may seem like an innocuous statement, but there’s nearly a hundred years of regulatory history that’s exposed in his reference to “affluent” consumers, and, when examined within the proper context, you can see why taxi regulations have been in place for so long, and why it may not be wise to abolish them completely.
The modern taxi industry, as the Planet Money podcast explained in 2011, was born out of the Great Depression. In New York City, hundreds of out-of-work men, owning cars they no longer needed to transport them to their non-existent jobs, took to the streets and began picking up passengers, charging them money to transport them from one place to another. This, in effect, created a consumer nightmare.
To understand why taxi companies are so highly regulated, consider a world in which all taxi regulations were abolished tomorrow and every taxi driver decided to join an Uber-like company. As anyone who has ever used an Uber knows, the entire transaction, from hailing the Uber to payment, takes place on a smart phone. But there are large segments of the population — according to Pew, as much as 40 percent — that don’t own smart phones. Many, especially poor people, don’t even have credit cards or bank accounts that they could connect to an Uber app. So right away, a transportation industry built on Uber’s business model would be unattainable for a large segment of the population, made up primarily of the working poor.
“OK,” you say. “But with all these regulations abolished, a company will just rise up and offer rides for cash. Hell, anyone with a car could now pull over and let in someone hailing them from the sidewalk.”
Consider this from the consumer’s point of view. You raise your hand and hail down a driver. Because your mode of selection is getting into the first car that stops for you, you have no way of assessing, beforehand, the quality of the driver. With an Uber app you can choose a driver based on his number of stars, but on the street you’re at the mercy of whoever happens to stop. And because the regulations have been abolished, the driver doesn’t have a photo ID displayed prominently for you to see, and even if he did, there’s no longer a taxi commission to report him to if he treats you badly. You also have no way of warning future riders that this driver is a bad apple.
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Let’s talk about price as well. With Uber, you’re able to access the rate charged to you beforehand, and if there’s surge pricing in effect then you have to agree to it prior to hailing the Uber driver. Now let’s apply this to the consumer hailing a taxi without a smartphone. Because taxi regulations have been discarded, there are no longer strict, transparent price controls about what the driver can charge you. You have no knowledge when getting into the car what the driver will charge and his methodology for calculating your fare. You get to your destination and he can use his knowledge advantage to gouge you on price. And that’s if the driver agrees to take you at all. Taxi regulations bar drivers from refusing to transport riders based on their disabilities or destination. If you’re wanting to go to a poor neighborhood where the driver’s unlikely to find another passenger, in this unregulated environment he may just say “No thanks” and drive off.
In 2013, I interviewed Alfred LaGasse, the CEO of the Taxicab, Limousine & Paratransit Association, for an article I never ended up writing. During our interview, he imagined a world where these regulations were abolished and predicted that public sentiment would shift pretty quickly when stories of abuse began seeping into the established narrative. “If they’re operated in an unregulated environment, we’re all going to learn sooner rather than later what harm can happen,” he said. “But I believe the harm will come and they will be regulated because the public sector reacts when bad things happen. And there’s a history of bad things happening when strangers transport other strangers.”
Now, I’m not suggesting that Uber shouldn’t be allowed to exist in its current form, that it should be made to bend to the current regulations or cease operation. It seems clear that it has created a model that has in many ways improved the lives of millions of consumers, as well as expanding job growth for thousands of drivers who use the app to make money. I’m also not saying that there aren’t laws on the books that make absolutely no sense other than as a method of economic protectionism for the old guard. What I am saying is that as legislatures contemplate how they can modify the existing regulatory framework, that they don’t extinguish consumer protections that look out for the poor, minorities, and those with disabilities.
And at the same time, there needs to be avenues through which taxi companies can compete with Uber. One thing I’d propose is different restrictions for consumers who hail a driver via an app or phone versus those who wave one down on the street. The former, because they’re able to access consumer reviews and fares, should be treated differently than the latter, who are at the mercy of whoever happens to pull over and pick them up. This will allow taxi drivers to compete for both kinds of consumers in such a way that leaves no one behind. Only when that happens can we truly consider the rise of these ride-sharing apps a benefit to society.
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Image via Scoopla