About three years ago while on a business trip, a colleague and I arrived late into Chicago’s O’Hare International Airport. It was one of those days where tens of hundreds of flights were delayed, re-scheduled or cancelled due to inclement weather, resulting in massive pileup of frustrated travelers outside the baggage claim at about 8:00 p.m. The line for local taxis rivaled that of the log ride at Disneyland. Rather than become one of the bleary-eyed travelers scooting one foot at a time through the endless serpentine path, I pulled out my phone and with the few swipes and taps hailed our own personal Uber. About ten minutes later when the ride arrived hundreds of fellow travelers glared in our direction–surely despising us–and wondered, “Hey, how did they do that?!”
The heavily regulated taxi industry has very strict pricing policies, which are typically posted on the sides of the taxis themselves. “$25 to downtown,” “$40 to Wrigley Field.” On the other hand, ride-sharing apps like Uber and Lyft allow for variable pricing, based on the demand for drivers at the given moment. On that particular occasion, I surely paid more than those standing in line. But was that $10 in savings worth the thirty to sixty minutes standing outdoors in the Windy City after a long day on airplanes? I remember their faces. I assure you that it was not. But what choice were they given in the matter? Industries that are overly controlled by government authorities do not have the mechanism for allowing people to make these choices. When markets are allowed to work, options abound.
Despite the fact that most people who use ride-sharing services love them, companies like Uber and Lyft have run afoul of government agencies across the world. The latest incident occurs in Texas where the state Senate is overturning a local law imposed by the city of Austin, forcing such companies to perform background checks that include fingerprinting. Uber has resisted the regulation since it was enforced in 2015. The company maintains that their existing background check system, which reviews criminal history over the past seven years, is sufficient for protecting the safety of passengers (McPhate, 2016). But that is only scratching the surface of the government regulations that the company has faced. If it’s not about safety it’s about properly defining the employment status of drivers, workers’ compensation, insurance regulations, or some other bureaucratic flim-flam.
To be fair, there have been numerous safety incidents in the news recently involving Uber and Lyft drivers. But there are a few questions worth asking ourselves when we consider this issue:
- Is the hyper-concern with regulation really about passenger safety, or is it about existing taxi companies erecting barriers and extra expenses to limit competition?
Though the approval process varies from region to region in some cases the process can be extremely burdensome to potential drivers. In New York City, for example, interested drivers must invest $3,000 plus sixty hours of in-person time, and wait up to three months before they are made eligible to drive (Solomon, 2017).
- Why would our public servants in the public sector prevent us from utilizing ride-sharing services if they are so appreciated, so affordable, and, in fact, help alleviate road congestion and pollution, several problems that many big city politicians have been harping on for years. Could taxi companies and politicians have a shared incentive to protect the status quo?
Traditional taxi companies pay huge tax dividends to state and local government, especially in heavily regulated markets. Again, to use New York City as an example, a recent estimate indicates that yellow-cabs generate about $43 dollars in taxes per cab, per day! Because they avoid a lot of the government issued red-tape, like city issued medallions, handicap accessibility, etc. ride-sharing services render a much smaller return (Sherman, 2017). In return, the taxi cab market is heavily protected. Operators are required to own a government issued medallion. A limited number of medallions are available to industry, meaning that taxi cab companies are able to constrict supply and keep rates artificially higher than if there were open competition.
- And perhaps beyond everything else: Who is watch-dogging the traditional taxi industry?
Truthfully, nobody is. And why would they be? Before about five years ago, we had as much choice in hiring taxis as we did in hiring the TSA when we fly. Though one has to dig pretty deep into news feeds, stories of dangerous and irresponsible taxi cab drivers that rival those of Uber can be found. Most recently in places like Las Vegas, Arizona, and Nova Scotia (LaFrance and Eveleth, 2015).
Beyond just the cost, there are other benefits to ride-sharing services as well. For example, the Uber app has a wonderful feedback mechanism where I can rate the quality of service on several metrics from kindness to cleanliness of the vehicle. So, instead of behind dragged through the city in a hot, stinky and cattle car playing strange melodies from foreign lands, I frequently get to spend a few minutes with very pleasant and interesting people. Additionally, the ride-sharing system has unleashed thousands of people into the labor force, even those with only a few spare hours per week. Consider, how many other worthwhile jobs could you find where you could work fewer than fifteen hours per week at any time you please, and earn $19 per hour? (Frizell, 2017).
I am certainly not arguing for an anarchic system where there is no form of government oversight. In fact, I personally think that many government agencies, even despised ones such as the EPA and OSHA, have a legitimate role to play in our society but only as long as their limits are maintained. If we don’t force our government officials to show some restraint they will attempt to squash that beautiful and unpredictable order that free markets can naturally generate, where buyers and sellers are both blessed without any form of government intervention. Unfortunately, spontaneous order is exactly the sort of thing that many government planners cannot tolerate. Every bureaucrat’s secret mantra: if it cannot be controlled, it must be killed.
McPhate, Mike. 2017. Uber and Lyft End Rides in Austin to Protest Fingerprint Background Checks. The New York Times. May 09.. Accessed May 24, 2017. https://www.nytimes.com/2016/05/10/technology/uber-and-lyft-stop-rides-in-austin-to-protest-fingerprint-background-checks.html?_r=0.
Solomon, Rob. 2017. When it comes to driving with Uber, all cities are not created equal. Medium. June 20. Accessed May 24, 2017. https://medium.com/uber-under-the-hood/when-it-comes-to-driving-with-uber-all-cities-are-not-created-equal-f862121021df.
Sherman, Ron. 2017. Yellow cabs vs. Uber: Tale of the tax tape. NY Daily News. August 27. Accessed May 24, 2017. http://www.nydailynews.com/opinion/ron-sherman-yellow-cabs-uber-tale-tax-tape-article-1.2338390.
LaFrance, Adrienne, and Rose Eveleth. 2015. Are Taxis Safer Than Uber? The Atlantic. March 03. Accessed May 24, 2017. https://www.theatlantic.com/technology/archive/2015/03/are-taxis-safer-than-uber/386207/.
Frizell, Sam. 2017. All the Things You Ever Wanted to Ask Your Uber Driver, Answered. Time. Accessed May 24, 2017. http://time.com/3678507/uber-driver-questions/.