Free market debate: UBER cab pits taxis against app service

Free market debate: UBER cab pits taxis against app service

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Uber Taxi image
Uber Taxi image

WASHINGTON, July 17, 2014 – While we generally believe that competition in a free enterprise system provides consumers with a better product at a lower price, in the area of taxis, in many places, quite the opposite philosophy is at work.

Taxis are a government-backed monopoly in many cities. At the center of this enterprise is the medallion, which is necessary to drive a taxi in New York, Boston, Philadelphia, Miami and other cities.
In New York, taxi medallions have topped $1 million. In Boston, $700,000. In Philadelphia, $400,000. In Miami, $300,000. Where medallions exist, they have outperformed even the Standard & Poor’s 500-stock index. In Chicago, their value has doubled since 2009.

Now, however, a market built on restricted supply is witnessing the arrival of start-ups that turn anyone with a car into a driver for hire. One company, Über, a five year-old San Francisco tech firm, has infiltrated taxi strongholds by enabling consumers to hail rides electronically from their smartphones.

When Über was founded, it offered only upscale town-car rides through a smartphone app. It soon expanded to allow users to book traditional taxicabs. Then came its next service, UberX. “Ridesharing,” as Über and its competitors Lyft and Sidecar call the service, enables people driving a private car to find and book passengers for a fee that’s calculated, similar to taxi fare, based on time and distance.

In other industries, phones, cars, computers, software, the possibility that a new technology might dramatically alter a company’s market share is built into the risk of operating it. “When it’s purely private, we have no trouble with the idea that a technological change, an innovation, an advancement can destroy billions of dollars of value,” says Jerold Kayden, a professor of urban planning at Harvard’s Kennedy School and at the Harvard Graduate School of Design. “We simply attribute that to operating in the private marketplace. So what’s the difference here? Government is involved.”

Lee McGrath, an attorney with the libertarian-leaning Institute for Justice, notes that, “At the heart of our economic system is the idea of change, and that government can’t be in the business of protecting old models. If there were medallions associated with the buggy whip, we probably would still have them today.”

David Estrada, Lyft’s Vice President of government relations, says, “If in fact the taxis were doing what they were required to do with providing universal service, why would Uber, Lyft and Sidecar exist? The only reason we exist is because current regulations and the current system is not serving people.”

Around the country, and the world, Uber and the others are coming under legal attack. In Virginia, police have been handing out tickets to Uber and Lyft drivers, saying they don’t have the proper permits to operate in the state. In Washington, D.C. taxi drivers held a protest and asked the government to issue a cease and desist order.

New Mexico has denied Uber a temporary permit while working on regulations. Chicago cab drivers are suing the city to impose stricter regulations on their new competition. Last fall, California, where many of the new companies are based, became the first state to issue regulations legalizing the car service industry. But in June, the president of the state Public Utilities Commission threatened to revoke permits after personnel complained that drivers were illegally operating at major airports.”

In Europe, Uber has faced major protests from London to Milan to Madrid. Early in July, London’s transportation regulator said that Uber can legally operate. But this was not the final green light for Uber in London. To clarify whether or not Uber’s technology can be considered a meter, a British court has been asked for a final ruling.

Mark Obenshain, a Republican member of the Virginia State Senate, is critical of his state’s treatment of Uber and Lyft. He states that, “I’ve learned from experience that it’s almost impossible to hail a cab after a Washington Nationals baseball game, but if I punch a few buttons on my cellphone, an Uber driver will be there in minutes. The ability to schedule a pickup by cellphone is disruptive to the industry , which is, of course, why the industry doesn’t like it. However, the state’s job is not to protect an industry; it’s to look out for the interests of the citizens. We shouldn’t be shielding existing companies from competition by insisting on strict regulations that have locked us into an unchanging 20th century model.”

In Obenshain’s view, “The arguments being advanced for today’s status quo could just as easily have been made to protect switchboard operators from evolving technologies decades ago. A hundred years ago metered cabs were a startling innovation that radically changed people’s commutes. I don’t know if Uber and Lyft will have that sort of impact today, but I do know they should have the right to try. More importantly, Virginia commuters should have the right to choose the transportation options that best suit their needs….”

Virginia’s current ban on alternative ride-sharing arrangements, says Obenshain, requires a legislative fix, which he intends to introduce. This would free up the market in the coming year and allow for the competition citizens deserve. Any concerns about safety, notes Uber’s Corey Owens, can be resolved by requiring inspections of all vehicles and a requirement for ride share firms to carry commercial liability insurance. This is a case where the law has yet to catch up with the new technology.

In “The Road To Serfdom,” F.A. Hayek writes: “Our freedom of choice in a competitive society rests on the fact that if one person refuses to satisfy our wishes we can turn to another. But if we face a monopolist we are at his mercy.”

And in “Capitalism and Freedom,” Milton Friedman declared that, “Underlying most arguments against a free market is a lack of belief in freedom itself.”

We live in a dynamic society with technological advances changing the way we do things in many aspects of our lives. Government acts against the public interest when it provides legally mandated monopoly status for an old technology and prevents a newer technology from competing in an open marketplace.

There is no reason why companies such as Uber and traditional taxis cannot co-exist and compete in a free market. Some people will prefer to hail cabs on the street, while others, particularly the younger, and more tech-savvy, may prefer using their smartphones.

And Uber may force traditional cabs to modernize, and cities permit them to do so. With real competition, a better product is almost certain to emerge.


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Allan C. Brownfeld
Received B.A. from the College of William and Mary, J.D. from the Marshall-Wythe School of Law of the College of William and Mary, and M.A. from the University of Maryland. Served as a member of the faculties of St. Stephen's Episcopal School, Alexandria, Virginia and the University College of the University of Maryland. The recipient of a Wall Street Journal Foundation Award, he has written for such newspapers as The Houston Press, The Washington Evening Star, The Richmond Times Dispatch, and The Cincinnati Enquirer. His column appeared for many years in Roll Call, the newspaper of Capitol Hill. His articles have appeared in The Yale Review, The Texas Quarterly, Orbis, Modern Age, The Michigan Quarterly, The Commonweal and The Christian Century. His essays have been reprinted in a number of text books for university courses in Government and Politics. For many years, his column appeared several times a week in papers such as The Washington Times, The Phoenix Gazette and the Orange County Register. He served as a member of the staff of the U.S. Senate Internal Security Subcommittee, as Assistant to the research director of the House Republican Conference and as a consultant to members of the U.S. Congress and to the Vice President. He is the author of five books and currently serves as Contributing Editor of The St. Croix Review, Associate Editor of The Lincoln Review and editor of Issues.