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Monday, June 23, 2014

The Corliss Group Latest Tech Review: When Technology Helps Consumers Challenge the Status Quo

Adapting to change is hard, especially when your family’s livelihood is on the line. That’s why, when companies face competition, their tendency is to reach out to the government to ask for protection and demand that competition be squashed using the regulatory and coercive power of the state.

The best example is the fight between taxicabs and companies such as Uber and Lyft, two innovative up-and-coming alternatives to cabs. It’s been going on for months, but it culminated a few weeks ago in Virginia when the Virginia Department of Motor Vehicles sent cease-and-desist letters to Uber Technologies and Lyft ordering them to stop operating.

Over at the Washington Post last week, Emily Bagger had a piece explaining what is really at stake for cab companies: cab medallions. As the piece explains “a medallion in Chicago fetched around $350,000. . . . In New York, taxi medallions have topped $1 million. In Boston, $700,000. In Philadelphia, $400,000. In Miami, $300,000.”

One way to think about medallions is that they are the reward for companies subjecting themselves to the insane and punishing licensing laws imposed by the government.

CHICAGO — A taxicab is a car remade by government, modified dozens of ways by edicts within subsections of articles of the city’s taxi code.

“Everywhere on this car has been regulated,” John Henry Assabill says. “Look at it!”

He throws up his arms in the direction of his gold-colored 2012 Ford Transit Connect. The car’s medallion number — 813 — is painted in black plain gothic figures (must be black plain gothic figures) on the driver’s-side hood, on both passenger doors and, for good measure, on the rear. Inside, there is a camera mounted over the rear-view mirror, a dispatch radio bolted to the console, a credit-card reader snapped to the passenger headrest.

From the back of Assabill’s seat hangs a sign — lamination required — spelling out the city’s fare structure: $3.25 for the base rate, $2 for the airport departure/arrival tax, $50 vomit cleanup fee. Everywhere, there are mandatory stickers. “That one costs a dollar,” Assabill says of a window decal reminding passengers to LOOK! before opening the door into the possible path of cyclists and pedestrians. “The fine for not having it is $100.”

Then there are the holes. Several have been drilled into the roof to mount the top light that distinguishes cabs from other cars at a distance. Another has been punched right into the hood, bolting down the palm-size metal plate — the “medallion” itself — that gives Assabill the right to operate this cab, one of 6,904 in Chicago.

The losers of this ban are low-income Americans looking to make a living. These ride-sharing companies allow anyone who has a car to become a businessman: Drivers can provide travel services directly to customers using apps.

And this is where Uber and similar companies come in: They are alternatives to traditional anti-competitive, highly regulated taxis. Taxi medallions, fare price-fixing, and other regulatory barriers to entry have all but drained the last competitive juices from the legacy taxi system. Without these limitations, Uber and Lyft are able to offer their customers better services at more reasonable prices. In addition, being new companies in a competitive market, they understand that they had better make sure their customers are satisfied so they will come back often. And this is a key point that seems lost in the current debate: Consumers are the ones at the core of the existence of Uber and Lyft.

Unfortunately for consumers and low-income workers who were making a living from these new ventures, lawmakers are only too happy to get captured by incumbents in the cab industry. As I wrote in the Examiner on Friday:

Of course, politicians and regulators are the ones to blame. It is because lawmakers allow themselves to be captured by special interests who want to fence off competition that innovators and new comers have to ask for permission to give customers what they want. Without over-the-top economic regulation over rates, entry, and new technologies, incumbent cab drivers would have to compete for customers over the quality of the services they provide. And in fact, it is the decades of protection from competition that has left taxi companies complacent and largely unequipped to nimbly improve their businesses.

There is a reason consumers like companies such as Uber and Lyft. They provide them with the service they want at a price that suits them. I understand that after having been forced to comply with onerous licensing laws and fees, cabbies are invested in the current system. But I think that a better course of action going forward is to minimize barriers to entry and regulations; that is the way innovation occurs and consumers are better served. There is no stopping this new era of consumer-driven transportation companies. The State of Virginia may crush Uber this time around, but other companies will appear now that consumers have gotten a taste for freedom.

As a matter of principle, conservatives should be against licensing laws. They hinder employment, especially for lower-income workers, and create artificial barriers to entry in order to protect incumbents against often very needed competition. AEI’s Michael Strain made that case in a book chapter called “Employment: Policies To Get Americans Working Again,” and then in piece in the Washington Post last week. As he explains, conservatives should strive to address long-term unemployment, which means making it easier to find work. Getting rid of occupational-licensing laws would really help, he argues.

Here is my Reason piece on the issue.

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