October 12, 2015

Why we should all care about the Uber and Lyft businesses

In the Wednesday, July 8, 2015, issue of USA Today, there was a lengthy article about the ferocious opposition arrayed by taxi companies and drivers against Uber all over the world.


As a consumer, I believe that government-ordered monopolies are anti-consumer, and that taxi companies around the world inadequately serve the public.

There are three major issues with taxi service in virtually every metropolitan area:

  • There are too few of them relative to the demand.  In fact, the reason there is a limited supply of taxis in places like New York City is that city officials made the monumentally stupid decision in the 1930’s to freeze the number of cab licenses at 11,700, and condemn several generations of New Yorkers to an outcome in which demand would always exceed supply.  Changing that decision has a huge financial impact on those who bought the taxi licenses or medallions and would lose significant value if the city were to increase the supply of licenses;
  • You have no predictability relative to when you can access one, especially at times when there is bad weather or a major event in a community; and
  • You either have to pay with cash or a credit card, which slows you up after you are taken to your destination.

In some communities, there is the additional problem of poor quality drivers with limited knowledge of the community’s streets and destinations driving unsanitary cabs.  Some cab drivers play loud music, and others violate the law and good, safe driving by talking on cell phones during the entire ride.

The regulatory and complaint process in most cities is cumbersome, time-consuming for the complainer, and, ultimately, very unsatisfying.

Uber, Lyft and other services, by contrast, have capacity that expands to meet demand.  The time of arrival and the location of the vehicle assigned to pick up the customer is provided on a mobile device.  The vehicles are clean, the rating system is effective in weeding out bad drivers quickly, and the system operates on a pre-paid credit card, with a receipt sent via email.

I empathize with the hard-working cab drivers who feel that their livelihood is being threatened, but, by the same token, I feel that the government-regulated taxi systems in the US are extremely consumer-unfriendly.  I experience the same problems in France and many other European countries.

The systems that operate at an exceptional level of professionalism, although still with an inadequate supply of taxi, are in London and Tokyo.  In both places, the vehicles are clean, the drivers are exceptionally professional, and the riding experience is wonderful.

In Paris, the service is of high quality, but there is an inadequate supply of taxis, especially at times of heavy demand.

Some degree of regulation and licensing is desirable.  The vehicles should be in good shape and should not be heavy polluters.  Drivers should be expected to know the communities in which they are driving, and should be rated by passengers.  The ratings should be submitted to the government regulator, and responses should be forthcoming.  That is one aspect of Uber that government-regulated systems should be copying.

I find it hypocritical that taxicab companies are protesting services like Uber because they believe that they are held to higher standards than Uber, yet they ferociously resist any system that would create accountability.  This reminds me of the worst features of teachers union protesters, who claim to be far more “qualified” and “professional” than the teachers who work in non-union schools, but who ferociously resist any performance-based evaluation or compensation system.

As citizens, we should care deeply about this battle between firms like Uber and Lyft on the one side and government-created taxi monopolies on the other.  When governments get into the act of regulating a market and do so by providing monopoly protection, the result is not only bad service for consumers, but an encroachment of government power that goes against what America is all about.

Today, we accept the idea that governments should build and repair roads and operate transit and bus systems.  The service quality on everything governments try to operate is sub-standard.  This morning, on my way to LaGuardia Airport, I was stuck in a long delay on the New England Thruway because the New York DOT-supervised project was about 45 minutes late in removing the cones that block off the two lanes at which work was being done over night.  Traffic lines were miles long.

If we were dealing with a private business, we would complain and the CEOs would take appropriate corrective action.  Complaining to any state Department of Transportation or any firm operating under contract with them would be a complete waste of time.  Chances are very good that we would never hear back, or, if we did, we would get a form letter acknowledging our complaint, after which we would hear nothing.

The government agencies are paralyzed by civil service and union rules that protect incompetent employees and leaders from being fired, even if performance is bad.  No one in government or the private sector should ever escape accountability for their actions in a free, democratic society.

We are a long way from having a representative, accountable democracy today, and must get back to the country we believe in, as opposed to the country in which we live today!