Everyone’s A Rent-Seeker, Taxicab Edition

A year ago I wrote about the crazy, over-regulated New York City taxicab industry. Well, things are getting even crazier.

There’s a new rush of start-up competition, led by Uber, whose high-tech mobile app lets riders request luxury rides on demand instead of frantically trying to wave down a passing cab. It costs more than a cab, but the convenient experience seems to be immensely popular, and Uber has been slowly expanding to more and more cities.

Of course, the existing taxicab industries, already used to protective regulations in many cases, don’t like the competition, and there have been varying volleys and setbacks in recent months as established players have tried to put up, er, roadblocks to keep the new kids out.

Regulators say roadblocks – excuse me, regulations – are necessary to protect consumers. That’s a frequent excuse to justify government intervention, but it’s a bit of a stretch in this case, as the New York Times explains:

Regulators say new laws are required to protect consumers from being harmed by such apps. But Uber, aside from the hurricane troubles, is generally adored by customers who say they are willing to pay extra to summon a ride without much wait, especially in cities where cabs are scarce.

In Apple’s App Store, the Uber app has hundreds of five-star ratings. And when Washington tried to pass rules that would make Uber illegal, customers bombarded City Council members with thousands of e-mails in protest.

Tthere does not appear to be any evidence that consumers need protecting from these fancy taxis (not to mention the fact that Uber is sometimes solving a regulation-enhanced scarcity problem). But regulators aren’t just trying to add helpful but perhaps unnecessary protections; they’re now coming up with some pretty blatant proposals that have nothing to do with protecting consumers at all:

Taxi regulators from 15 cities, including New York, Los Angeles, San Francisco, Washington and Chicago, were on the committee that drafted the guidelines on new rules. One rule would forbid luxury car services from using a GPS device as a meter for calculating fares based on time and distance, which is the method that Uber uses.

Another rule would forbid any driver from accepting an electronic hail through a smartphone while driving. And one says limousines may not accept a request for a ride that is made less than 30 minutes in advance, which would impede Uber’s primary business model of connecting luxury car drivers with passengers immediately.

I think it’s extremely difficult to argue that it is somehow helpful to allow consumers to immediately hail a willing taxicab but forbid them from hailing a willing limousine without at least a 30 minute wait. This blatant proposal is pretty clearly coming from a pressured taxicab industry, and it’s much more desperate than the typical established business support of boring regulations that at least have the appearance of protecting consumers from danger or fraud.

Regulations raise the “barrier to entry” for new businesses, and as Sonic Charmer explained with some fancy bar charts, old/big businesses tend to like regulations because they put an equal (i.e. non-progressive) burden on everyone, and since old businesses are bigger than the new guys they have more left over, reducing the risk of the even larger burden of a new guy innovating faster than them and taking all their customers.

Typically I think of barriers to entry as things like filling out lots of paperwork, or raising the minimum safety requirements for a building – it’s possible that big businesses support them because their big departments can handle them easier than a new start-up, but it’s at least possible that these requirements are protecting consumers from greedy and/or idiotic small business owners. But there’s no possible way that limiting limousine service or accurate GPS readings is better for consumers; these are cool, helpful innovations that the old business simply can’t or doesn’t want to provide.

Liberals often promote regulation to protect consumers from immoral, profiteering businesses. But regulation is just a tool, and the same profit motive that leads “bad businesses” to defraud their customers also leads them to prevent other businesses from competing with them. Sure, regulation can protect consumers from businesses, but it can also protect businesses from consumers choosing a better business.

Fortunately for Uber, even D.C. liberals love their service so much that they helped fight back against the regulatory roadblocks; for now, anyway, it seems like it’s all paying off. As the new saying goes, “How do you turn a D.C. liberal into a libertarian for a day? Threaten to regulate his limousine service.”

I think it’s important to consider that the D.C. taxicab industry is not particularly immoral or dastardly in their roadblocking of a more innovative competition. Sure, I think it’s unethical, but they’re also just responding to the available incentives. Almost everyone would be a rent-seeker if you gave them the opportunity, and too often regulation does just that.

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3 Responses to Everyone’s A Rent-Seeker, Taxicab Edition

  1. RossB says:

    Some taxi regulations make sense at certain spots. For example, having a set price for taking a cab from the airport to downtown. The only reason they have this is because of the way that cabs service customers in the airport. Generally speaking, the cabs line up and you have to take the next one in line. You can’t tell the cabby you want to take the next guy (even if he is cheaper). In other words, there are regulations on the market because it doesn’t operate as a truly free market.

    I don’t see anything like this for these regulations. This just looks like another stupid regulation that everyone (except a few lawyers and companies) hate.

    In general, regulation reform is rare these days. Part of the problem is the nature of politics and political discourse. This blog is an exception. You have laid out the arguments and counter arguments well and respectfully (with the possible exception of the second to last paragraph). This is rare. Normally, those on the left have a knee-jerk reaction to protect or expand any regulation. Those on the right have the opposite reaction. Worse yet, some on the right use the horrid regulations as a means to further their political agenda, rather than simply try and eliminate the bad regulation. This type of post is refreshing in that it simply points out how stupid this regulation is without acknowledging that there is an argument to be made for some regulations. This is promising, and could lead to some important breakthroughs in making life easier for small businesses (and everyone else for that matter).

    One of the interesting things going on in this country is what I call “neo-liberalism” that is emerging from the cities. It is far more libertarian than the left wing voting patterns might imply. One of the biggest areas of conflict is zoning. While there are plenty of folks who want to keep things just as restricted as ever, there are lots of environmentalists and advocates for the poor who want to lift the lid on urban development. They want higher buildings, buildings that don’t require garages, multiple houses on the same lot, and a host of other changes that would increase density. They also want to see the regulations eased for the small independent businesses that dominate the urban landscape.

    Part of the reason for this, I believe is the big trend away from the old big business model of the fifties and sixties. This served us well (and still exists in a few places) but looks as antiquated as a ’57 Chevy. Basically, big business operated under a set of regulations that helped balance their power with the power of the workers, the environment and the public in general. Workers (even unskilled workers) had a fair amount of opportunity to make good wages. Big businesses were successful because they faced little competition, here or abroad. Folks grew up knowing that they could get a decent job working in a plant, or working in an office. Either way, the idea of working for a big company sounded just fine.

    As time went on, regulations piled on top of each other. Reform efforts were rare (I don’t blame anyone for this, it sounds dreadfully boring and a good lawyer can make lots more money somewhere else). Unions began to lose power. Businesses lost their big margins, and times got tougher. As a result, working for a big, established business became a lot less appealing. Working for a small, independent start-up was the hot new thing. Even companies that are large (Microsoft, Google, Apple) try very hard to project this image for their workers. Since most of these companies are very young, the idea of starting your own business has become commonplace. This has greatly shrunk the divide between worker and owner. Even if you don’t own and do all the work at your business, if you work for a small business you are very much aware of the obstacles that the owner faces. This has lead to a lot of new small businesses, especially in the cities. For every new little software start-up, there is an independent coffee shop, restaurant or pub.

    Speaking of pubs, if you really want to find some onerous regulations, look into the ones governing breweries. Someone needs to right a good expose about them and the hardships many small breweries or brewpubs face because of them. These are federal regulations I’m talking about, and they probably go back to the days following prohibition. They make about as much sense as the the ones hurting Uber and are even less popular.

    • Joshua Hedlund says:

      Thanks for commenting. I definitely don’t believe all regulations are unjustified – although I think few conservatives really, truly do, even if they might initially think they do. There are scenarios where true free-markets don’t exist where I can see justification for regulation, and even though I might still on principle oppose certain regulations or believe that they cause more harm than good, I could still accept them as compromises and believe that many of them aren’t really that bad. However, I do think that the fact that some regulations (such as these taxi defenses) are such obvious cases of rent-seeking should cause the person who generally favors regulation to think twice about whether or not many of the more normal regulations might be serving the same purpose.

      • RossB says:

        I think most reasonable people on either side of the aisle think of regulations as a necessary evil. Obviously, some think they are more evil than others. I wonder if politicians have done so little to loosen regulations because of fear and overconfidence in the regulation. Fear that somehow an unregulated market will be exploited and overconfidence based on the fact that most politicians are lawyers. I am a software engineer, and my work, by necessity, can be very complex. But most software engineers (or at least most software engineers I respect) are constantly trying to simplify things. They will write and re-write code until they feel like it should be obvious to anyone who reads it. On the other hand, when I’ve talked to lawyers (and I’m very close to several) they don’t seem to have that desire. They seem to enjoy the complexity of it all. I can’t help but think that this plays a part in the process.

        It seems like folks from the right have talked about loosening regulations for a long time. Those on the left seem to have other things to worry about. At the same time, those folks on the left would love to take credit for a smoother, more effective regulatory environment, just as they would love to take credit for a smoother, more effective government (remember Al Gore’s reinventing government initiative?). Maybe that is the real reason there is so little progress on these issues. It is easy to imagine a few politicians from the left and right getting together to simplify these regulations (and I know a few that could really use some simplification) but both sides would rather focus on other things, especially getting reelected.

        Speaking of necessary evils, I personally prefer taxes over regulation, any day. For example, if we really want to cut our greenhouse gas emissions, then I think it would be easiest to do it with a carbon tax. The cap and trade proposal is way too complex to be loved by anyone, save perhaps a lawyer.

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