Uber Everywhere

This week brought more news of a globalized world—a simultaneous strike in Paris, London and Berlin against Uber—the service that allows people to summon cars through phone apps. Uber is itself a worldwide phenomenon.  It can succeed anywhere there are a substantial number of smartphones, and that is rapidly becoming everywhere.  In fact, the strikes backfired by giving publicity to Uber and encouraging more people to sign up.

While taxi drivers will continue to try to strangle the service, they will lose—quickly in some jurisdictions and slowly in others, like Virginia where regulators last week banned Uber. The advantages of Uber are ultimately too great to be denied and Uber-friendly jurisdictions will serve as demonstration projects.  On Thursday The New York Times described Uber’s many benefits for consumers and for society.  Most obviously, the service will bring more competition to an often highly regulated and sluggish market—the taxi industry.  In particular, it will help poorer and middle-class consumers who are unable to find cabs at crucial times and are not regular users of higher-priced car services.  It will shrink the carbon footprint, as fewer people will need to own cars and spend time looking for parking spaces.

Uber could also help decrease inequality of consumption, as I have previously argued that information technology generally does.  Only the .01 percent can afford chauffeurs at their beck and call.  But how different is the experience of having a car ready to pick you up at a moment’s notice? More and more people can ride like the millionaires of old.

Uber is in fact a striking example of how information technologies are going to make us better off in a more egalitarian way.  The improved use of information creates opportunities for services that help us gain time and waste less energy.  Information technology also makes consumption more equal, because the information permits cost saving efficiencies.

Some might worry that the technology will put taxi drivers out of work. Certainly some taxi drivers will do less well, but many can switch to becoming Uber drivers or drivers of competing services, like Lyft.  In fact, as The New York Times’ article suggests by being more convenient app phone taxis expand the market for cars for hire, potentially leading to more jobs.  Uber is the kind of innovation that may help the economy hum again. The faster regulators permit such services to disrupt the world, the faster we will reap the benefits.

John O. McGinnis

John O. McGinnis is the George C. Dix Professor in Constitutional Law at Northwestern University. His recent book, Accelerating Democracy was published by Princeton University Press in 2012. McGinnis is also the co-author with Mike Rappaport of Originalism and the Good Constitution published by Harvard University Press in 2013 . He is a graduate of Harvard College, Balliol College, Oxford, and Harvard Law School. He has published in leading law reviews, including the Harvard, Chicago, and Stanford Law Reviews and the Yale Law Journal, and in journals of opinion, including National Affairs and National Review.

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Comments

  1. gabe says

    This all seems very nice, and I am glad that Ken’s friend was able to take advantage of the service. However, let us not assume that this is something that will cure all of the ills of ” inequality of consumption,” will make a significant change in “carbon footprints,” (if, indeed, there is any real value in that objective) and whatever other benefits we may conjure up. Uber, at least in my neck of the woods, is somewhat more expensive than a traditional taxi; there is no indication of what type of vehicle will be transporting you (it could range from a subcompact to an SUV); insurance coverage of the drivers is in question, as is the mechanical status of the vehicles.
    Having driven a taxi during my early college years in NYC for a large taxi fleet, one thing I can say is that they were well maintained and safe (based on how I drove they had to be!!!).
    Yet, there is still a larger issue: the fleet and independent taxis in most cities (if not all?) have had to pay a rather large fee for a medallion (license) sometimes ranging above $500,000 per license. Yes, these are traded on the market and the costs has escalated – however, the initial requirement was imposed by municipal authorities.
    What is to be done with this requirement AND what is to be done when governmental action destroys the value of a(n) (initially) government mandated operating license?
    Perhaps, we may want to consider these factors. There is, of course, no doubt that Uber, etc would be of great benefit in the suburbs where taxi availability could be greatly improved.
    Just some thoughts!

    • R Richard Schweitzer says

      Gabe,
      Are the existing taxi and public transit facilities not governmentally created monopolies (as you hint)?

      Are those monopolies “natural” (actually economically and materially “optimal”)?

      Is there any reason that the existing systems for dispatching and cruising in most taxi systems cannot either (1 ) be incorporated into one or more of the existing Uber-type communications; or (2) establish their own Uber-type “hailing” communication; or one which gives preference to their particular facilities?

      From all reports, the Uber and Lyft systems are more responsive to “convenience and necessity,” but are *not* less expensive to the direct user. They also employ the airfares system of rates adjusted to periods of time demand. Upon refinement they will probably adjust to various surcharges, arrangements for ridesharing, etc., which the present system finds difficult (without graft) under most regulatory conditions.

      The current facilities for regulated transit have become institutionalized. They spread the costs of services over all consumers, without regard to particular benefit or detriment, by uniform zone charges, uniform mileage charges, uniform surcharges and shortages of supply to peak periods of demand. They represent the typical governmental effect of “one-size-fits-all.”

      In most of entrepreneurship there is a disruptive aspect, whether it arises out of technology, or otherwise. If the disruptions are valid or arise from valid causes, they will succeed.

      Like you, I once held a commercial drivers license and drove taxis for a medallion holder. I quickly learned the squeeze that the dispatching, cruising and station positions create for drivers. Perhaps the drivers themselves will see this disruption as an opportunity for greater personal control over the economics of their activities.

      • gabe says

        Richard:

        Very good points and one in which the “dispatch’ system could be modified sufficiently to counter the Uber competition although I do not know if the fleet drivers could achieve sufficient “cache” (sp?) or hipness which according to a young friend (who has driven for Uber) is certainly part of the mystique.

        And I have no fundamental problem with the “disruptions” My concern may be an odd one: Here is a case where a government imposed “entry barriers” in order to effect what was then perceived a public purpose (safe taxis, etc); now comes this same government to negate not just the entry barriers but the costs / mortgages / market value of such barriers. What is the licensee to do?
        Perhaps, you are right – he should adapt – yet he is still burdened by the cost associated with the “entry barrier” which initially confronted him.
        Should we then impose some costs on entry to the Uber types. As you may surmise, I am somewhat uncomfortable with that!
        Tough questions!!!
        take care
        gabe

  2. gabe says

    One additional comment here that may provide some insight into the problems faced by licensed taxis:

    In Seattle, as an example, licensed taxis operate at a city imposed disadvantage – they are not permitted to pick up passengers on the street who flag them down.
    Is it any wonder they are upset with Uber, etc?

  3. nobody.really says

    To put gabe’s concerns in legal language: Medallion owners have investment-backed expectations in the value of property they have acquired. If changing the law to accommodate Uber (and others) has the effect of destroying the value in the medallion, then arguably government regulatory action has destroyed private property. Should medallion owners be entitled to compensation under the 5th Amendment’s Takings Clause? If so, how much? And should governments then consider the potential cost of compensating medallion-owners as they decide how to respond to Uber’s potential entry into the taxi business?

    I suspect Uber may well generate net social benefit – but perhaps less than initially appears. What may seem like a big social benefit may principally be the re-distribution of some else’s private property.

    Transition costs are a bitch. And when the transition is between regulatory regimes, sometimes they’re a compensable bitch. Economist David Bradford argued that models of his X Tax (a consumption-based tax that removed tax burdens from a variety of financial instruments) produced huge social benefits. Then he realized that, by eliminating the concept of “basis,” his tax plan basically appropriated an enormous regulatory asset. The X Tax may still be a superior tax plan, but economic models exaggerated its advantages by ignoring these transition costs.

    • R Richard Schweitzer says

      “If **changing** the **law** to accommodate Uber (and others) has the effect of . . . ”

      As noted in other contexts, we are dealing with regulations, ordinances and legislation which are Rules of Policy; which are given the “force of Law” but are not LAW.

      In most of the issues confronted so far (in this transition) the Rules of Policy are not “changing.” In most cases, those Rules do not cover the manner of establishment of relationships and conduct of activities which are affecting the complainants. In some cases, authorities are attempting to “stretch” the Rules now in place, but their motivations are probably mixed, rather than rights or economics driven.

      “What may seem like a big social benefit may principally be the re-distribution of **some else’s private property.**”

      The monopolies involved are those of privilege to establish and conduct a relationship with others (provide transport). those others are customers, and the relationship is as much their right as it is that of the monopolists. That relationship is not being “re-distributed.”One party (the customer) is making a determination (of convenience and necessity).

      If that customer power of determination *requires (or public passive acceptance allows)* the exercise of police powers for public safety, that requirement may be subject to test. But, it has naught to do with property, it is a matter of relationships.

      Most of the evidence so far does not indicate that the new format of service is less expensive to the customers. It seems to be a matter of service, time and response to need.

      Now, let us address the effects of regulations that destroy the use and value of coal fired electricity generators – which are property – shall we?

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