The real reason why most countries keep Uber out

July 27, 2015 11:39
The government is afraid it will no longer have a say over passenger safety, pricing, taxation and quality of service. Photo: Reuters

Ride-sharing app Uber has caused an uproar among Hong Kong taxi drivers, creating an impression that our taxi drivers are stubbornly resistant to change.

But the unease with Uber is a global phenomenon. The San Francisco-based company could face a ban even in its home state of California. It is banned in France, Germany and Spain.

Why do most countries want to keep Uber out?

The textbook answer is the presence of powerful private interests. Rent-seeking taxi syndicates at home have every reason to lobby against the more competitive Uber.

Milton Friedman would have explained that, since the costs of Uber’s invasion are intensely felt among a concentrated group of taxi drivers, and its benefits are only sparsely spread out to customers, taxi drivers therefore have their voice disproportionately represented in policy-making.

Indeed, in France, taxi drivers protested fiercely against Uber.

However, governments are not (wholly) proxies for private interests.

John Maynard Keynes famously argued that “it is ideas, not vested interests, which are dangerous for good or evil”.

If the argument works in favor of Uber, at least some governments would fend off domestic interest groups and roll out the red carpet for Uber, just as Margaret Thatcher crushed mighty trade unions in the 1980s.

A more plausible argument against Uber by government officials is that Uber will worsen traffic congestion.

In many of the great cities that Uber targets, there exists a delicate balance between road capacity and the number of cars on road, which must not be upended by Uber.

This perhaps helps explain why New York City Mayor Bill de Blasio has threatened to limit the number of Uber drivers in Big Apple, where the app's 20,000-strong fleet has already outnumbered traditional yellow taxi cabs.

But this line of argument has two flaws.

First, if governments are really concerned about traffic congestion, why not regulate the number of driving licenses? And impose car import quotas as well?

Second, Uber’s effect on road traffic might go the other way round: In the long run, people may drive less or not drive at all because there is a cheaper alternative.

The real reason for the aversion to Uber by ministers and mayors alike, I contend, lies in the risk of a permanent loss of government control over large swaths of public policy realms.

The government will no longer have a say over passenger safety, pricing, taxation and quality of service.

As de Blasio tweeted, “Uber is helping provide more and better service. But no company can skirt vital protections and oversight”.

Taxi policy is essentially a social welfare policy. It is not a product of the invisible hand of supply and demand.

It is not something that can be readily outsourced to the private sector, definitely not to transnational entities like Uber over which the government has no sway.

On the matter of pricing, for example, the issue is not so much about whether Uber is actually cheap per se but that the government can no longer decide on a fare level that determines the welfare of drivers and passengers.

Added to this is the fact that civil service (and society) is inherently conservative. Why cede control to a disturbing entity when the status quo seems to work well?

This explains why Uber is unwelcomed in so many markets. How do governments translate thought into action in real life?

So far, US and EU states resort to legal means to stem the rise of Uber; hence the surge of court filings across the West.

A brief reference to Keynes’ quote shows the legal means is not sustainable in the face of an insurmountable tide of the sharing economy.

Interestingly, China gives the answer: Set up your own Uber.

China’s own ride-sharing app Didi Kuaidi, backed by Alibaba and Tencent, currently boasts having three times more car trips than Uber.

Better to cede control to a champion in your own jurisdiction than to a remote San Francisco-based company.

Alternatively, taxi syndicates should double their commitment to app marketing, reaching out to passengers who look for convenience in cab-booking.

In the long view, the Uber episode shows that technology continues to cause disruption to our existing way of life, in both production and consumption.

States now have to bargain directly with transnational corporations and transnational corporations have to act like diplomats. Think Uber’s regulator-targeting “public policy units”.

A grey area emerges regarding, for instance, whether Uber should be seen as a technology company or a transportation provider to be subject to regulation.

There can be thousands of ways to define and interpret the technological change.

Having said that, the general principle is always let us guide technology, not the other way round.

To re-paraphrase Keynes, it is our sense of purpose, not technology, which is dangerous for good or evil.

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EJ Insight contributor