Uber, Taxis and Protecting Workers

I was talking to a friend of mine the other day about business models and transit. From Uber and Lyft to the world of bike sharing we discussed business models and their effects on labor, etc… I love talking to him. We’ve known each other since college and in many ways we have opposite world views. I tend to think about things in terms of organic bottom up systems. He’s a top down guy, and to–probably unfairly–characterize his views, let’s talk about taxi cabs.

In most Metropolitan areas in the united states, taxi cabs are regulated. In New York City, you must have a “Medallion” to act as a Taxi. To do business as a taxi you have to purchase access to the market from the government. [0] There are a limited number of Taxis allowed to have these medallions, so this form of government regulation creates an artificial limit on supply.

My friend seemed to believe that taxi medallions are a good form of regulation in the sense that they protected taxi drivers by restricting the supply of taxis. More Taxis would mean that each taxi driver would make less, so he saw this form of regulation as a social good since it was a way to ensure that that taxi drivers received a good wage. He saw Uber and Lyft as damaging this labor protecting mechanism as well as putting their own drivers in an unhealthy race toward the bottom in terms of their own wages.

To me, there are so many other competing factors that I find the argument fairly uncompelling.

First, I almost never take a taxi. Usually because the experience is terrible from end to end. It’s a pain to get them to show up when you actually need them. The taxis themselves are unpleasant. From the smell and general nastiness to the obnoxious amount of advertising content that usually assaults you, I’m never happy to get into a cab. And then there’s the negotiation of payment and tip. The cabbie’s credit card machine will be having a “problem.” Uber eliminates all of these problems, and I think I’ve used Uber more often in the last year than I have used a cab in my lifetime. So, while the two are in competition, the innovator–Uber–is opening the market to a much broader set of customers.

Medallion holders don’t need to do this. They have a monopoly and they’re going to milk it. [1] That means, terrible experience and just sitting on the market they have. They have no reason to innovate because people will need cabs and they have no meaningful competition. What about the value the customer receives? I find the thought of locking an entire industry into a monopoly just so that a certain group can receive the wages they feel they are entitled to is deeply disturbing. Just because I do not know the equilibrium state that a business will reach, doesn’t mean that we need to design it.

The pretense to protection of the cabbies, generally disappears on inspection.[2]

In short, a nine-month Globe Spotlight Team investigation has found, the cab industry in Boston is a world of serial indignities that drivers, a largely immigrant workforce, endure while many cab owners walk off with huge and remarkably easy profits.

“They just do bribes left and right,’’ Nas Farah said of Boston Cab, the city’s biggest taxi company, for which he has driven since 2000. “That spot is not America, I’m telling you, man.’’

The city, which oversees the system, turns a blind eye to this climate of casual exploitation. Worse, city officials — in ways both subtle and obvious — enable it.

Matt Carroll of the Boston Globe

Then there’s the public choice problem of government granted monopolies. What do you expect politicians to do when given control over an industry? It doesn’t seem to create good incentives for anyone.

And aren’t monopolies and oligopolies bad? Don’t we hear them decried constantly? And in the case of allowing the state to define and control the monopoly there are no outs. There are no ways for the markets to “route around the damage.” Right now there are Taxi’s, Lyft and a couple other competitors in this market. But that doesn’t stop pundits from claiming the sky is falling. Glenn Fleishman, whom I admire in most things, has this to say in a recent BoingBoing post:

Uber is a new middleman, making a market and profiting from it. It matches buyers (those who need rides) with sellers (drivers and companies that hire drivers). If it dominates the car-hire and taxicab business, it could become both a virtual monopoly and a monopsony. A monopsonist is the only buyer for a given set of services or products, and can dictate terms to sellers while also potentially, but not always, controlling the price that its customers pay.[3]

Glenn Fleishman on BoingBoing

So, someday when Uber has no competition, it will have no competition.[4] Making predictions about the future of a market like this tends to be a fools game. Looking at Uber and saying they have no direct competitors and so are a monopoly is also confused. One of the ways that markets solve these sorts of problems is by diversity and not by competing in exactly the same way, this is one reason why highly regulated industries are miserable to deal with. Airlines and cellphone providers are hard to tell apart. There’s little diversity in the business models because regulation boxes them in, adds massive barriers to entry to competition, and lets them divide the artificially defined market. Few would have predicted the rise of Whole Foods and some still warn of its demise in the next recession because of its high prices and charity spending. But almost no one who buys their grass fed organic beef from whole foods was going to buy the same thing at safeway. They’re not competing on price. The price conscious go to safeway and those whose identity is bound up in the things Whole Foods is selling go to whole foods. Lyft is, to a certain extent, offering a different service aimed at a different crowd.

Of course, I’m arguing my ideology: Authoritarianism is bad and those solutions should be chosen last and only when absolutely necessary. There are hundreds of arguments on the other side, for example taxi medallions prevent a glut of taxis on the street.

But, when I hear people treat things like taxi monopolies as a straight forward simple solution to a straight forward simple problem like maintaining worker wages, I find it a kind of delusional narrative. Too often we try to pretend interventions have no cost and no downsides. It seems no one sees the value of diversity and distributed decision making when faced with what they perceive as simple levers.

I’m not trying to put Uber on a pedestal. I’m not what Ralph Nader calls a corporatist. They haven’t always acted well. But I’d rather see competition than monopoly.

I leave you a quote from my favorite economist:[5]

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

F. A. Hayek, The Fatal Conceit

  1. Yes. I know I’m technically abusing the term monopoly. I don’t care. Please read this bit of snark from Tim Wu at the new yorker to make you feel vindicated and better.  ↩

    The press confuses oligopoly and monopoly with some regularity. The Atlantic ran a recent infographic titled “The Return of the Monopoly,” describing rising concentration in airlines, grocery sales, music, and other industries. With the exception of Intel in computer chips, none of the industries described, however, was actually a monopoly—all were oligopolies. Tim Wu The New Yorker

  2. This is a pretty common thing with government intervention when compassion is invoked. Intervene for compassionate reasons, and necessarily take the rights and dignity of those to ostensibly be protected. Read my post on Matt Taibbi’s book The Divide  ↩
  3. You should read the Glenn’s piece, not the least because he’s pretty awesome. Just be aware the American Stasi has declared the readers of one of the most popular blogs in the world as extremists. So remember, Big Brother is watching you.  ↩
  4. Sure, he’s making a more subtle point about them creating a market and trying to control both sides, but I find it amounts to the same argument. So, Uber will install itself as the new monopsonist Taxi monopoly and so regulators must get involved to prevent imagined victimizations that will happen some day. It’s a kind of reactionary prior restraint of business. It’s at this point in the argument that I hope driverless cars make everyone’s arguments moot.  ↩
  5. For BoingBoing readers, I’m sure you noticed Hayek was recently demonized in BoingBoing as pro-plutocrat. I won’t link to it. I’m sure you can find it. For the open minded, here’s an article about the rap battles between Keynes and Hayek.  ↩