TWO-WAY STREET
How to solve the Uber dilemma.
The policy regime governing global taxicab economies is dead, and unfortunately, my hair is not perfect. Last weekend, while travelling through Vienna, I was assaulted by a taxicab driver who made off with a fistful of my money while wreaking modest physical and psychological trauma, flipping me over his car as he sped off. Despite being slightly battered and a little bruised, I think I have achieved the connection between theory and praxis sought by so many academics.
While I am still making efforts to track down the cabbie and hold him civilly and criminally liable in Austria, I am almost certain he was a licensed Uber driver. This unfortunate incident exemplifies in the extreme the sort of policy dilemma faced by Toronto and hundreds of municipal authorities around the world. Throughout my travels in Europe, like millions of consumers everywhere, I was delighted by the ease, convenience, and modest expense of Uber as I whizzed from tourist attraction to tourist attraction. At times, I calculated it was cheaper than public transit. It was certainly faster, as if I had my own private driver.
The experience confirmed the findings of a research project I completed at Osgoode Hall this past academic year on balancing the consumer benefits of applications like Uber with the legitimate policy rationales of regulatory authorities. My research suggests that maintaining the existing pricing regime is indefensible. Regulators ought to focus on the broader public interest in deterring social harm, upholding an adequate standard of licensing and professionalism, and ensuring compensation through insurance when harm is visited on consumers.
The economics of the situation are increasingly clear. On the demand side, consumers benefit substantially from the sharing economy, taking advantage of lower taxi rates facilitated by an increased labour supply. The labour supply similarly benefits. According to a study by Jonathan Hall and Alan Kreuger at Harvard University, using empirical data supplied by Uber, the app’s growth has been driven by the flexibility it offers to its part-time labour force, the competitive levels of compensation, and the fact that earnings do not vary much with the number of hours worked.
The case for price regulation, and a limited supply of licences, is therefore tenuous at best. The beneficiaries of the current regime are taxi cab licensees who collect significant rents on their highly valued municipally backed imprimatur while distorting the dynamics of the free market at the consumer’s expense. These licensees do not drive cabs themselves. Rather, they benefit from the labour of immigrants.
And yet the “bricks and mortar” taxi industry in Toronto does not suffer a disbenefit because of Uber’s emergence. Uber has a stratified service offering (UberX, UberTaxi, Uber Black, etc.) that subsumes the existing, licensed taxi industry into its mid-priced service offering. Rather than simply taking market share, re- cent research suggests the app’s emergence has stimulated demand for all taxi services, its own and those of the licensed service providers. Consumers who were effectively priced out of the monopolized regime now have access to services at lower prices and greater convenience than ever before. Just think about what this means for the future of public transportation in Toronto, and perhaps even the car. Services like Uber portend the end of the automobile for many, often the second largest capital expenditure for most consumers, and a road forward for Toronto’s transit woes.
At any rate, apps like Uber are here to stay; the economic transformation is a fait accompli. Governments cannot turn back time and effectively reinforce the regulatory status quo, pre-Uber. What is required, rather, is a total reimagining of how and why the state intervenes in the taxi marketplace. This starts with a modification of negligence, insurance, and licensing legislation, to act as a general deterrent to noncompliant licence-holders, and to provide compensation where harm is visited. But who should be responsible for it?
An overlooked issue in the current debate concerns Uber’s growing interference in our democratic politics. While Uber has served consumer interests, by reducing transaction costs, lowering prices and liberating the supply of drivers, the company nevertheless has its own interests to advance at the political level, which it does, ferociously. Like countless other Uber subscribers, I have received many communications urging protest in light of the Toronto policy debate. The company’s lobbyists have likewise descended on city hall, in a show of force that is as impressive as it is unprecedented.
In short, the sharing economy, whatever its benefits to consumers, portends an entirely new power dynamic between citizen and government. Academics, short on more sophisticated vernacular, call this “new power.” Unless we act soon, I fear that power is likely to be seized by global multinational corporations like Uber at the expense of local democracy.
Moving the relevant regulatory authority up to the province, while divesting municipalities of rule-making and enforcement power, offers a promising avenue out of Toronto’s policy quagmire. By eliminating the economic regulation of municipal taxi cab markets through the City of Toronto Act, and transferring responsibility for licensing, insurance and safety regulation, with appropriate modifications, to the province, municipalities can embrace economic innovation, increasing consumer sovereignty and economic welfare, while protecting the public interest. For example, the licensing arrangement for Uber and minicab drivers in London, England, removes limits on the supply of licences while ensuring baseline standards of pro- fessionalism and insurance. This is but one comparative example of the move towards innovative sharing-economy policy.
My recent misfortune aside, I am confident the sharing economy holds the promise to increase the efficiency of the local and global economy while simultaneously creating social and economic benefits. Political leaders and policy Czars are in a position to accelerate the transition to a truly competitive and innovating sharing economy that safeguards the public while vociferously defending our consumer interests. Oh, and I’d like my money back on that Viennese cab ride.
Recent research suggests Uber’s emergence has stimulated demand for all taxi services