Tagged: Uber

The “Truth” About Tech and Libertarians?

Yesterday, Salon published what amounts to a hit piece on Uber. Since I recently spent a weekend in Miami using Uber and taxis to get around, and I’m a libertarian, I noticed several things in the article that need a response.

The article begins by generally disparaging Uber for implementing “surge” pricing during the recent hostage situation in Sydney, Australia. According to the author, Uber should be faulted for not acting in a “civic” manner and provide rides free of charge to people looking to flee the area. To the author, this callous disregard for people’s safety is an example of Uber’s lack of altruism and mindless self-interest. Also, this is why Uber is like Ayn Rand, or something.

Following up this cliche invocation of Rand to accompany any critique of libertarianism (even though I’m not yet sure why libertarianism is being mentioned), the article continues with the example-free assertion that “[t]here was once a time when we might have read of “hero cabdrivers” or “hero bus drivers” placing themselves in harm’s way to rescue their fellow citizens.” For some reason it’s Uber’s fault that there weren’t cabdrivers or bus drivers selflessly hauling people out of the area. Is it also Uber’s fault that people who drive their own car for Uber, or some other service weren’t practicing pure altruism? What about random citizens? Did Uber prevent them from jumping in their own car to help?

Obviously, Uber has nothing to do with that. As much as taxis, buses, and private cars could get into the area, they were doing so. The issue is that because of the crush of demand, there was only so much supply of rides available on public transportation and in taxis. Therefore, to encourage (keep in mind that people who drive for Uber choose their hours) drivers to go to a dangerous area and haul people out, Uber raised prices. If you happened to be a person wanting to get out and couldn’t get a cab, bus, train, or walk, you had an additional option to pay extra to get a seat in someone’s private car. “Surging” prices did nothing to take away any other options people had. Why should Uber be faulted for charging more to create something where without the extra cost, nothing would exist? In other words, imagine Uber didn’t operate in Sydney on the day in question. People would have had to rely on fewer, traditional modes of travel to escape. Fortunately though, Uber did exist and because of it’s ability to entice drivers to the area by raising prices (until people complained), more people were able to get a ride than they otherwise would have. That is a good thing.

Next, the author claims that the above is merely an example of how the poor and middle class will get priced out of needed services. What that attitude is actually saying is that in order to properly value lives, services that increase the available options for rides during a crisis should at least be forced to charge the same as the existing options, or even better, make them available for free. Well, that attitude assumes that everyone will react to a dangerous situation with pure altruism and come rushing to assist their fellow citizens. I don’t know about you, but I’m not willing to risk that assumption. It is far safer to allow available options to materialize during needed times. Granted, doing that may require paying more. The horror!

Following that, I agree with the author that classifying services like Uber as part of the “sharing economy” is inaccurate. True, it’s a business, not just “sharing.” However, Uber is not an “under-regulated taxi company.” Uber is a technology company that provides a platform for people to find a ride and for drivers to find passengers.

At the heart of the article’s next line of argument is the underlying message that people, especially those not in the upper class, are entitled to transportation in other people’s cars at a rate the passenger believes to be affordable enough. Well, there is no “right” to transportation. Instead, businesses and individuals have a right to attract passengers by charging fares people are willing to pay to ride in vehicles the passenger is willing to ride in. If the passenger doesn’t like the available options and public transportation or cabs aren’t available, they are free to walk, bike, call a friend or family member, or ask for the kindness of a stranger.

Expanding the argument to focus on Uber’s hiring and pay practices, the article then asserts that Uber underpays drivers and fails to provide benefits because there are government programs that drivers can take advantage of. My first response is to inquire into taxi driver’s pay and benefits. It appears that taxi drivers would like to be paid more and the vast majority also lack benefits. So why does the author only target Uber?

Nevertheless, even assuming that Uber does as accused, the natural response to that is “OF COURSE!” Companies provide benefits as a means of attracting talented candidates because they know if they don’t, their competitors will, and other things being equal, they’ll lose the potential hire. Well, this general rule supposes that employers are competing for talent. What the lack of benefits and lower wages suggest is that Uber has a glut of people wanting to drive, so they don’t need to offer them because enough people are willing to drive without having higher wages or benefits provided.

Further, since when has it been the role of businesses, that can’t exist without profiting, to provide people who CHOOSE to work there with a wage that is “adequate” (whatever that means) and with benefits? The author seems to think that people are just inherently entitled to have these things given to them. Richly, the author then complains that taxpayers have to provide these entitlements to people other than the companies that they work for. So what you’re saying is you want people to have them except when you have to pay for them? What seems to get missed is that the more a business will have to give its employees, the fewer employees businesses will hire, thus resulting in the government having to provide more.

Next, the article makes a tragic assumption about regulations. Ignoring the realities of public choice theory and regulatory capture, the author states that “[r]egulations were created because they serve a social purpose, ensuring the free and fair exchange of services and resources among all segments of society.” Having actually studied legislation and the forces behind it, that is a naive statement at best. The reality is that frequently, regulations actually function to benefit a well-connected organized industry at the expense of the public and consumers.

And, to then add on another layer of dangerous assumptions about regulations, the article assumes that “we” can somehow “streamline sclerotic city regulators, upgrade taxi fleets and even provide users with fancy apps that make it easier to call a cab.” What the author wants is Uber, only worse.

Essentially, the author holds Uber to an impossible standard. Where taxi companies are excused for mistakes because they are subject to government regulations, Uber is villified. An Uber driver misbehaving is somehow worse than a taxi driver misbehaving just because the taxi company played by the rules. That’s just “because the law says so!” stated a different way.

No, whether an Uber driver or a taxi driver misbehaves is equally bad. Both drivers should be held accountable. If Uber’s system of protecting passengers isn’t working, then Uber should be accountable for that. Same goes for taxi companies. Just because taxis operate under older laws doesn’t mean they are sacrosanct. What is good is that we are seeing alternatives created so that we will actually know which system best accomplishes what passengers want. Competitive approaches will actually benefit us instead of just assuming that what taxi companies use is better because its the law.

Next, the author, and the cite used, mischaracterize Uber’s auto loan referral program. Advertising an additional source for obtaining an auto loan is a far cry from “pushing” drivers into sub-prime loans. Additionally, it’s quite a leap to imply that the mere advertising of the lending option means that relatively many drivers are getting involved with economy-crashing sub-prime loans rather than acquiring auto loans through the numerous other traditional means.

Nonetheless, the author is correct to point out troublesome activities that Uber does engage in regarding passenger information, espionage, and deceptive practices. While I use Uber whenever I can because, in my experience, it is FAR superior to the regular taxi experience that I am forced to use if I want to hire a driver in New Orleans, I am not blindly going to defend Uber. However, the proper way of dealing with bad business practices is for members of the public or the press to make the public aware. If Uber doesn’t respond and their customers or drivers are sufficiently displeased, Uber will eventually pay for their ways in decreased profit or even business failure. Unfortunately, this mechanism isn’t as neatly available to punish taxi companies for engaging in bad behavior because governments support them through existing regulation. Therefore, what should be called for is deregulation of the taxi industry so that the public can hold all companies responsible for bad business practices.

Finally, the article also says “[p]eople who work hard deserve to make a decent living. Society at large deserves access to safe and affordable transportation.” While I won’t repeat myself about the harmful attitude of entitlement, I will add important clarifications to these sentences:

People who work hard deserve to make the living that reflects the value they created or added through their hard work. All hard work is not equal.

Society at large deserves access to transportation options they are willing to pay for. That access does not entitle one person or group of persons (i.e. government) to require another person to provide that access for less than they could get from a voluntary exchange.

While I certainly cannot speak for all libertarians, after reading the article I’m not sure the author has ever really talked with any of us. At a minimum, the author seems to misunderstand what we stand for. Hopefully I have been helpful in clarifying what the “truth” is.

Potential Uber Vote Coming

Tomorrow, August 14, could see a vote from the New Orleans City Council on the pending ordinance updates to the luxury, for-hire vehicle (sedans and limos) code. Of course, Uber’s luxury sedan service, Uber Black will be impacted by the result of the Council’s decision.

I have previously written at length about the issues at play here and here. To briefly sum up the main points:

1) Removing the 3 hour reservation requirement is good.

2) Leaving in place the requirement that luxury vehicle companies own at least 2 vehicles serves as a barrier to entry for entrepreneurs who can only afford to break into the market with one vehicle. This requirement should be repealed.

3) In spite of Council President Head and advisor to the Mayor, Ryan Berni’s fun with words, adjusting the minimum fare formula is still price fixing. Creating an arbitrary, artificial difference, by law, between fares that taxis and luxury vehicles can charge only accomplishes economic protectionism. The existing vehicle companies, especially taxis, are using the government to force people to pay more than they otherwise might.

In short, it is not the job of the government to protect an entrenched, traditional industry from competition. Whether taxi owners like it or not, technology will eventually force them to truly compete with newcomers like Uber and Lyft, or go out of business fighting it.

Rather than trying to use the government to prolong the status quo, they should instead focus their energy on lobbying for fewer government mandated restrictions on their operations. Services like Uber show that the public can still be protected without the current burdensome regulations imposed on for-hire vehicles.

While it is a welcome sight that the city is taking a fresh look at the current laws, a more basic overhaul is what is truly needed for the New Orleans transportation industry to truly thrive and become something we can be proud of in a city that prides itself on creativity and innovation.

The City Council meeting is scheduled for 10AM at City Hall.

*UPDATE* According to multiple reports on Twitter, the Council voted to table a vote on this issue until the September 4th meeting.

NOLA Council Begins Uber Conversation

On June 24, 2014 the Transportation Committee of the New Orleans City Council met to begin discussions on ordinance changes to the luxury vehicle section of the for-hire vehicle code. The primary changes proposed in the current version of the ordinance updates include: 1) removing the requirement that luxury vehicles (limos, sedans, and SUVs) must be reserved for 3 hours, and 2) changing the minimum required fare structure from $105 to 3x the taxi base fare. The new minimum fares would be $25 for sedans, $35 for SUVs, $75 for trips to/from the airport, and $90 for SUV trips to/from the airport.

In addition, the code would be updated to allow for luxury vehicle companies to use technology, like smartphone apps, to better serve their customers. The taxi code was updated in 2012 to allow taxi companies to use technology. Based on my reading of the current ordinances I don’t see why an update is necessary to allow for this, so I asked representatives in the Mayor’s office for clarification, but have not yet received a response.

Anyway, the headline grabbing piece of this topic is that Uber has requested the city to make changes to the code to allow it to legally operate Uber Black. Uber Black is Uber’s luxury sedan service. As I previously outlined my thoughts on Uber more generally, I’ll limit the remainder of this post to responding to the meeting of June 24.

Ryan Berni, advisor to Mayor Landrieu, started off the meeting by stating that the goal of the city is “to have good transportation options for residents, businesses, and travelers.” Berni went on to say that the city has an obligation to ensure regulations are in place to protect the public. On the surface, these comments sound perfectly reasonable to be coming from the Mayor’s office. However, as the remaining comments during the meeting show, protecting the public is not what will be accomplished by the new ordinance. What will be accomplished is protection of the profits of existing luxury vehicle and taxi companies, at the expense of greater and cheaper options for the public.

According to Mr. Berni, “we need price separation.” In other words, “price separation” means that in order to keep luxury vehicle companies from functioning as taxis and cannibalizing all the taxi business, the city needs to force luxury vehicles to charge higher prices than taxis. Councilmember Head awkwardly requested clarification from Mr. Berni that this did not amount to “price fixing.” While Councilmember Head is technically correct that creating “price separation” does not fit within the definition of “price fixing,” the result is essentially the same. The city, not the market, sets the prices that minimally competing businesses may charge customers, and taxis get to charge lower rates than luxury vehicles so they have a larger customer base to appeal to, and luxury vehicles charge higher prices to appeal to a different, wealthier clientele or serve as a transportation option for special events and occasions.

There are two primary reasons why this arrangement does not serve to protect the public: 1) in general, minimum fares artificially force people to pay more for a service than they otherwise might be able to negotiate; and 2) creating “price separation” limits transportation options for the public.

First, in the absence of minimum fares, customers could negotiate lower prices than allowed by law. Forcing people to pay more than drivers may be willing to charge benefits the bottom line of the vehicle owner, not the customer. Also, to be clear, it is only minimum fares that are being discussed, not maximum fares. The proposed ordinance change removes the ceiling that luxury vehicle companies may charge while setting a floor that they may not go below while negotiating fares. Therefore, minimum fares benefit the vehicle companies, not their customers.

Second, price separation that sets a higher minimum fare limits options for people looking for transportation. If someone can’t afford the legally required minimum fare, they must look elsewhere for a ride. In contrast, if there were no required minimum fare, a vehicle company that is willing to accept a lower fare rather than have no business at all would result in the customer having a ride and the company having a paying customer. Further, minimum fares reduce competition which only further reduces the number of available options. If a new vehicle company is attempting to enter the market, one of the easier methods of acquiring business is to charge lower prices than the existing companies. Since the new business does not yet have name recognition or a reputation, the lower prices they offer allow them to compete immediately. However, if there is a legally required minimum fare, the new company cannot charge less to entice customers, thus fewer new companies are likely to emerge. This result is even more likely to occur in the case of individual entrepreneurs who are considering entering the market with a single vehicle or two.

A brief note on that last point. The current ordinance requires a luxury vehicle company to have at least 2 vehicles. This requirement also does not serve the interests of the public. Instead, it limits competition while benefiting large vehicle companies. If I’m an individual entrepreneur (assume I have acquired the necessary licenses and insurance) who would like to earn some extra money on the weekend by providing rides in a sedan, but the law requires me to own 2 sedans before I may open for business, this arbitrarily limits the number of people who may operate as luxury vehicle companies to those who can either afford to purchase at least 2 vehicles instead of just 1, or to those who are able to access financing for an additional vehicle. In any event, Joe Entrepreneur who has no use for a second vehicle because he can only drive one at a time is left looking for other options for extra cash, and the public is left relying on the larger companies to offer enough vehicles to meet the demand.

In addition, when the minimum fare structure is combined with the 2 vehicle requirement, not only is competition on prices and the number of available vehicles limited, but a barrier to entry is raised for those seeking employment. So, what we’re left with is this: luxury vehicle companies with enough resources to acquire at least 2 vehicles do not have to worry about competitors with a single vehicle charging less than them, and taxi companies don’t have to worry about luxury vehicles charging the same price as a taxi but offering a ride in a nicer vehicle. What about this “legal” arrangement is actually serving the public instead of the interests of the current 20 luxury vehicle companies and the taxi companies?

This is exactly what I meant when I said other motivations are at play than protecting the public. Fortunately, if my above analysis of the dynamics at play isn’t enough, one need only listen to the comments during the June 24 meeting by those in the for-hire vehicle industry to see that they openly advocate for the city to protect their businesses from competition:

Michael Brinks of the Greater New Orleans Limousine Association said that they need the city to protect their ability to charge higher fares.

Chris Bonomolo of Bonomolo Limousines implored the City Council to consider the impact of ordinance updates on the well being of limo drivers. Nevermind the fact that when directly questioned by the Council, Mr. Bonomolo was unable to provide any specifics on how his employees would be harmed.

A representative from Alert Transportation voiced his opposition from having fares lowered because without the legally required minimum fares, it makes it difficult for his business to stay viable.

Mike Wetzel of Big Easy Limos was more explicit when he directly stated that limo companies can’t compete with taxi prices and if competitors are allowed to charge less than the current minimums his company could be put out of business.

Sheree Kerner of Nawlins Cab was concerned that the “price surging” practice of Uber’s ridesharing product, UberX, was synonymous with price “gouging,” yet somehow failed to realize the illogic of her comment when she went on to say that if UberX is allowed to operate in New Orleans, cab companies will be left to serve only non-Uber users and will require subsidies from the city to stay in business. If “price surging” is so bad for customers, Ms. Kerner, why would all the Uber users continue to exclusively use Uber at the expense of cab companies?

The comments go on, but I believe the point is clear. While paying lip service to concerns for the public based on overblown statements of their being less transportation options if the existing companies are actually forced to compete on things like fares, the true concerns of the companies are clear. They need the city to protect them from competition or they might go out of business, or they might have to lay people off, or they might profit less. I suppose you could make the argument that businesses closing, layoffs, and lower profits result in harm to the public. However, where could the line possibly be drawn if protecting the public is now defined as protecting existing businesses from having to function in the world of business? Unless you are a company that is fortunate enough to operate in an industry that can acquire government protection, you are forced to actually compete with other businesses to attract customers. None of the above comments reflect the motivation to serve and attract the people of New Orleans and her visitors.

I realize that this is yet another example of business as usual in New Orleans politics. However, these vehicle companies should be ashamed of themselves for thinking that it is the responsibility of the elected representatives for the people of New Orleans to protect the businesses from competition at the expense of their customers.

The provisions of the current proposed ordinance that remove the 3 hour reservation requirement and explicitly allow vehicle companies to implement technology are improvements that benefit the public. The provisions that maintain minimum fares and the 2 vehicle requirement only serve the interests of the companies. Hopefully, the members of the council, and the members of the public will begin to see the vehicle companies’ claims for what they truly are: self-serving rent seeking and the refusal to compete and adapt to the changing nature of transportation. Whether they like it or not, companies like Uber are not going to disappear. Instead, if existing vehicle companies continue to view their customers as a commodity that they are entitled to by force of law, then we should expect to see competitors like Uber proliferate.

Uber v. Taxis

I decline to choose a winner. The people of New Orleans should be allowed to choose who wins by either using Uber or not  using Uber. Unfortunately, this is not the typical city approach to new companies disrupting the status quo. This is especially true when the threatened party is the deeply connected New Orleans taxi industry.

The Transportation Committee of the New Orleans City Council is set to debate rules changes to some city ordinances on Tuesday, June 24, 2014. Since I will not be able to attend that meeting, my thoughts (non-exhaustive) on the situation continue below.

Assuming that opposition to Uber stems from a concern for public safety, there are some common misconceptions out there that simply aren’t true. These include lack of insurance coverage, unsafe vehicles, random people as drivers, and the affordability of rides. First, Uber now provides significant insurance coverage for all Uber drivers that should certainly be adequate in the event of an accident. Second, the average age of an Uber vehicle is 6 years, and none are older than 10 years. Third, Uber conducts extensive background checks on its drivers before allowing them to hit the streets.

Further, before getting into an Uber car the customer sees a picture of the driver, the driver’s license plate number, and the driver’s name, and then after the ride is over, the customer can rate the experience they had with the driver. This process allows other customers to know who they are getting and the quality of the driver. Uber also is able to keep tabs on its drivers through this system.

Finally, while Uber does have a minimum fare structure to account for insurance and the background checks it runs on drivers (certainly worthwhile fees for a rider to pay for), the customer at least gets an estimate on the cost of the trip before getting into the vehicle. That way, if the cost is too high, they know to seek other options.

Now, comparing Uber with New Orleans’ recent updates to taxi regulations, at least on these four points there aren’t appreciable differences that weigh against Uber. Going beyond these points, Uber is far superior. First, introducing a new player into the market will provide additional transportation options for New Orleans riders. Anyone who’s continually heard a busy tone while trying to call a cab or seen a constant parade of full cabs heading uptown late at night knows that additional drivers are needed. Second, having the ability to rate your driver, and for your driver to rate you, sets up an incentive for drivers to not only be trustworthy and efficient (i.e. not take the long way), but for both driver and rider to just be nice to each other. This is a welcome addition.

Third, Uber technology requires drivers to use GPS. What does this mean? No more having to tell the lost driver that you are PAYING how to get to where you’re going! Fourth, it is far preferable (to me) to be able to pull up a ride on a phone app instead of standing out on a curb waving like a maniac or constantly calling dispatch and waiting for a car to pull up and honk. Further, the app allows you to see the progress of your driver on his way to pick you up.

Fifth, no more cash! Not only do you just hop out of the vehicle at the end of your trip without having to complete a transaction, but the app takes care of tipping for you. This process is preferable for rider and driver for 4 main reasons: 1) not having to give your card to the driver prevents drivers from engaging in swapping out your card with someone elses and then running up charges before the theft is discovered (I dealt with this multiple times in a previous life as a banker at Chase); 2) riders not having cash is also faster and safer (for obvious reasons); 3) no more having to make sure a driver’s credit card machine is working or that they aren’t flouting the city regulations requiring them to accept them; 4) it’s safer for drivers, too, since they don’t have to carry cash on them.

Of course it is true that not everyone has smart phones. This is why Uber will not destroy the taxi industry. There is still room for taxis. Regardless of whether you simply don’t own a smartphone (or haven’t updated your phone’s software to allow you to use it at the moment), or choose not to pay for the service at times of peak-pricing, or just happen to see a cab and hop in instead of pulling out your phone, there are still many customers and situations that will support taxis. Also, there is no reason that existing cab companies can’t adopt similar technology as Uber uses unless they have no incentive to. Unfortunately, due to the current lack of real competition on this front, taxi companies don’t really have an incentive to adopt better technology (not to mention it may not even be affordable at the moment due to the added expenses resulting from recent ordinance changes).

The point is that competition is good. Keeping a competing company out of a market for arbitrary reasons is not good. After reading the above and considering other possible public safety rationales for limiting Uber, I can’t help but think that keeping Uber out must be based on other motivations. Just because taxi companies have been granted a monopoly by the city doesn’t mean they are entitled to enjoy it forever. Plus, as soon as it is honestly acknowledged that what is really going on is simple economic protectionism, at least New Orleanians will know that it isn’t public safety that is being secured. Instead, it is profits of the well connected taxi industry paid for by the public. If the city of New Orleans truly cares about protecting the public and making sure there are safe, dependable, and plentiful rides for people choosing or needing to not drive themselves, then it will amend current regulations to allow for robust competition in the New Orleans taxi market.