May 18, 2016

Austin leaves the fence up

“In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

— G.K. Chesterton

Uber and Lyft announced that they would suspend their service in Austin on May 9, 2016, after a vote to reject the rewriting of regulations on ride-sharing apps. In 2015, Austin’s City Council approved an ordinance to require ride sharing companies like Uber and Lyft to follow the regulation of taxis, which means that all the drivers of these companies have to be forced to have fingerprints in their background check. In response, Uber and Lyft rewrote a looser proposal and forced a vote in which residents of Austin would choose between them and the regulation from City Council. However, the people were not on their side.

Founded in 2009, Uber now is available in over 60 countries and 400 cities worldwide. In the meantime, a lot of governments are seeking to a method to regulate the service so that it could be safer and normalized for people. Although regulations may have been adopted for valid reasons, there is concern that regulations may also restrict innovation that could otherwise benefit producers and consumers. For example, the Wall Street Journal notes that 10,000 people in the Austin area earn income from ride-sourcing platforms. Regulations applying to for-hire transportation companies may appear antiquated as modern technology continues to develop and new services emerge.

To understand why we have taxi regulations in the U.S., we need to review the history of taxis. During the Great Depression, some people turned to driving taxi without a license, which led to an increase in accident rates and road congestion. As a result, many American cities enacted regulation to ensure safety and address liability and driver rights issues. From the 1970s to 1980s, some cities, such as Atlanta, experimented with deregulation, removing some rules on fares and licensing requirements for the taxi industry. However, after just a few years, almost every city re-regulated the taxi industry. The reasons included: the price of taxis increased, service quality decreased, and safety could not be ensured.

Therefore we may wonder: do ridesourcing services like Uber represent a fundamental solution that obviates the need for regulations? Or will they repeat the history of taxis?

What happened after Uber appeared? Does it follow the same history? So far, unfortunately, trends among ride sourcing companies such as Uber and Lyft are very similar to those observed in the previous taxi deregulation period. Firstly, the service quality seems to be decreasing. When Uber came to our life at the very beginning, the quality of their service was much better than the traditional taxi industry. However, as more and more drivers joined Uber, the quality has not been maintained as before. In my experience at least, the quality is dropping and may continue to do so. Secondly, some accidents and other high-profile incidents indicate that Uber’s current system of background checks and its reliance on review-based reputation systems may not be adequate to keep their customers safe.

Fortunately, the price of ridesourcing services continues to drop as demand increases and network effects continue to allow cars and drivers to be used more efficiently, at least for now. But even this trend could be under threat: if Uber increases its dominance of the market, it will be in a position to increase its cut of fares, raising prices for travelers while reducing incomes for drivers.