The Parable of Uber: A Tale of State Inferiority

Will Tippens
Jun 20, 2014 at 3:22 PM

imageIt’s almost as if over-charging people for something that can be done by anyone is a bad business model.

After the recent massive European protests against Uber, in which thousands of taxi drivers took to the streets to blockade busy areas and tourist sites from London to Berlin, people have become more aware and interested in ride-sharing services than ever. The predictable outcome: Uber downloads skyrocketed almost 1000%.

And why wouldn't they? Uber and its competitor Lyft offer exciting, undeniable advantages over the stagnant transportation industry. The innovation of being able to summon a ride quicker than you can send a text, see and contribute to your driver’s rating, and tip from your phone are all wonderful features that traditional taxis have no way to compete with. Not only does Uber offer huge advantages to the consumer, but the way the App is set up allows the driver to work their own hours, use their own car, and make more money than traditional taxi drivers.

What sets Uber and Lyft apart from government-licensed taxis?

The secret of ride sharing services is that they are tied to a naturally arising market process that is diametrically opposed to the ham-fisted interference of the state. Apps like Uber and Lyft are machete-wielding innovators in a jungle of tangling bureaucracy and creeping state intervention. Their strengths exist where the state is inherently weakest.

However, don’t take this to mean that they’re “unregulated.” Both companies go to rigorous lengths to regulate their services, screening every driver more thoroughly than the DMV does for commercial drivers and requiring strict standards for the quality of their drivers’ vehicles.

But the best part is that all this regulation is not undertaken thanks to the black letter dictates of a finger-wagging politician. Instead, Uber and its peers merely seek to serve its customers in the best way possible. The scary M. Night Shyamalan twist? They want you to like their service enough so that you’ll voluntarily continue to pay money for its services!

Because these “regulations” are self-imposed, they are inevitably more efficient and tailored carefully to market based demands. Using a rating system, potential passengers can look at drivers’ reviews, much like choosing a restaurant on Urbanspoon (and the driver can also rate the passenger, allowing drivers to stay away from belligerent passengers).

Each Uber driver is also endowed with $1,000,000 in third party insurance while they have passengers in the car. Commercial drivers in Virginia have about a third of this amount. Internal regulations like these—regulations that foster customer confidence and repeat business—allow Uber and Lyft to reduce risk and improve the overall experience.

Perhaps the most important factor of all, Uber and Lyft are currently able to avoid extremely costly and superfluous commercial licensure requirements. In the EU, taxi licenses are estimated to cost as much as $270,000 apiece! Not having this incredibly costly overhead allows Uber and its drivers to offer much more affordable rates than their state-licensed counterparts, again passing on the benefits to the consumer.

But for the savvy voluntary-market enthusiast, this is all old news.

The really great thing about Uber and Lyft is the underlying lesson so many others can easily glean from their models and how the state has reacted. The parable of Uber is a perfect example for everyone not terribly versed in economics to observe a perfect illustration of government versus the market.

Uber and Lyft are free-trade incarnate: privately coordinated feats of technology-laced entrepreneurship blazing the trail for the future of real life person-to-person commerce. These companies show what can happen when you outmaneuver the State middle man. Companies that share this model are looking glasses into the vast potential for the enrichment of countless lives through similar voluntary services in the future.

Lyft and Uber are upstart challengers to the status quo. And on the other side of the ring from everybody’s favorite app, we have the state, fresh off a series of humiliating debacles, clumsily trying to decide between favoring public opinion or upholding the monopoly it has bestowed on taxi drivers through licenses.  The State, despite all its carefully tailored and omnipresent rhetoric about the “public good” is more easily to call out on its façade than ever. Just read the cease and desist letter Virginia sent to Uber’s local headquarters.

In the present case, the existing taxi companies, being wholly unable to keep up, call for the state to intervene and protect them from “unfair” competition. “Unfair” because, well, the taxi companies cannot compete with its far superior rivals and will lose customers.

This is the story of all regulation: a company, often one that has established itself in some way, lobbies the state to create a legislative-protected niches from entrepreneurial outsiders. A useful side effect of state protection is that you no longer have to innovate to compete with other actors in the market. So while the New York Taxi Workers Alliance is lobbying the New York Taxi and Limousine Commission to mandate “Stress Management & Mental Health and Substance Abuse Services” benefits, Uber has already expanded into commercial delivery.

Plenty of privately backed “public interests” will clumsily seek to eliminate the advantages created by private innovation. Right on cue, many traditional taxi unions and companies are citing horror stories to play up the supposed dangers or citing “unfair” competition. But, luckily, the case of Uber versus the state is too obvious for the public to be duped into the same old tricks.

As great as Uber and Lyft are, it is also important to realize that both companies now have a powerful incentive to buy into the system and lobby the state to use the long arm of the law against any newcomers, potentially stifling further innovations. Still, the superiority of self-regulation and the ridiculousness of licensure are as obvious as ever in the case of Uber versus the state.

It is clear: Uber and its ilk are the coming Renaissance, while the state is stuck in the Dark Ages.

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Lyft if a fantastic service.  If you haven't tried it yourself yet, download the app and under the codes enter LOSANGELES (works anywhere in the world) for a free ride! Do the same on your friends phone for a ride home.

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