Why you should hold your nose and fight for Uber

Today TfL decided to chuck Uber out of London.

Today TfL decided to chuck Uber out of London. They have about a month to vacate the city, pending appeals.

It’s an ugly fight: on one side you’ve got Travis Kalanick and the rapacious Uber crew; on the other you’ve got an old-fashioned cartel.

There’s a lot to dislike about Uber. But disliking Uber misses the point here. The point is that taxis have been milking London riders for a long time, and it has to stop.

Pick a side: Uber or cartels

Uber is in the business of breaking up taxi cartels. Its fancy app, and gimmicks like surge pricing, are incidental.

In cities all over the world, the taxi cab industry has gotten itself organised and passed rules which benefit drivers at the expense of riders.

The taxi industry’s trick is usually to limit supply. In London, that means forcing new drivers to memorize every lane in the city. In New York, taxi licences go for about $1.25m. The licences are owned by investment companies which lease them out to drivers.

Under this setup, you can expect:

  1. Well paid full-time taxi drivers
  2. Expensive nights out for consumers
  3. Queues for taxis
  4. Journeys not taken, nights out foregone

Uber smashed this system. It used new technology – and a grey area in the rules – to flood the market with new cabs. And it undercut the artificially high prices charged by the licenced cabs.

The difference in price varies from city to city, depending on how well the licenced cabs have stitched up the market. But in London it feels to me like an Uber is around two-thirds to half the price of a black cab. In addition the cars are cleaner (hybrids rather than diesel vans), they arrive much faster and the app experience is nicer.

With Uber the price of taxis is set by supply and demand, the same way any other price is set. If a driver wants to take a fare he turns on his Uber and takes a fare; if he doesn’t he goes home.

Under this setup, you can expect:

  1. Drivers earning less per hour
  2. Drivers typically working part-time
  3. Cheaper rides for consumers
  4. Instant access to taxis
  5. More journeys on aggregate
  6. Possibly higher public transport use, lower drunk driving (see below)

This is the simple libertarian case for Uber. And to me it’s pretty powerful.

Banning Uber stops free people from doing a deal. It makes drivers worse off and riders worse off. The only winners are the black cabbies.

Four bonus arguments

Don’t buy that argument?

Try this: according to an NBER study, increased Uber use may raise the use of public transport…

Or this: a UCLA study shows drivers respond to surge pricing by driving more, which matches demand to supply…

Or this: according to an NYU study, Uber cut drunk driving in New York by 20-30%…

Some have argued that the libertarian case for Uber breaks down because Uber misleads drivers, by for example cutting fares.

There’s some evidence that isn’t the case. An (admittedly Uber-funded) study by Alan Krueger, the Princeton economist who served as Chair to Obamas Council of Economic Advisers, found that 78% of drivers had a favourable impression of Uber, compared to 69% of drivers at the time they started. This suggests drivers like the platform more having used it.

Bad lads

So if Uber is this brave champion of consumers, why is it so unpopular?

Part of that is of course opposition by the incumbent taxi companies. But Uber has given people plenty of legitimate reasons to dislike it.

It’s not a nice organisation. We can all agree on that.

It’s run by lads. The former CEO Travis Kalanick set the tone: aggressive, sleazy and greedy.

Helping guys like Kalanick get rich doesn’t feel great. That’s part of why there’s been a backlash against Uber. A slight feeling of guilt is a high price to pay for convenient access to Toyota Priuses.

But I look at it the other way. Helping a douchebag like Kalanick get rich is a small price to pay for helping the Uber driver who picks up my fare. The driver is the one who gets 75% of my money. And my money wouldn’t be going to a black cab, absent Uber. They’re too expensive and too rare.

In the scheme of things making a nasty person rich doesn’t matter. 99% of the benefit of Uber in London goes to its 40,000 drivers and 3.5m customers.

With thanks to Saudi investors

What about the argument that Uber’s trying to squeeze out the competition in order to monopolise the market?

That one doesn’t make sense. The only thing needed to get started in the ride-hailing business is an app. If Uber drivers are permitted by regulators (as they must be) to ride with multiple different ride-sharing companies, then Uber will never have much pricing power. If Uber tries to jack up prices, another competitor like Lyft will enter the market and steal all it riders/drivers.

Frankly I don’t understand the justification for Uber heavily subsidising ride prices at the moment. It assumes riders will be locked in to Uber like they’re locked in to Facebook. Which they aren’t.

That’s their business though. If Uber’s investors want to pay for my nights out, good on them!

Is this ban actually going to happen?

Uber has been banned for thumbing its nose at TfL.

It didn’t show TfL it was running thorough background checks on drivers, didn’t report serious offences by drivers to TfL, stuff like that. And TfL, being the transport regulator, wasn’t too pleased about Uber’s unwillingness to comply with regulation.

Which is fair enough, really. It’s not as though TfL was asking Uber to do something profoundly different like limit the number of drivers on the system, or raise prices.

Uber has a culture of outright hostility towards city regulators which has served it well up to now. It’s basically ignored their wishes, crashed into the market, and used its new-found political support from riders to justify doing what it likes. TfL wasn’t having it.

I suspect some sort of deal will be done. TfL’s stated concerns are fairly trifling, and London is a huge market for Uber. By the time this decision is appealed in a month’s time, you’d expect TfL’s problems to be sorted out.

If the decision is upheld, though, don’t be in any doubt what’s happening here. A special interest group has gotten a hold of City Hall. It’s found a way to keep the shake-down going.

Travis Kalanick will be pissed off, but you should be too.

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