Calls for more regulation of Uber show our desire to strangle innovation

Fiona Townsley

March 24, 2022

We all benefit from innovation. It’s why we’re not sitting around in caves hunting animals for food and dying aged 25. So why is it that when innovation is occurring in front of our eyes we try to strangle it?

It seems a lot of us are creatures of habit who would rather sit in a state of inertia than propel ourselves forwards. The fact that we still have a problem with Uber, 12 years after its creation, makes me fear for future innovation.

Uber catapulted an over regulated, distorted market, into a liberated, entrepreneurial one. On 27 March, Uber’s London licence is set to expire, provoking a new wave of pro regulation lobbying. Sadiq Khan is being bombarded with demands to refuse a new licence unless Uber pays workers the minimum wage from log on to log off, provides holiday pay, and introduces a higher operating cost reimbursement. Considering it already offers more comprehensive employee rights than its competitors, unless pro-regulation unions switch their focus to Bolt and Ola, I’d be inclined to say their desire to control Uber is nothing more than a grudge for being successful. 

By looking at taxi markets before the entrance of Uber it becomes immediately apparent that the introduction of the sharing economy has vastly improved transportation and it therefore should not be strangled by invasive regulation.

In many places, applying for a licence to drive a taxi is an arduous ordeal, something Uber has effectively bypassed. In New York City, all licensed taxi drivers need a medallion. These were introduced in 1937 to limit the supply of taxicabs, ensuring incomes for drivers at the expense of a good service for the consumer. From 1937 to 2009 the number of acquirable medallions in NYC has fallen from 16,900 to 13,237. In the face of reduced supply and increasing demand, medallions became more desirable assets, costing up to $1 million a piece. As the supply was regulated so heavily, these risk-free assets could be used as collateral to buy a house, or sold for a comfortable retirement.

London’s famous black cabs are similarly restrictive. Becoming a black cab driver requires 3-4 years of training to acquire ‘the knowledge’ which gives the drivers the skills to navigate London without maps. While historically this was necessary, it has now become obsolete.

There are always winners and losers in situations of economic change. The average debt owed on medallions by taxi drivers is $600,000, and black cab drivers who spent years training have been deskilled. However this does not mean that we should discourage progress.

Since Uber’s introduction innovation in the transportation industry has hardly slowed down. We’re seeing driverless cars, deliveries by drone and the potential for automated tubes which will all shake the market.

Experiments with driverless cars have been occurring since the 1920s. However they are only just being introduced for commercial use, operational in Phoenix, Arizona; Beijing and San Francisco. Inevitably there are fears surrounding job losses but new jobs like remote vehicle operators will arise in their wake, and the benefit to the consumer is obvious. These taxis will be greener, safer and operate around the clock vastly improving the service.

Manna, a drone delivery company, has found that not only does the use of drones cut the cost of deliveries by 90 per cent, but it takes on average 2 minutes and 40 seconds from food establishment to customer. The benefits are clear and should be taken advantage of rather than hidden from for fear of redundancies.

The question now becomes: how do we support those who have become deskilled due to innovation?

Individual schemes such as New York City’s program of financial and legal support  for medallion owners have certainly made an impact but it is time to think on a larger scale. Introducing Universal Basic Income would cushion the rise and fall of jobs that will inevitably occur in an innovation-rich culture. If everyone were guaranteed an income then the security provided would give people the financial flexibility to retrain and take advantage of new jobs created.

Creative destruction is how our living standards increase. The invention of the computer killed the typewriter industry but I for one am glad that I am writing this article, able to backspace without tip-ex and cut and paste without scissors and glue.

Author

Written by Fiona Townsley

Fiona Townsley is a Research Associate at the Adam Smith Institute.

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