‘… economists have been railing against municipal taxi monopolies for decades. These cartels lack any justification. They are such a clear case of cronyism: a tiny group of drivers lobbies for a government privilege, and the overages are pushed into the pockets of the politicians who grant the privilege.
It’s a feudalistic system. There was a time when most industries worked this way — until the liberal revolution of the 18th century dismantled monopolies in favor of competition. But most modern cities brought back the old way, with their taxi monopolies that drive up prices, provide subpar service, and shut out many providers and consumers that would otherwise be thrilled to jump in and do business.
Position papers against taxi monopolies have been pumped out of think tanks for decades. Thousands of op-eds have decried the corruption and the poor service. But no amount of rational argument worked. The interest groups that have benefited from the system have had a lock on the political structures. The whole thing is preposterous and yet persistent (a remark that could apply to so many government programs).
Then came Uber. First there was incredulity: this will never work. Then came the surprise that it was happening. Then came the panic. Then protests. More recently, we’ve seen signs of acquiescence, as governments around the world come to terms with the reality they had long dreaded: riders and drivers absolutely love the new way of finding each other.
In a reversal of traditional “public choice” dynamics, the benefits of competition are diffused throughout the city, while the costs of cracking down and stopping it are concentrated. That gives Uber an advantage over the status quo.
In the end, the Uber idea is simple. Drivers sign up. Riders let it be known they need a ride. Uber facilitates the deal and the monetary transaction. It’s something that could never happen but for the economy of mobile applications. These and the ubiquity of smartphones are what make it possible for riders to communicate with drivers without waving their arms on the street and hoping the right person comes by.
The mobile app also allows for careful monitoring of quality. Riders rate drivers. Drivers rate riders. Both have a strong incentive to make the experience as good as possible, in hopes of repeating it again.
Reduced drunk driving fatalities, reduced congestion on the streets, new uses for carpooling, new jobs — the spillover benefits should have been predictable, but no one predicted them.
Most remarkable to me has been the politics of this peaceful revolution. It has turned consumers into activists for transportation competition. Their voices in support of peer-to-peer ridesharing services have been so loud and intense that political establishments have had to back down. In other cases, where there are active markets for taxi medallions, the market has dealt the final blown by dramatically reducing the cartels’ prices.‘