Innovation And Regulation

The burdens of the rich are many. Most of us, who are lucky enough to be poor or middle class, have it easy. When we need to travel we have a panoply of choices to pick from--we can walk, take public transportation, drive our car, carpool, or take a cab. But the wealthy and nearly-wealthy are much less fortunate. They have none of those options; walking is too time-consuming and physically onerous, and public transportation is sometimes crowded and one never knows who one will be forced to look at or stand next to--they might be nothing like one! The upper class has cars, of course, but traffic is often heavy and what is the use of money if one is still forced to mingle with the lesser folk? Carpooling is out of the question; it's inconvenient and there's a nasty aura of cheapness about it. Taxis are gratifyingly out of reach of the poor but again, one is forced to suffer through the indignity of trying to hail a cab with the more common folk and sometimes not getting one right away. Take it away, Megan McArdle!

Where I live in Washington, D.C., about a mile and a half north of the Capitol, you can sometimes get a taxi in two minutes flat. And sometimes, after spending 20 minutes wistfully waving two fingers in the air while the traffic hurtles past, you have to give up and trudge to the train.

There’s no way to tell which will happen until it happens—and so, I rarely bother to try hailing a cab. Neither do my neighbors. And the paucity of potential fares in my part of town—a relatively low-income, low-density neighborhood—also makes it harder to get cabs back home from other neighborhoods. Technically, it’s illegal for D.C. cabdrivers to refuse a fare within the District, but then, technically, it’s also illegal to drive above the speed limit, jaywalk, or falsely claim to have been awarded the Medal of Honor. On a typical Saturday night in the District, as far as I can tell, all of these laws are mostly honored in the breach.

Like most urbanites, I’ve spent a lot of time voicing the standard complaints: Why are taxis dirty and uncomfortable and never there when you need them? Why is it that half the time, they don’t show up for those 6 a.m. airport runs? How come they all seem to disappear when you most need them—on New Year’s Eve, or during a rainy rush hour? Why must cabbies drive like PCP addicts? Women complain about scary drivers. Black men complain about drivers who won’t stop to pick them up.

What's a Ubermensch to do when she needs elite transportation but can't afford either a car and driver or expensive limo service?

...

What I’m describing is a classic market failure: people who are willing to do business together can’t make it happen. If taxis and passengers only knew how to find each other, and could strike deals that would appeal to both, everyone would be better off. Why can’t we fix this?

Fortunately we have our very own guide to the wild, wide world of the nearly-elite to help us navigate this tricky dilemma. Ms. McArdle takes time away from twittering and working on her magnum opus, The Freedom To Suck Worse Than Anyone Has Ever Sucked Before, to explain that the best way to be Uber is to use Uber.

As it turns out, a small but rapidly growing business is trying. One Friday night in December, my husband and I drove over to Adams Morgan for some karaoke with friends. “You drove?” a friend who lives near us asked incredulously. “I just used Uber.”

McArdle is incredibly lucky in both her friends and casual acquaintances; whenever she writes a column she just happens to have discussed her subject matter with various friends or business associates, and those people invariably act like actors in a commercial, beholding her ignorance with incredulity or sad regret. Some people might be annoyed at being addressed with condescension and one-upmanship, but fortunately McArdle is not one of those (no doubt friendless) people.

Travis Kalanick, who co-founded Uber, told me that he and his partner “wanted to be able to push a button and get a ride.”

I read someplace that reporters are taught to say the Important Person being interviewed "told me" instead of "said" to make the reporter seem more important. Not that McArdle would need to be told, I hasten to add.

That’s a fair enough description of the service that they launched in San Francisco in 2010, and that is now available in nine major cities—including New York, Boston, and Paris—with plans for expansion to at least 25 more. Set up an account, plug in your credit-card number, and in less than five minutes Uber’s smartphone app will be showing you a map of your location, the nearest available cars, and how soon one can get to you. Click the screen a couple of times, and a sleek black sedan is on its way.

Unlike traditional limo services, which rent you a car and driver by the hour, and usually on no less than an hour’s notice, Uber charges time-and-mileage fares, just like taxis, and the cars it finds for you typically show up within 15 minutes of your request. That convenience and style is costly; in D.C., the price is usually at least 50 percent more than that of an equivalent cab ride. Uber’s critics frequently imply—perhaps with a grain of truth—that it’s a service for the affluent that takes fares from hardworking taxi drivers who are struggling to make rent. “Uber’s real defenders,” a D.C. blogger has written acidly, “comprise a mix of socialites, transportation fanatics, and libertarians.”

Hendel wrote an informative, fair and amusing post on Uber, which no doubt is why McArdle did not link on it. Who needs the competition?

And yet, this analysis misses something important. Yes, Uber has created a higher-priced, higher-class service for people who can afford it—but it has also broadened the market to people who formerly couldn’t get cabs at all. For my husband and me, the appeal of Uber is simple: it’s there. A car that will actually show up to take me to the airport, or to my home, is worth considerably more than a cheaper, but unreliable, alternative.

As you dig deeper into Uber’s story, you find out that it’s about more than plush car service wherever and whenever you want—or even the innovative technology that powers it. Perhaps most of all, Uber’s story is about the ins and outs of regulation—and about why cab service is so unsatisfactory nearly everywhere in America.

Of course it is. Some might say that it's about following the laws that all other taxis or limos must follow, but some people are just knee-jerk meanies who hate businesses. And you will not be surprised to hear that Franklin Delano Roosevelt, once again, has raised his horrific corpse from the grave to strangle innovation through his evil servant, the New Deal.

Almost all the everyday complaints about cabs trace back to this regulatory cocktail. Drivers won’t take you to the outer reaches of your metropolitan area? The regulated fares won’t let them charge you more to recover the cost of dead-heading back without a return customer. Cabs are poorly maintained? Blame restricted competition, and the inability to charge for better quality. Cabbies drive like maniacs? With high fixed costs for cars and gas, and no way to increase their earnings except by finding another fare, is it any wonder that they try to get from place to place as fast as possible?

The problem with this analysis is that evidently it is easy to become a taxi driver in DC, which, with the nature of the city itself as a capitol with a dense and wealthy working population, has created the highest taxi-to-population ratio in the nation.

Some of the most common taxis in the city include Ford Crown Victorias, Ford Tauruses, some Mercurys, and even some Lincoln Town Car models. Most of the District's 6,500 to 7,000 cab drivers own their own vehicles; in fact, the District is the only region in the country where the majority of cabs are independently owned and operated.[26]

D.C. now has more cabs per capita than any other city in America. If all of D.C.'s cabs were owned by one company, the firm would be the city's largest private employer. The open-entry system allows anybody who can pass the hackers' test and pass vehicle inspection to go into business as a cabbie. The industry also serves as a remarkably efficient example of what is known as para-transit, a form of moving people about that's more public than a car, but less so than, say, a bus.

Fortunately Uber has no such restrictions, as it is occupying a gray, non-regulated area presently, in which it does not follow either taxicab or limo rules. It can charge whatever it wants, at least for now. Regulation problem solved!

On New Year’s Eve, Uber implemented its “dynamic pricing”—read: inflated fares to account for extra demand—without really explaining how it worked ahead of time. Suddenly, the tweeps and Facebookers previously enamored of the upstart were hurling tomatoes; one Rockville resident reported a charge of $185 to get home from Chef Geoff’s near Ward Circle (a comparable cab ride usually runs $25). Uber CEO Travis Kalanick told the website All Things D that the firm was refunding some of the fares, but didn’t plan to change the business model. “If you look at a club that charges a $20 cover on a normal night and then charges $100 on New Year’s Eve—that’s just what happens,” he said.

Not long after that, Uber found itself in a fight with the D.C. Taxicab Commission. The company, the commission alleged, had failed to follow the relevant regulations for what it is—a car service—and was instead operating as a sort of taxi/limousine hybrid. Officials arrested a driver in a sting by the Mayflower Hotel, charging him with two violations of the rules. That misstep, though, Uber managed to spin in its favor. After all, its customer base doesn’t appreciate regulations that interfere with their attempts to ditch D.C. cabs. Uber launched a social media campaign around the hashtag #UberLoveDC, which garnered them far more publicity than simply following the rules would have. Even the New Year’s dustup helped them, in a way.

For Megan McArdle, this is a good thing.

The data and the ability to set fares are what let the company patch the holes in the current system. A car is always available (because at peak times, such as New Year’s Eve, the company raises prices until supply matches demand). The car is well maintained. And as long as you’re willing to pay the fare, that car will take you wherever you want to go, without regard to race, ethnicity, or ZIP code.

Hey, nobody said freedom was free! No doubt McArdle will be thrilled to be the happy recipient of Uber's mercurial pricing system. She is very supportive of innovation in business.

But don't forget this is Megan McArdle we're talking about, keen investigative reporter and scourge of the common man, wherever he may raise his common, and no doubt unwashed, head.

But just because Uber is good for its passengers and drivers doesn’t mean that it’s good for everyone. Taxi drivers are a powerful political constituency in many cities. And as Robert McNamara noted drily, “Like any other business, taxi drivers think it would be great if no one could compete with them.” In some cities, including San Francisco and Washington, D.C., a regulatory backlash has hit the company hard.

In early February, I drove out to Anacostia, to one of those grim municipal buildings whose very exteriors suggest footsore queues and the smell of industrial-strength disinfectant. This is the home of D.C.’s Taxicab Commission.

I entered a little warily; two reporters were arrested last June for attempting to record a commission meeting.

I wanted to see what would happen if I applied for a license to drive a limousine in the District of Columbia. D.C.’s limo and taxi regulations seem to require that a license be issued to anyone who can meet fairly minimal standards: “The Office shall issue a license to each applicant who has complied with the requirements of this chapter,” says Section 1209.1 of the District’s municipal regulations. However, since 2008, the commission has apparently been ignoring this straightforward language.

The offices, located on the second floor, have a narrow entrance blocked by a security guard at his desk; you cannot see the bureaucrats unless he lets you past. “What do you want?” he asked me, not unkindly.

“I want to get a license to drive a limo,” I told him.

“There’s a moratorium,” he said, and pointed to a memo posted on the wall.

I’d like to tell you exactly what the memo said, but the commission wasn’t giving out copies—“We had some, but we ran out,” said the security guard, and no wonder, given that the “temporary” moratorium has been going on for years. The gist was that there would be no new limo licenses until the commission decided to hand them out.

“Take a picture with your phone,” suggested a nice driver who was waiting for an appointment in front of the desk.

“No pictures!” said the guard.

“Why not?,” I asked. He shrugged. I gazed wistfully at the counter beyond, but decided against trying to charge through. After a moment, like numberless aspiring cab and limo drivers before me, I left empty-handed. The D.C. Council is considering a bill that could essentially make the moratorium permanent: entry into the city’s limo market might then be nearly impossible.

Sniff! James O'Keefe would be so proud. McArdle also attended a meeting in support of Uber.

The real threat to the company is the promulgation of new regulations that would make business expansion impossible by cutting off the supply of licensed limos, and other regulations designed to shut down Uber entirely—that is, just the sort of measures being proposed in D.C. Uber’s executives are well aware of these obstacles. Regulation, Kalanick told me, is “an issue we have to deal with in every city.” So far, they’ve been surprisingly skillful at fighting back.

Shortly after Chairman Linton’s sting, for instance, Uber began rallying its fans on Twitter, using the hashtag #UberDCLove. In late January, I attended an event the company set up at a sleek downtown club, which was crammed to the gills with Uber’s neatly dressed fans, chatting animatedly while they enjoyed free pizza and drinks.

Kalanick, a short man with spiky black hair and a genial smile tattooed on his face, somehow got the entire crowd to watch an Uber PowerPoint presentation, which he narrated double-time, dropping the company’s apparent motto—“A convenient, classy ride” roughly every 30 seconds.

Somehow? Surely McArdle is aware that "free" food and drink create a sense of obligation in the potential customer, and is a commonly used marketing technique.

The result was, incredibly, the nation’s first populist limo movement. Whenever Kalanick mentioned Ron Linton’s name, the crowd booed—one particularly enthusiastic fan kept shouting “Fuck that guy!” Kalanick’s smile never wavered. He finished by telling the crowd: “I need you guys. So, one, stay on Facebook, stay on Twitter. Two, hearings—go to hearings. Go to political events.” For the first time in 20 minutes, he paused. “The bigger we get, the harder it is to take us out.” The crowd roared.

As I made my way toward the door, I bumped into Robert McNamara, the attorney fighting against many taxi regulations, who was there as an interested observer. “I’m impressed by how professional this is,” he told me.

"The attorney fighting against many taxi regulations" just happens to work for the Institute for Justice, a "libertarian public interest law firm." You will absolutely not be surprised to learn that their initial funding came from the Koch brothers, or that they have ties to ALEC.

I must have raised an eyebrow, for he hastened to explain: “When you have an issue like this, the first thing you do is, you have a town hall. You find an excuse to get people in a room, and then you make them angry.” For the moment, Uber’s angry fans seem to be carrying the day. Though the D.C. Taxicab Commission has not recanted its position on Uber, it also hasn’t made any further moves against the company.

That may change, of course. But every customer Uber gains in D.C. (and even out of it) makes the company harder to attack. Uber set out to change the taxi market. In enlisting scattered consumers against well-entrenched interest groups, it may end up doing something more revolutionary.

And no doubt when McArdle is surprised by unexpectedly large charges from Uber it will be the fault of regulation as well.