Atlas Shrugged: The Mocking

Friday, April 13, 2012

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.


Anonymous said...

"Über"?? Why not just "Nazi"?

Susan of Texas said...

It doesn't have that Ayn Rand connotation.

fish said...

Unbelievable. The whole point of fare standardization for cabs is so that they don't gouge riders during periods of high demand or going to/from "dangerous" neighborhoods. There are many Taxi apps for smartphones if it is just a matter of getting an available cab to pick you up. I often use one and it works great, I have never waited more than 5-10 min.
I also want to hear Megan screech to high heaven the first time she gets a cab fee of $200 for a 5min ride.
Finally it seems quite a coincidence that Megan heard about Uber from a "friend" then went to a company event. One might begin to believe that perhaps that friend is that same black person riding a bus.

Susan of Texas said...

We had all these taxi cabs and we did nothing with them!

D Johnston said...

"Dynamic pricing", huh? Not exactly the word I'd use. I wonder when the people who were gouged on New Year's found out. Do the users get a receipt right away? If not, this would make for a hell of a surprise down the line.

Reminds me a little of my stint in the People's Republic. Go to any hotel in one of China's major cities, and you'll see multilingual warnings about common scams posted in common areas and/or rooms. One of the more common ones is the "car service" which seems very convenient and comfortable but ultimately cost many times more than a legit cab service. It's effective mainly because most tourists don't know how much transportation actually costs.

I guess the difference between a scam and "innovation" depends on your perspective.

Kathy said...

Megan likes using these "clean" limos because they make her feel special, Rich. She can sneer out the window at hoi polloi, knowing those Poor people (or just Not Rich like Her) can't see her thru the tinted windows. Knowing they're all wondering and marveling at the sight of a limousine and wishing they were riding in one.

Next thing our Loony Libertarian will be complaining about traffic laws and stoplights! Everyone should be able to drive as fast or slow as they want, and keep going without some government-funded red light making them stop and wait in line! And why must she or her Limo Driver use the right side of the road? why can't they drive on the sidewalk?

Kathy said...

Oh, and Megan, the reason its hard to get taxis when the weather is bad, or on a Holiday Evening is because they are being used for those reasons.

Lurking Canadian said...

I simply love the train of thought that leads to "There is always a cab available, because they just jack up the price until supply matches demand".

Translated from Randian double speak, this means "There is always a car available FOR ME because I can bid the price out of reach of the rest of the plebes, who can bloody well walk in the rain for all I care." First come, first served is so UNFAIR, after all. We should allocate resources based on who can pay the most, like it says in the Bible.

zombie rotten mcdonald said...

If she can order an uber-car, why can't she just call for a taxi?

I am currently in Toronto and they have a single number for all the taxi services.

It's almost like there's another, underlying reason. Whatever could that be?

Anonymous said...

Has anyone inquired as to whether Uber is providing some sort of special service, either in availability or price, to Ms. McArdle or the management of The Atlantic. Would be wise to get Uber on the record with a denial - especially if said denial later proved to be false.

runst said...

So it has come to this. The preppies are revolting.

In every way.

Anonymous said...

I stopped reading when she complained about how tough it is to get a ride to the airport at 6 am.

Is there anything she can't fuck up spectacularly? Seriously--anywhere near a airport, in my experience, will have vehicular services. You call the night before, they give you a ride to the airport the next morning.

Modulo Myself

Susan of Texas said...

But is it a luxury car? Has Goldman, Sachs invested in that cab? Why should people take cheap taxis when they can afford better? In fact, they need that reliable, convenient service to do their important jobs well. And surely drivers that respond to such important clients on technologiclally advanced iPhone apps will be safe, polite and, well, less exotic than your typical taxi driver.

It's the free market at work, as long as that meddling government gets out of the way.

Anonymous said...

"I wanted to see what would happen if I applied for a license to drive a limousine in the District of Columbia."

Providing you work for an existing taxi or limousine service, you can still get a license to drive for them. The moratorium isn't on new drivers, it's on new companies.

Downpuppy said...

Well, this is McArdle after all. She managed to turn getting a drivers license into a 4-part fail parade.

Batocchio said...

It's actually called "Uber"? Holy crap.

And as others have noted, she could just call a cab. With a little planning, it's easy.

Furthermore, if she lives close to the subway as she suggests, that will get her to most places, including Adams Morgan. Unless she's coming home really late, that will also get her home, but hailing a cab in Adams Morgan is pretty easy (and even easier with a phone). Add in the bus system, and she can get many more places, but might have to associate with a poorer sort. (Of course, they might confide in her a libertarian-affirming anecdote.)

cynic said...

I commuted for years on the LIRR and Metro-North and I *always* saw cabs waiting in line at the train station as I got off. I drove my car to the station but I did not see one person stuck at the station without transportation.

The only time I used a car service to get from the City to home was when I worked late and *our firm could bill it to the client*.

That is the market Uber is after: the guys who don't give a damn what it costs because someone else is paying. I am willing to take bets that Mcmegan does not pay out of her own pocket for those 6 AM airport trips or those late nite rides back from the bar. It is all research, dontcha know.

Susan of Texas said...

I couldn't figure this out either--if it takes up to 15 minutes for Uber, why not call a regular cab? We don't use cabs here very often but the very few times I did, I just phoned for one and they came within 10 minutes.

"McMegan1 day agoin reply to rick jones
Usually, when I'm trying to get a cab, it's because I'm running late & the train is a ten minute walk plus one transfer from whereever I want to go.

At night, there's a different problem--there are some sort of tricky spots on the walk between me and the train, and I'm a little reluctant to make it. Probably it will get safer as more people move into the area."

There are a lot of people there already. Maybe she's talking about a different kind of people?

"McMegan1 day agoin reply to Susanna Yusufova
Well, in DC it's very difficult to call a cab."

Dc has more cabs than any other US city.

I'm going with snob factor.

zuzu said...

Uber sounds to me like a black-car car service with a social media interface. I lived in Brooklyn for years, and yellow cabs didn't like to go out there because they couldn't be assured of a fare back to Manhattan. I seriously had a cabbie fake a breakdown in the middle of Houston Street because he didn't want to take me to Brooklyn -- the cabbie who picked me up after that guy dumped me out had witnessed the whole thing and was pretty pissed off at the other driver. I find it amusing that McMegan thinks this only happens in DC -- but then, she grew up in Manhattan, and you can always get a cab to take you within Manhattan.

As much as it sucks to have a cab blow past you or drive away when you tell them you're going to Brooklyn (one of the tricks is to get into the cab before you tell them your destination, but on rainy nights, the drivers will lock the doors and won't let you in until you tell them where you're going), it's not like you can't get a ride. There are all kinds of car services, all licensed by the Taxi & Limousine Commission. And now they can pick up people from the street.

Sounds to me like Uber is quite clearly a car service, but one that's made a clear pitch to yuppies who think that anything they can do on their smartphones makes them much more special than the plebes. What a surprise, then, that DC's Taxi Commission has decided they need to be regulated like any other car/taxi/limo service -- and what a surprise that the libertarians are bitching that they're special and don't deserve to be regulated.

Anonymous said...

She went from saying that it's difficult to hail a cab to saying that it's difficult to call a cab. Why in the world is it difficult to call a cab?

Lurking Canadian said...

I was briefly in the San Francisco area some years ago for a wedding. I can see a service like Uber being very useful there because...well, because there simply are not enough taxis to go around.

It is the first, and only, experience I have had with calling a cab and getting the answer "No." As in, "No, I don't have anybody in your area right now, so too bad for you." SF area taxi companies would actually give me their competitors' phone numbers, in hopes that maybe, some cab company, somewhere in Northern California, could help.

In a city like DC, though...yeah, not so much a problem.

blivet said...

I notice Paris is on the list of cities where Uber operates. When I lived there (and I'm told the situation hasn't changed since then) trying to call for a taxi resembled what Lurking Canadian describes. You'd call, spend five, ten or even fifteen minutes on hold, and then be told there weren't any cabs available.

Anonymous said...

Considering how often she's complained about DC's cab licensing issues in the past (and how to get car in DC with a broken mirror), I wouldn't be surprised if they have her picture in the do not drive list.

Tall, female white economist? Nope. No cab for you.

Seriously though, this whole thing is loony and they should just rename her blog White People Problems.

Anonymous said...

Considering how often she's complained about DC's cab licensing issues in the past (and how to get car in DC with a broken mirror), I wouldn't be surprised if they have her picture in the do not drive list.

Tall, female white economist? Nope. No cab for you.

Seriously though, this whole thing is loony and they should just rename her blog White People Problems.