The Rise Of Uber Should Have Politicians, Regulators And Crony Capitalists Shaking With Fear

Consumers love choice and convenience, especially when it comes to getting from point A to point B. So as Uber takes the world by storm, the days of people having their travel choices constrained by antiquated regulations seem to be coming to an end. In the process many are realizing that such rules are designed not to protect consumers, but to enrich rent-seeking cronies.

Of course, that won’t stop entrenched taxi cartels from calling in their political chits in a futile attempt to stop the future from arriving. But as the social networking aspects of the mobile Web enables consumers to make their voices heard, it’s just a matter of time before they overwhelm the crony capitalists, regulatory bureaucrats, and machine politicians desperately trying to defend their shaky turf.

Uber’s distributed smartphone app is leaping from city to city as quickly as the Internet can spread the news of how much easier and more convenient it is than hailing a cab or booking a limo. This week, on RealClear Radio Hour, I spoke with Uber Northeast Regional General Manager Rachel Holt, who outlined the company’s strategy for global growth.

Uber’s overall approach is a good example of what Adam Thierer from the Mercatus Center calls permissionless innovation. Uber has been more than willing to sit down with city fathers before launching service in a new city to craft sensible rules that will enhance consumer acceptance while addressing any safety concerns. But the company also is not afraid to face down taxi cartels’ resistance.

Strong customer loyalty has led to spectacular growth after a 10-month shakedown in San Francisco followed by a careful launch in New York City. “We’re now in 130 some-odd cities in 37 countries. I have to check that number every day because we launch, like, two cities a day,” says Holt. “We have all this great data on where people want transportation alternatives just by seeing where they open the app.”

The high-end service, Uber Black, uses established limos to provide a luxury sedan service, which is more expensive than a typical cab ride, though still a lot cheaper than traditional limos. UberX is the budget option, provided by individual owner-operated cars. Becoming an UberX driver requires passing rigorous vehicle inspections and personal background checks that far exceed those required to drive a taxi. Uber also heavily insures its drivers and uses real-time feedback to ensure quality. And feedback on customers helps protect drivers against rude and unruly passengers.

The taxi industry is not amused.

Taxi service was cartelized back in the 1930s when cities like New York started regulating the number of cabs allowed to operate within city limits. Incredibly, there are currently only 13,605 taxi medallions authorized in New York City, down from 16,900 when Fiorello LaGuardia first outlawed open competition. This artificial scarcity generates a nice income for medallion owners, who rent this “right to work” to taxi drivers for about $90,000 a year. Some New York taxi medallions, which initially sold for $10, now go for about a million bucks! The power to have your competitors arrested doesn’t come cheap.

Predictably, entrenched taxi interests and their political allies are manning the barricades. Around the nation, state and local governments are issuing cease and desist letters, ticketing Uber drivers, impounding their cars, or attempting to pass new regulations that effectively outlaw Uber’s business model. Regulations proposed by the otherwise tech-savvy city of Cambridge, MA would effectively ban the service.

Uber is fighting back. “We will stand completely by our partners, and help them cover any financial or legal costs,” vows Holt. That should get a lot easier now that Uber has raised a $1.2 billion war chest in its latest round of financing.

Ironically, another inadvertent promoter for Uber may be the taxi cartels themselves, despite their sometimes violent protests across Europe. Consider a recent pan-European taxi strike that seems to have backfired. When a group of cabbies in London and Paris protesting Uber’s recent entrance into the city snarled up traffic, downloads of Uber’s mobile app skyrocketed.

Listen to Rachel Holt describe Uber’s strategy in her own words on RealClear Radio Hour here.