The next Mayor must save London from Uber-regulation

From the moment it set foot in Europe, Uber – the ride-sharing app that connects private drivers with passengers – has faced enormous pressure from regulatory authorities. In France, users are forced to wait at least 15 minutes for a car after making a booking through the app, no matter how far or close the vehicle actually is. Its low-end UberPOP service has been suspended since the middle of the year, while in March its Paris offices were raided and two of its French executives arrested. In Germany and Spain, national courts have ruled the service unlawful, while in Brussels Uber drivers have experienced repeated instances of harassment and violence by licensed cabbies. Meanwhile, Uber users – whose numbers were until recently growing in geometric proportion – have been left waiting for an EU-wide judgment, hoping that the bans will be deemed in breach of competition rules by the European Court of Justice.

For some time, London looked like a shining exception to the anti-innovative, anti-consumer tendencies of European taxi regulators. Mayor Boris Johnson’s initial support for new transport options, and the capital’s status as Europe’s digital hub, seemed to shield it from Luddite protectionism. No longer. It now looks like Transport for London will follow the example of its continental counterparts and introduce strict rules for ride-sharing apps. These would include – as outlined in a draft document – a minimum five-minute wait time for all bookings, a ban on showing available cars in the user’s area on the app, a mandate to offer the possibility to pre-book seven days in advance, as well as restrictions on how many services drivers may work for at a time, and on ride-pooling by passengers.

The fact that public authorities would seek to regulate ride-sharing apps like Uber comes as no surprise. After all, innovative industries are by nature disruptive, and they tend to elicit vociferous opposition from established players and vested interests. Normally, however, regulatory intervention is justified on grounds of consumer protection – for instance, to prevent market abuse by firms with a large market share, or to ensure firms are not endangering user safety or violating anyone’s intellectual property rights. Old incumbents are protected from new entrants – who, it must be remembered, are offering customers something they want to buy – but normally, the decisionmakers at least pretend to have the best interest of consumers at heart.

No such attempt has been made by TfL in this case. On which safety grounds could a five-minute mandatory wait be justified? The risk of what, exactly, is diminished by waiting? (If anything, it endangers passenger safety. Is a female user trying to find a ride home late at night safer getting in the car as soon as possible, or is she safer waiting in the street?) The same goes for all other prospective rules. They are either unnecessary – one can already pre-book cabs via Addison Lee and dozens of other private minicab services, not least by using the Kabbee app to see the best deals – or they make the passenger’s experience worse – not knowing whether there are cars close-by, not being able to split a cab ride with someone else – or they make drivers’ lives more difficult – by mandating that they work solely for Uber, when many of them alternate between the app and other firms.

There are no consumer protection grounds for the proposed regulations, which exposes the true intent of regulatory intervention: producer protection. Not just of traditional black cabs, but also private minicab services, and perhaps even public transport (since many passengers would not use private transport were a low-cost alternative like Uber not available). London cabbies and private hire companies argue that ride-sharing apps have an unfair advantage because their drivers are contractors who cover their own insurance and maintenance costs, and who have not had to learn the Knowledge. It may be true that app-based transport services can offer more competitive prices to passengers, but this is innovation and competition at work: it is decidedly not the job of the state to try and “level the playing field” by making consumers worse off. It is the job of the state, on the other hand, to review outdated regulations which were designed before the advent of GPS and smartphones, and to remove them so that no competitor is subject to undue restrictions. Alas, it is easier for TfL to cave in to the pressures of the taxi lobby, even though such measures only give them a temporary lease of life rather than allowing them to react to competitive pressures and adapt to technological progress.

European politicians often wonder aloud why it is that the United States is so innovative, productive and so competitive. Why was Google born in California, and not Duisburg? There are of course many reasons for America’s exceptional record of innovation, but one decisive factor is its openness to change, its willingness to embrace it. Europe, on the other hand, often opts for the easier path: first, ignore new technologies; second, protect incumbents and regulate newcomers; third, turn newcomers into vested interests who will in their turn oppose the next challenger. Make no mistake: TfL’s regulatory move will, over the long run, entrench a diminished Uber and prevent others from entering the London transport market. Time and time again, regulation has been turned into a weapon of the regulated to oppose new competitors.

For quite some time, London politicians have thought of the city as different from, and in many ways superior to, other continental capitals: more attractive to entrepreneurs, more open to change, a hub for the best and brightest. It is moves like TfL’s prospective regulatory drive that tarnish London’s reputation as one of the most dynamic places in the world. As our city prepares to elect its new Mayor in 2016, they should think long and hard about what it is that makes London a magnet for capital, people and ideas. We don’t need a ‘pro-business Mayor’, we need a pro-innovation and pro-consumer Mayor.

Diego Zuluaga is the IEA’s International Research Fellow, and Deputy Director of EPICENTER.

Policy Analyst at the Cato Institute's Center for Monetary and Financial Alternatives

Diego was educated at McGill University and Keble College, Oxford, from which he holds degrees in economics and finance. His policy interests are mainly in consumer finance and banking, capital markets regulation, and multi-sided markets. However, he has written on a range of economic issues including the taxation of capital income, the regulation of online platforms and the reform of electricity markets after Brexit. Diego’s articles have featured in UK and foreign outlets such as Newsweek, City AM, CapX and L’Opinion. He is also a frequent speaker on broadcast media and at public events, as well as a lecturer at the University of Buckingham.

2 thoughts on “The next Mayor must save London from Uber-regulation”

  1. Posted 01/10/2015 at 15:14 | Permalink

    Good piece, but not so sure about the juxtaposition of the US and Europe in terms of embracing innovation. After all, the taxi cartels in US cities are every bit as entrenched and the regulators every bit as captured as those in the likes of Paris. By the same token, Uber has had considerable difficulties as regards being accommodated by regulators in the US, although there are so many different jurisdictions there and so many different approaches to them by Uber that it’s not easy generalising. But plenty of evidence online that Uber’s not been easily embraced by the US system. Of course, that’s not to doubt the point about Silicon Valley-esque innovation, but actually accommodating it in the US is a different matter.

    Interesting point too about how TfL’s proposals would entrench Uber and create a vested interest, but at a rough guess I’d say its long-term market dominance and power in terms of branding etc might be a bigger issue for laissez-faire purists.

  2. Posted 02/10/2015 at 10:34 | Permalink

    Thank you, Stuart. You make a good point about cartels and regulatory capture in the U.S. However, I think the kind of anti-innovation protectionism we’ve seen in continental Europe would be unthinkable in the States. Yes, taxi cartels remain even after the advent of Uber, but there has been no suggestion to ban or severely impair ride-sharing apps. There are ongoing court cases about specific concerns raised by Uber’s business model (insurance liability, employment status, tax), but as far as I know only a few jurisdictions have attempted to prevent Uber from entering local transport markets, and the trend (for instance, see Nevada) is decidedly towards opening up transport markets rather than clamping down on new entrants.

    I disagree with you about Uber’s market power and dominance. It is one of those cases, common in the innovative industries, where a large market share conceals a high level of contestability and incumbent vulnerability (as with Google). Especially if you consider the fact that users typically carry several different transport apps on their phones (Hailo, Kabbee, GetTaxi etc) and that you can ask for fare estimates on each of them, I think Uber would have a hard time “locking in” customers, unless it genuinely offered value-for-money. What’s more, as historical data on previous price trends from each app become available, it’s easy to imagine a “fare amalgamator” emerging which could tell you, with a high level of accuracy and in real time, which service among all the different ones is most competitive for your particular route, timing, number of passengers, and so on.

    On the other hand, regulatory moves in Europe have scared off other U.S. players (notably Lyft) who were considering entering the European market, so there we are seeing the very initial signs of regulatory entrenchment of incumbents!

Comments are closed.