Move Uber Please

In a benign Internet world, the emergence of a “caring, sharing” economy would be something to look forward to. For example, a taxi driver on the streets of London or Brussels or Paris would happily check their monitor screen for a text or indeed a picture of a customer wanting a pick-up. The fare would be calculated by the smartphone app that measures the distance travelled and time of day and delivers the fare to be paid. Dynamic pricing would equate supply and demand, and when demand outstripped supply pushing up prices, more free-lance taxi drivers would be encouraged to offer their services. Some taxi drivers would be fulltime, earning the basic tariff rates, others would be part-time attracted only by higher tariffs. Everyone happy.

 

Except, maybe not everyone. Not, for example, the passenger that finds herself stuck in a broken down poorly maintained car, or worse, a car with faulty breaks. Not, for example, the London black taxi cab driver who has paid a small fortune for his “Hackney carriage”. To pay off his debts and save for his future he was depending upon the higher fares that come his way when tariffs go up during peak periods, higher tariffs that rapidly disappear when a fleet of part-time drivers begin to flood the market.  Not, perhaps, the regulator who operates a licensing system to maintain the standards of service required for the safety and comfort of the travelling public. And yet…

 

Wherein lies the balance between the use of new types of services based upon Internet-technologies and established practices where those practices offer genuine customer protections? In the sixteenth century, “Gresham’s Law” stated that “bad money drives out good” because people will hoard the good coins (take them out of circulation) or debase them to recirculate them along with the bad. The fear is that sub-standard taxis and taxi-drivers will drive out the regulated ones. When the airlines in the US were deregulated at the time of President Regan, competitors were able to offer new services, but one side-product was the closure of many traditionally uneconomic and cross-subsidised routes, leaving smaller cities without direct long distance flights or even without any flights. Between the benefits and the costs of competition is there a balance? According to economic theory, a Pareto Optimum can be reached when those who lose out are compensated from the overall gains, leaving them no worse off, but those who gain remain better off. This is the so-called “compensation principle.” Finding examples is a bit like the hunt for the Higgs-Boson particle.

 

History is replete with examples of technologies displacing labour and, in principle, increasing productivity or efficiency. But the social constructionist view of this process is that these changes are usually carried out by employers who stand to benefit at the costs of jobs and wages. This is not an argument against such changes (or need not be) but rather an argument that the social costs and benefits are unevenly distributed. (Which, incidentally, was the Luddite position.) The argument that society-as-whole benefits is a favourite one among innovators, entrepreneurs and like-minded economists, but it is too glib. If black cabs began disappearing from the streets of London it wouldn’t be the end of public transport as we know it, but it would reduce choice.

 

It’s a bit like commercial TV. It can offer many more stations than public service broadcast, but every channel is essentially the same, ironically despite the technological opportunity to offer greater choice. The economics dictates the outcome. As the American humourist H. L. Mencken once said “Nobody ever went broke underestimating the taste of the American public.” But there are measures society can take to strike a balance. In the case of taxis, for example, a registration process that places legal obligations on drivers regarding vehicle maintenance, passenger numbers, passenger insurance, etc and offers traditional cab drivers opportunities to share the gains, would be the way to go. Yes, this would slow down the growth on the supply-side, but it would not kill off a nascent revolution in the way public transport is organized. The alternative may indeed be Gresham’s Law.

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