THE BLOG
12/19/2012 05:40 pm ET Updated Feb 18, 2013

Uber's Fare Playing Field

There's been an interesting discussion going on around startups like Uber that are seeking to change the taxi industry. Specifically I've been following Paul Carr. Paul doesn't care for Travis Kalanick, the CEO of Uber, and has a disdain for what he sees as an Ayn Rand-inspired disruption bravado with Uber's approach to regulators. But of all things to defend, the taxi industry should be way down on the list.

The current system is broken. The amount of regulation in the taxi industry in some parts of the country is absurd. If you want start a taxi business in NYC you have to buy the right, in the form of a taxi medallion, from someone already in the business. That permission will cost you hundreds of thousands, if you're lucky. In 2011 two taxi medallions in New York City were sold for a million dollars apiece. What does this kind of "I was here first" system serve except to protect the existing license holders? Consumers certainly don't benefit from it.

One of the ways that incumbents keep competitors out is by lobbying for laws that protect their position. Economists call this regulatory capture. This year we saw a Utah law that required an African hair braider with 23 years of experience to have 2,000 hours of cosmetology training. In court, the state admitted that they weren't aware if the cosmetology training included African hair braiding. We also see this in the legal profession. In all states for a company to provide any legal services that company has to be owned and managed by lawyers. That forms a deterrent to startups and Walmart alike.

It his original post Paul seems to defend the NYC Taxi Licensing Commission by noting that, "For one thing, the TLC is bound by contracts with existing vendors not to allow any other credit card processing in NY cabs until next February," without asking why the hell is the TLC granting a monopoly to credit card processing company? Can't the taxi companies decide for themselves who they want to use for credit card processing as every other business does?

What makes the taxi industry so special that we need local governments to define how many cabs should be allowed to operate, for how much, in what manner they should charge and who can manufacture taxi cabs? That's right. The Taxi and Limousine commission in NYC is deciding what kind of car all cabs should be. New York Mayor Michael Bloomberg has announced a Nissan design to replace the city's 13,000 yellow cabs. They are to be phased in over the next five years. There are good arguments for safety or accessibility standards but to dictate that there can be only one type is ridiculous.

Today if a company wanted to be a low cost competitor, the Southwest of taxis, they can't. If another company wanted to provide a higher end service with luxury cars, bottled water and newspapers for their patrons that's illegal. I understand that some people think that standardized pricing protects consumers. Rather than define what car services can charge I'd prefer, large, easy to read price charts be displayed. Consumers can know exactly what they're getting before they get in similar to the way gas stations display their prices.

Don't get me wrong. I'm not saying we shouldn't have safety regulations nor am I saying we shouldn't register and receive a license. What I am saying is that there shouldn't be government bodies that define, in detail, how these businesses operate.

Would anyone want local authorities to take that approach with restaurants? Just imagine: The Restaurant and Bar Commission (RBC) has decided that 250 restaurants is the right number for the city. Any new restaurants wishing to open will need to purchase a restaurant medallion from an existing establishment. Furthermore all restaurants will have the stoves and dishwashing equipment as defined in section 17 paragraph 12 of RBC regulations. They will only accept Discover cards as the RBC has an exclusive agreement through 2016.

Let's take this analogy a bit further. Some cities define two classes of car service. Those that are dispatched to pick you up when you call ahead (black cars) and those you can hail on the street (taxi). In NYC you can only be one or the other.

Consequently there will be two types of restaurants. Those that take reservations and those that seat customers as they arrive. Restaurants that take reservations, also known as white table cloth restaurants, are only allowed to seat diners who have called ahead at least four hours in advance. Meals will cost $30. Those restaurants that accept people on a first-come-first-serve basis, will be know as fast-food. Meals at fast food restaurants will cost $5.

What if airlines were managed by the government in such a way? Of course, that's exactly what we had before deregulation of the airline industry. Sure people complain about air travel today but the fact is that fares are dramatically cheaper and more available. If you want the level of service from the good-ole days of regulation, that's available in first class at a price akin to what everyone used to pay.

Licensing to insure safety and accountability makes sense. It's reasonable to expect the equipment is safe and well maintained and businesses are accountable. But when it comes to the taxicab sector, what we have in many cities is an industry micro-managed by local government.

For the record, I don't have a significant relationship with Uber. Uber does have job openings posted on my company's website StartUpHire, but so do thousands of other startups. What I do have is a belief that ambitious startups push the world forward. They transform existing industries and create brand new ones. Sometimes that involves questioning current regulations and why shouldn't it? Government has a long history or instituting bad laws as well as good.

Sign up for our email.
Find out how much you really know about the state of the nation.