Uber has unintentionally turned into a series for ThatChuckWilliams.com:
- Uber: Why Dynamic Pricing is Usually Not Price Gouging
- Uber Update: NY State Announces that Uber "Agrees" to Cap Prices During "Abnormal Disruptions" of the Market Today’s blog entry add’s a third post, as I’m compelled to comment on Andrew Leonard’s Salon article, Why Uber Must Be Stopped. I address his key concerns below.
”Uber Must Be Stopped”
- We “need to stop” a 21st century startup that uses mobile technology to create local markets between those who want rides from point A to point B and those willing to provide the rides? Why?
- If we “need to stop” Uber, then don’t we also need to stop real estate companies who use web sites to make markets more efficient? What about eBay? AirBnB? Craig’s List? Where do we draw the line? When we give buyers and sellers more information and easier ways to communicate, more things will be sold, more services will be offered and consumed, and more business will be done.
“There’s little doubt that Uber is the closest thing we’ve got today to the living, breathing essence of unrestrained capitalism. This is like watching Andrew Carnegie or John D. Rockefeller in action. This is how robber barons play. From top to bottom, the company flaunts a street-fighter ethos.”
- This is how robber barons play. New market entrants (i.e., entrepreneurs) that threaten existing businesses only succeed if customers choose them over current market providers. If anyone puts highly regulated taxi companies out of business, first and foremost it will people like my son and his wife in Washington DC. When going to dinner, the movies, or home, they and millions of others are choosing Uber instead of waiting for a taxi that may or may not come around the corner when they need it and, if it does, may not be empty or in service.
- Why is demand for Uber growing? Because uber reduces uncertainty by giving customers the price upfront, by indicating when the driver will arrive to pick them up, and by providing information on the driver before they get in the car. When you consider that none of that information is available with taxis, no wonder Uber is growing world wide at an exponential rate.
- Calling Uber names (i.e., “robber barons”) strikes me as anti-capitalist, anti-entrepreneurial, and misinformed. Indeed, For a more balanced look at the immense benefits provided by the market entrepreneurs of the 1800s and 1900s, see The Myth of the Robber Barons: A New Look at the Rise of Big Business in America.
- From top to bottom, the company flaunts a street-fighter ethos. Um, isn’t this want entrepreneurs do? Entering markets is frought with risk. Eighty percent of all new businesses fail, so you have to “fight” for survival. That doesn’t mean unethically or illegally, but it does mean that you will, to continue the sports metaphor, be “fighting” for the survival of your company. This is how capitalism works. Companies are born, succeed and die every day. There are no guarantees - thank goodness!
- Comments like this also confuse being pro-business with pro-competition. Pro-business smacks of crony capitalism where particular companies, favored by regulators or those in political power, benefit from market tilting regulation that helps them at the expense of competitors and consumers (you know, sort of like regulated taxi services). Pro-competition means that regulators and those in power are pro-consumer by making it easy for new companies to enter markets, thus increasing competition, and that they let consumers choose market winners and losers.
“The real question we should be asking ourselves is this: What happens when a company with the DNA of Uber ends up winning it all? What happens when the local taxi companies are destroyed and Lyft (an Uber competitor) is crushed? When Uber has dominant market position in every major city on the globe?”
- First, why worry about that happening in the future with Uber when we already have that with existing, highly regulated taxi services in nearly every major city. In NYC, for example, a taxi medallion, which give you the right to drive a cab in the city, goes for more than a $1.25 million. If you’re worried about indifference to customers and employees, look no further. That $1.25 million per car barrier-to-entry guarantees it. NYC’s Taxi Commissioner, David Yassky said, “Like a lot of the economy, the taxi industry has become a winner-take-all industry where the profits at the top are very large and the wages at the bottom are grindingly low.”
- Second, the reason taxi cab companies are screaming so loud about Uber is they fear that competition may reduce their revenues, lure drivers away, and reduce the value of their medalions.
- UPDATE (2014-09-09): In New Orleans, city councilmember Susan Guidry, who voted against approving Uber's car services (Uber was approved 4-3), called Uber "greedy" and stated that it was a "bad corporate citzen." Tony Makhoul, who owns Liberty Bell Cabs in New Orleans called Uber a "cyber terrorist organization."
- Finally, if Uber ever becomes as dominant as Leonard describes, you can bet that numerous competitors will flood the market in search of the abnormally high financial returns that Uber would earn with “world dominance.” Competition, not regulation, will keep Uber in check. Case in point, Of the 12 companies that comprised the original Dow Jones Industrial Average in 1896, only one company, General Electric, remains. Dominant companies don’t last. It’s rare. Founders move on. Competitors flood the market. Market dynamics change. Don’t fear the market leader with the big fat target on their back. Competitors will eventually find a way to take the leader down.
So here’s what’s going to happen. Society is going to realize that power as great as Uber’s needs to be checked. Uber, by virtue of its own success, will demonstrate where the lines need to be drawn for the general good. When Uber is the only game in town, the necessity for comprehensive requirements for commercial insurance and background checks will be obvious. When Uber starts using its logistics clout and unlimited investment capital to go after UPS and Hertz and FedEx, regulators will start wondering about antitrust issues.
- Over regulation of labor markets is not the cureall that most believe it to be. It makes things more expensive and tends to ossify industries and ownership, which, as described above benefit owners, and not consumers.
- Finally, if Uber increases competition in package delivery and car rentals, anti-trust lawyers will be sitting on their hands. Why? Because anti-trust laws are meant to protect or increase competition.
Despite Leonard’s well-intentioned concerns, society is not going to crumble because of Uber. We're all better off thanks to Uber and the thousands of other entrepreneurs shaking up their industries and striking fear in competitors who, in turn, scramble to lower costs, improve services, and differentiate their products in meaningful ways so that customers stay with them rather than switching to potentially disruptive market entrants.