An Über Battle

As Jerry Seinfield might ask, "So what's the deal with Uber?"

One of the more interesting issues that played out last spring was the emergence in late March of an amendment to regulate commercial ridesharing services. 

I have to admit that, having not lived in a metropolitan area for awhile, I was wholly unfamiliar with companies like Uber and Lyft until the amendment to HB 4075 was introduced. After learning more about how ride-sharing worked, I remember thinking that the ridesharing model seemed like an innovative idea. I intend to try it out. 

But the taxi industry didn't agree with this assessment and put forward the amendment to impose substantial regulations on ridesharing companies.

The taxi industry contends that the regulations are intended to ensure that ridesharing companies offer the same consumer protections as the taxi industry (i.e., commercial liability insurance, criminal background checks, special licenses, special registrations plates, vehicle inspections, etc.).

Detractors believe that the taxi industry's arguments are mostly a canard and view the bill as a gambit to protect the monopoly held by the industry. 

I'm going to split the difference and say that there's some truth to both arguments, although I'm more sympathetic to the arguments made by the ridesharing companies. 

Ridesharing services should be required to adhere to a few basic consumer protections. I would suggest commercial liability insurance and criminal background checks. Even so, I don't believe for a second that the taxi industry has consumer safety as its foremost concern. In this they're being complete and total posers. 

The reality is that the industry views the less expensive ridesharing service as a threat to their business model and want to mitigate the threat as soon as possible (and before the more streamlined ridesharing services have a chance to really take-off with large swaths of consumers). Think about how much easier it would have been to impose Internet taxes before everyone was online.

Making the issue about consumer safety provides a more effective public relations argument than making it about the bottom line of the taxi industry. And this consumer safety argument is being used by the taxi industry to thwart ridesharing companies in several states.

The politics created by the emergence of ridesharing services bear watching. The magnitude of the threat has caused the Illinois taxi industry to gird for battle by raising significant cash. Cash that they will throw at legislators and gubernatorial candidates to encourage loyalty to the industry:

The Chicago-based Illinois Transportation Trade Association, a trade group representing the taxicab industry, formed its political action committee at the end of May with a planned annual budget of $1 million to help defend itself politically against the onslaught by rideshare companies, such as Uber.



In May, the taxi PAC put $200,000 in the bank. 

 Now they're ready to spend.

 "We're giving now," a PAC insider said. "The plan is to be a significant player in the November elections and in the 2015 municipal elections."

It doesn't get much more direct than that. And the spending by "Big Taxi" isn't limited to Illinois:

The next time you’re stuck at the airport, stranded by the side of the road or trying to catch a ride home on a Saturday night, consider the following fact: the taxi cab industry has donated at least $3,500 to the political war-chests of state legislators for every $1 that Uber, Lyft and Sidecar gave.

This massive discrepancy in political giving may also explain why, since the start of 2014, at least 12 states and the District of Columbia have introduced new regulations aimed to limit these popular ride-sharing applications, according to a review of legislation from the Sunlight Foundation’s Open States project.

The cash starts to pour into political coffers when special interests or competing companies go to battle over rules, exemptions, and advantages conferred by government. It's all chronicled in the book, "Government's End: Why Washington Stopped Working." 

If the issue is really about consumer protection, then why hasn't Governor Quinn, a noted consumer rights advocate, signed the bill into law yet and taken a victory lap?

The Governor and his staff are most likely trying to figure out the politics of the emerging fight between the taxi industry and the upstart ridesharing companies. On the one hand, "Big Taxi" has gobs of money that it can spread around to political candidates. On the other hand, supporting the additional regulations risks alienating younger urban voters that like the cheaper rides that are available using a smartphone app. I can imagine an entire generation of young people asking "what's a taxi?"

The GOP is already working to use efforts to regulate the emerging ridesharing companies as a wedge issue to curry favor with younger voters. And Bruce Rauner is just waiting to whack the Governor for being "anti-business" if he signs the bill: 

In a statement and a campaign appearance, GOP gubernatorial nominee Bruce Rauner urged Gov. Pat Quinn to veto a pending bill that conventional taxicab firms say would even the regulatory playing field, but which Uber and other ride-sharing firms say is antithetical to their business model.   

"I love Uber," said Mr. Rauner, who, in a Tribune account, then proceeded to get in an Uber car: a Toyota with 200,000 miles on it. "And we need a state that supports job creation — not runs it off. Tweet Pat Quinn — tell him to veto the anti-Uber bill."  

Mr. Rauner went on to describe Uber as "an innovative, growing company . . . that wants to create 425 more (headquarters) jobs right here in Illinois. Yet Gov. Pat Quinn may sign a bill that will hamper this fast-growing company with burdensome regulations."   

The Governor is quite obviously taking his time to carefully assess the political environment before acting. 

My own view is that a better solution might be found by imposing minimal regulations on ride sharing companies (commercial liability insurance and criminal background checks would be essential) and narrowing the regulatory gap by easing the requirements on the taxi industry. For example, why should a taxi driver need a chauffeur's license and a special registration? They're driving a car, not flying a Cessna. 

Ridesharing companies and consumers shouldn't be punished because the taxi industry finds itself operating under an expensive business model. Rather than overly burden the ridesharing companies, why don't we encourage policies that lessen the burden on the taxi industry and then encourage the industry to rethink its business model? This is how consumers win. 

My suspicion is that the rules and regulations in HB 4075 have more to do with obstructing competition within the taxi industry and the desire for ever-expanding control by state regulators. And any regulations should be completely in the hands of the local governments where the ridesharing companies and taxis operate. There's no compelling justification for the General Assembly and Governor to make the rules here. They've got more pressing problems to solve.