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Cities Are Right About Uber, But Wrong About Regulating It

06/04/2015 11:52 EDT | Updated 06/04/2016 05:59 EDT

New Delhi. Portland, Oregon. Berlin. New York. Toronto. Cities and states around the world are engaged in hand-to-hand combat with mobile tech upstart Uber, a company that is rapidly disrupting the traditional taxi business everywhere. Uber provides a free, downloadable smart phone app that allows consumers to hail and pay for a car with a few clicks and swipes.

Governments argue Uber is providing a public transportation service, offering rides for hire, just like taxis and that it should therefore be regulated just like a taxi company. Uber argues it isn't a taxi company: it simply helps connect "people who want to share a ride" with drivers "who are willing to provide rides."

Viewed from an impartial distance, it is pretty clear that, whatever it is, Uber is providing a service traditionally provided by taxis. Equally clear is that a growing cohort of consumers appear to prefer the convenience, affordability and cache of Uber over taxis. In fact, the cohort is growing so quickly it's eating into the market share of the traditional taxi business and they are rallying to battle against it.

In Toronto, for example, the taxi industry had launched an aggressive advertising and PR campaign to create fear among potential Uber users. Print and radio ads, complete with foreboding music and imagery, suggest "Friends don't let friends take Uber X" and point out that taxis are insured and taxi drivers undergo police background checks, but with Uber, well... "we just don't know."

Complicating matters is that many cities have a chaotic and nonsensical approach to regulating public taxis. Before trying to make sense of where Uber fits into the chaos of its taxi ecosystem, cities such as Toronto would be smart to consider why it regulates the industry in the first place. Toronto regulates drivers, cars, brokerages (dispatch companies), plate owners and plate holders.

Some of Toronto's taxi regulations serve valid purposes. Others don't. To sort out which is which the city needs to figure out the purpose of regulating the taxi industry is in the first place. In Toronto, that is far from clear.

For example, I would argue these are some good reasons to regulate the taxi industry (or any other activity):

  • To ensure public safety. To reduce the risk of accidents, injuries, criminal activity etc., to passengers, pedestrians, taxi drivers and other drivers.
  • To protect the city's reputation. To ensure the taxi experience reflects well on the city and keeps it attractive to visitors, investors and residents.
  • To achieve strategic/public policy goals. To encourage people to use taxis as part of the public transportation system and help reduce private vehicle traffic, etc. For this to work, the city would want to ensure there are enough cabs to meet demand in a timely manner -- and to affect pricing to encourage customer adoption.

There are likely other valid reasons but I'll just focus on three examples.

Protecting Public Safety

I think there's a fair role for government to put in place reasonable regulations to improve public safety. So, it makes sense to regulate who can drive a cab: dangerous people should not be allowed to drive taxis. Drivers should know how to operate and navigate their vehicles safely, and they should do so. Vehicles should be in good repair so failures are unlikely and don't put passengers or others at risk, etc. Regulations that address these purposes make sense to me.

Protecting the City's Reputation

Dirty cabs, rude cabbies who can't find the address you're looking for, drivers who run up your fare, etc. leave a bad taste in your mouth wherever you find them. So, it makes sense to regulate some of the key conditions of the customer experience. Drivers should know how to find key landmarks, tourist destinations, hotels, hospitals, etc. Vehicles (which should be in good repair for public safety reasons) should be clean. Reasonable regulations that address these considerations make sense to me.

Achieving Public Policy Goals

Toronto, for example, has a backbone rapid transit system in its limited subway network and anyone whose trip begins and ends at or near a subway station will naturally choose the subway because it's convenient, fast, reliable, affordable and reasonably comfortable. The further their starting or ending point is from a station, the less attractive the public transit choice is -- particularly in bad weather. Taxis could be part of the transportation ecosystem to increase the "catchment area" around subway stations, except that they are prohibitively expensive. One public policy goal could be to encourage low taxi fares as an incentive to use cabs to access rapid transit. Another public policy goal could be to ensure there are always enough taxis conveniently available for people so they can rely on taxis as a personal transportation alternative to private cars. Reasonable regulations designed to achieve these objectives by controlling the number of taxis on streets, what hours they can/must operate, where they may pick up rides, etc., make sense.

Do Current Regulations Meet These Objectives?

In Toronto's case, many current taxi regulations meet the "why regulate?" test. Others, though, do not. None of the three reasons I've outlined explains why the city currently regulates who can and cannot "dispatch" or "broker" cab rides. So, why then is this practice regulated?

Drivers and vehicles are directly regulated by the city, meeting its safety, reputational and public policy goals. What is the public safety, reputational or policy argument for regulating brokerages as well? I can't see one. So, why do it?

What value do brokerages provide the consumer? Not long ago, there were only two ways to hail a taxi: by flagging one down on the street, or by calling a broker who would dispatch the closest available cab to your location by radio. In fact, the brokerage may provide little more than a phone number to call to get access to a ride. But, every cabbie now has a phone in her pocket. You could call the driver yourself -- but that would be inefficient. Enter technology.

Although they vehemently deny it, there is no doubt in my mind that Uber and similar companies are de facto brokers; they broker rides between consumers and drivers -- just as traditional taxi brokerages do. Uber, however, does it faster, cheaper and with less overhead. This has the potential to strip out a layer of middlemen and leave more money in the pockets of both consumers and drivers. That's a good thing.

Cities, including Toronto are absolutely right when they argue Uber is a taxi brokerage, essentially like every other. But there is no evident reason for cities to be in the business of regulating taxi brokerages in the first place.

Mark Towhey is an international management consultant and experienced political strategist based in Toronto, Canada as part of Ballacaine Strategy & Execution.

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