Dangers of Traditional Taxis

Driving a taxi is dangerous—taxi drivers are more likely to be murdered than any other profession. Since taxi services began the murder rate for taxi drivers, who pick up strangers, sometimes in isolated areas, has been several times greater than that of police officers. Of course, the danger is double-edged; passengers are also jumping into a car with a stranger. There is no comprehensive data available on crimes committed by cabbies but at least three serial killers worked as taxi drivers, including Derrick Bird, "The Cumbria Killer," a cabbie in Whitehaven. More commonly, sexual assaults against female passengers have been an ongoing taxi problem.

The taxi industry has generally been heavily regulated around the world. But these government regulatory bodies have done essentially nothing to improve safety, though that was supposedly their main purpose. Most regulators did not even keep statistics on taxi safety or even have any systematic way of reporting problems. So, what did these regulators do? Economists have long recognized a tendency for regulatory bureaucracies to be “captured” by the industry they regulate. The average voter pays little attention to most regulatory details so the pressure on politicians and bureaucrats comes mainly from the industry; regulations often end up being shaped to suit the industry. Taxi companies commonly got regulators to severely limit the number of taxis operating in an area in order to suppress competition. This kept fares high without any need for taxi operators to improve safety, keep their cabs clean, make sure drivers were courteous or anything else that a firm would normally have to do in a competitive environment. Regulators created local taxi cartels, the industry operated as monopolists. With the government prohibiting or severely limiting new entry and controlling prices so that competitive price cuts were impossible, the industry lazily coasted along for decades. The suppression of new entry via licensing was particularly obvious in New York City where taxi operating licenses are transferable, making it possible to judge about how powerful the entry barrier is by observing the price paid for a license. In pre-Uber 2013, a New York taxi license (“medallion”) cost $1.3 million.

The relatively few consumers who understood the sham of regulation were not numerous enough to pressure politicians toward reform. Most accepted the government propaganda that the regulation, if not ideally efficient, was actually promoting safety and making sure prices weren’t raised too high.

Confronting the empire of taxi cartels Uber faced the same problem that often plagues honest entrepreneurs around the world. How do you compete against an industry cartel protected by the brute force of government? How do you bring a superior product to consumers when a corrupt government has unjustly defined your product as “unsafe” and illegal?

Civil Disobedience in the Uber Revolution

Travis Kalanick, Uber’s controversial founding CEO lead the way in defeating the powerful and dangerous taxi cartels. Other ride-share companies played small parts but it was Uber, whatever its faults, that rescued consumers from the corrupt taxi empire. Kalanick’s intrepid strategy was simply to enter markets without the government permission he knew would be either denied or extortionately expensive. Uber boldly stormed into markets and established as much customer (and driver) goodwill as they possibly could before the local taxi cartel empire could work through the legal system’s bureaucracy to strike back. When the taxi regulatory empire did eventually strike back, usually beginning with a “cease and desist” legal order, Uber’s standard procedure was to completely ignore the order, continuing business as usual. Government regulators, accustomed to easily winning by intimidation, and winning quickly, took time to process and respond to Uber’s quiet rebellion. Uber drivers’ cars were unmarked so it wasn’t easy to catch them with conventional techniques, especially since they often would have passengers ride in the front seat.

Regulators eventually figured out they needed to impersonate honest customers, summon a driver through Uber’s App and then finally arrest them. However, Uber frequently anticipated this scheme and thwarted it. Uber used sophisticated software to identify the cartel’s enforcers and evade them. Uber altered the apps on the phones of the cartel’s would-be enforcers’ so that drivers appeared to be unavailable, with their true locations hidden. Actual cars were replaced with non-existent ghost cars in these apps! Thus, the Uber “underground” rebels could conduct operations right under the regulators’ noses yet still slip away. Sometimes the undercover taxi police would create false identities on a new cell phone number. Even then, Uber quickly adapted. They would deduce (or perhaps be informed, since satisfied Uber customers were turning up everywhere in the growing Uber underground) where the batch of phones had been purchased and eventually identify them. When cartel enforcers did manage to catch a driver. Uber would pay all fines and legal costs.

However, operating illegally forever was too expensive to be viable. The idea was to first educate the public through positive experiences with Uber, then next harness the legions of satisfied customers and drivers to pressure politicians to reform unjust laws to eliminate, or at least moderate, the excessive barriers to entry. Uber marshalled their supporters to pressure politicians, who were often besieged by emails from many thousands of satisfied Uber customers. The political battles were ferocious. Some in the taxi cartels even resorted to violence against Uber drivers as they fought to suppress competition and keep high taxi prices viable. In some places, the cartels still won. Some consumers with perhaps a bit too much faith in politicians were reluctant to support a company that “broke the law.” Sometimes Uber could only compromise, agree not to price too low and take other measures to protect the local taxi cartel. Even so, more often than not, Uber won (at least partially). The fight is ongoing, battles continue but corrupt laws were often reformed; a superior product at more reasonable prices was at last legally available in many places.

Uber’s Safety Innovations

The key safety innovation is that drivers, unlike traditional cabbies, do not pick up strangers. There is a clear electronic “paper trail” identifying pre-approved passengers. Online reputations are also crucial, drivers rate passengers and vice versa. Each driver chooses whether or not to accept a passenger pickup—if either the passenger or the pickup location seems too risky a particular driver need not respond. The same protections are there for riders—they can refuse one driver and choose another. Each driver is essentially an independent entrepreneur, rather than a faceless cog in a large corporation. Thus drivers are held strictly accountable for their actions. Bad customer ratings will destroy their business; great ratings build it up. If you’re old enough to have extensive experience with taxis in pre-Uber days you probably remember smelly cabs with sometimes rude drivers who nevertheless felt entitled to a tip. What a difference from today’s Uber drivers. They truly are, as Uber terms them, driver-partners.

However, there is still useful corporate oversight by Uber. Problematic drivers or badly misbehaving passengers can be banned. Drivers are pre-screened thrice and generally held to higher standards than the government regulations that apply to taxi drivers. For example, anyone convicted of drunk driving in the prior seven years is ineligible to drive for Uber, while the government cut-off for cabbies is more commonly only five years. If a passenger charges an Uber driver with assault the driver is suspended and quickly investigated. Taxi companies often, in contrast, suspend drivers only after they have been arrested.

Safety is also enhanced in that riders, including stranded motorists, can readily summon Uber far more quickly than the traditional taxi. This has saved lives, reducing drunk driving for example. Sometimes, Uber even substitutes for ambulances.

What’s Next?

Politicians aligned with the taxi cartels generally lost the battle to convince riders that government licensed taxis were in any way superior to Uber; “Uber is unsafe” prattle was correctly seen as dishonest propaganda. But, after their stinging defeat, politicians have changed strategies in their attacks against Uber. The primary attempt at sabotage nowadays is to destroy Uber’s innovative driver-entrepreneur structure by legally forcing drivers to become employees. At the very least this will end entrepreneurial service, drive up costs and ride prices, destroy some work opportunities, while greatly reducing the flexible labour supply that allows an influx of drivers to keep wait times short. At worst, it could eventually end the company’s existence, especially in smaller markets.

It is important to mention that Uber and other ride-share companies have never yet been profitable. There is no ready profit margin to reduce in order to bear higher costs. Many drivers have unwittingly allied themselves with politicians bent on the destruction of their livelihood, attempting to get something (such as paid vacations) for nothing. But those vacations would be paid for in lower wages, less freedom to choose hours and customers, and fewer customers (hence, fewer jobs) as quality declines. Beware politicians promising something for nothing.

Thomas Tacker is a Professor of Economics at Embry-Riddle Aeronautical University (Daytona Beach, Florida) and the author of Rethinking Consumer Protection: Escaping Death by Regulation, forthcoming this fall from Lexington Books.