Each time it enters a new market, Uber meets with vehement protests. But those protests do not come from consumers. They come from taxi companies and their employees. Why? The answer is cronyism.
Nearly every city in the world with a population greater than 50,000 heavily regulates the taxi industry. Typically, those regulations limit the number of taxis that may legally operate within a city. To open a new taxi company requires meeting the demands and dictates of politicians and bureaucrats, and often those demands are impossible to meet. As an example, in 2014 the cost of a license to operate a taxi in New York City was $1.4 million!
The entrepreneurial poor are often taxi drivers. It is a profession that does not require great knowledge or skills. But low-income individuals cannot afford a license that costs hundreds of thousands of dollars (or more), and so, they are prohibited from opening a business because of an arbitrary government regulation. If an individual wishes to use his car to provide transportation to others, and those others are willing to pay for that service, the government has no legitimate reason to intervene.
Incumbant taxi companies usually fight any application to open a new taxi company. They pressure government officials to deny the application, and their political connections usually mean that they are successful. Those same political connections have been used to erect regulatory obstacles for Uber, Lyft, and similar companies.
Legislators around the world have banned Uber or enacted legislation specifically aimed at the company. But interestingly, consumers have often fought those bans. Indeed, in Chicago, consumers bombarded the Mayor’s office with emails and Tweets to protest the city’s persecution of Uber. The city, which had been pursuing legal action against the company, withdrew its complaints.
But a more telling example is what occurred in Denver prior to 1993. In the previous fifty years, every application for opening a new taxi company had been denied. In the mid-1980s, several entrepreneurs applied to open a new company. The three existing companies fought the application, claiming that there was no need for additional taxi cabs. At the same time, the three companies conspired with one another and regulators to increase their own cab fleets.
If, as the existing companies argued, there was no need for additional cabs, why did the regulatory agency authorize them to expand their fleets? The answer is cronyism. There was clearly a need, but the incumbent companies used cronyism to squash a new competitor and expand their own businesses.
Existing cab companies have the political connections and financial resources to grease the wheels of the regulatory regime. In turn, the regulators protect them from competition.