Give Drivers and Passengers a Break: Let Uber Compete

July 12, 2019

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Innovators seldom have an easy time. Developing a new technology, business model and product is hard enough. Then they often face opposition from disrupted firms that must either adapt to new competition or whither. However, some incumbent firms latch onto a third option: turning to the government to enact rules that tilt the playing field back in their favor. An example of this is playing out in Taiwan, where legislators are in the process of enacting regulations that would essentially force ride-sharing platforms such as Uber to leave–something the taxi industry has sought since Uber entered the market.

Few would question that ride-sharing firms have disrupted the taxi industry. The merits of their service are demonstrated by the more than 75 million riders (and 3 million drivers) around the world who choose to use Uber rather than traditional taxi services. But rather than adopt a better model, Taiwanese taxis are pushing for regulation that would force Uber to charge riders by the hour or day rather than by the ride. The government appears to have acquiesced, placing the interests of taxi drivers over those of Uber riders and drivers.

Charging by the minute might make sense, but if riders preferred it, ride-share companies probably would already be using it. However, the Taiwanese rule is worse. Unlike elsewhere, in Taiwan Uber partners with local rental car agencies rather than individual drivers. Under the new rule, Uber would be prohibited from renting cars for less than an hour and all cars would have to return to their place of business before being rented out again. To add insult to injury, riders would be prohibited from hailing an Uber on the street. This clearly gives a leg up to taxi drivers but will hurt Taiwanese riders.

Part of the reason why the rule turned out so badly is that the process was opaque. Although the government held four stakeholder sessions before issuing the rule, Uber was not allowed to participate. When lions write the rules, tigers starve.

The motivation for the regulation seems to be a desire to keep the car rental and taxi markets separate and to hamper Uber’s innovations in the transportation market. The government recommends that Uber license its cars as taxis. But since local taxis apparently do not use dynamic up-front pricing, a flexible business model, or even apps to conveniently order a cab, Uber would have to leave its technology behind. Uber is not a taxi service. It has never wanted to be a taxi service. It is a technology company that is now in danger of having its technology not just regulated but outlawed.

The government may see the rationale for preventing unused rental cars from being put to use driving riders, but most riders probably do not. Taxi riders rightly complain that the current regulatory system puts them at a disadvantage. Rather than handicapping Uber, the correct response would be to eliminate the unnecessary regulations that gave Uber a market opportunity in the first place. Allow cabs to switch to dynamic pricing so that riders don’t have to wait as long on busy days. Use up-front pricing so riders know what the cost will be before they step in the cab. Let riders order and pay for a cab by phone and give drivers more flexibility in their schedule. The preferences of Uber’s 3 million registered users and 10,000 drivers in Taiwan cannot all be wrong.

Uber says the new regulations would force it to leave Taiwan, which it did for two months over an earlier issue – this after investing large sums in Taiwan on the understanding that previous issues had been settled. The government also has something to lose by introducing these regulations. Uber currently runs an exchange program with Taiwan’s Ministry of Science and Technology in which local engineers travel to Uber’s Silicon Valley headquarters to study its artificial intelligence technology. Uber’s cooperation in helping to plan for smart cities could also end. Moreover, as an up and coming global technology leader, by taking this action Taiwan sends a clear signal to entrepreneurs and tech companies around the world: the Taiwanese government doesn’t support innovation.

The ultimate losers will be Taiwanese residents. The American Institute in Taiwan has also opposed the proposed regulations, pointing to its likely effect on innovation and business confidence. According to a recent article, several international technology companies, including PayPal, have exited the country over frustrations with an inflexible regulatory process and a conservative business environment. Part of their fear is that the government might suddenly change the rules of the game to favor local competitors or old technology. With China becoming more assertive, one might think Taiwan would feel the need to increase productivity and innovation, including by working more closely with U.S. companies. Apparently not.