Technology Helps Customers and Innovators Ignore Regulators Who Target Uber and Lyft

A few weeks ago, the Virginia Department of Motor Vehicles sent cease-and-desist letters to Uber Technologies and Lyft, two innovative up-and-coming alternatives to cabs, ordering them to stop operating.

Sadly, this feud is just the latest and most recent example of private interests using the government to protect themselves from competition at the expense of other companies and consumers.

The losers of this ban are low-income Americans looking to make a living. These ride-sharing companies allow anyone who has a car to become a businessman: Drivers can provide travel services directly to customers using apps.

The Virginia ban also hurts customers. Besides the ease of access and range of options that Lyft and Uber provide thanks to their digital nature, these companies offer alternatives to traditional anti-competitive taxi regulations. Taxi medallions, fare price-fixing, and other regulatory barriers to entry have all but drained the last competitive juices from the legacy taxi system. Without these limitations, Uber and Lyft are able to offer their customers better services at more reasonable prices. In addition, being new companies in a competitive market, they understand that they better make sure their customers are satisfied so they will come back often.

This notion of pleasing one’s customer seems lost on taxi incumbents. In fact, rather than attempt to adapt, improve and win over their patrons, they have demonstrated that they prefer using government coercion. Hundreds of state-protected taxi incumbents, for instance, took to the streets of Los Angeles last summer to intimidate these “bandit drivers” (their words) and demand that the city stop their customers from choosing the competition.

Unfortunately, like in Virginia, special interest politics won over customer welfare and Los Angeles city officials “banned” Uber, Lyft, and Rideshare (a similar service). Thankfully, the difficulty of enforcing the ban means that the companies are often ignoring the rule. But drivers in other cities weren't so lucky. San Francisco International Airport officials, for instance, started arresting ride-share service customers and providers last summer.

Other battles are ongoing: After banning the business, Minneapolis is considering legalizing Lyft and UberX's operation in the city but is facing serious resistance from its cab industry. Nashville has moved to regulate the businesses. Seattle has allowed Uber and Lyft to operate so far, but will impose a supply ceiling of 150 drivers on the companies. That will artificially bump up the price for riding with these companies, which, of course, is the desired effect. Uber has had some victories too: Last year, for instance, the taxi cartel in Washington tried and thankfully failed to shut down Uber so far.

The fight is international too. Super-entitled cabbies in London, Paris and Madrid have shut down their city centers to protest against Uber. Amusingly, their actions have somewhat backfired since Uber is never as useful as when cab drivers are on strike!

I understand that adapting to change is hard, especially when your family’s livelihood is on the line, but it is hardly an excuse to use dirty tricks.

Of course, politicians and regulators are the ones to blame. It is because lawmakers allow themselves to be captured by special interests who want to fence off competition that innovators and new comers have to ask for permission to give customers what they want. Without over-the-top economic regulation over rates, entry, and new technologies, incumbent cab drivers would have to compete for customers over the quality of the services they provide. And in fact, it is the decades of protection from competition that has left taxi companies complacent and largely unequipped to nimbly improve their businesses.

Most customers, across the political spectrum, are rightly outraged by the indefensible anti-competitive actions taken against innovative firms. Indeed, services like Uber and Lyft were originally created to bypass the inefficient regulations that lawmakers inked in the first place. And now, these customers are protesting the regulations in a variety of forums in an attempt to save the services their love.

Until now, lawmakers' alliances with special interests were good political moves. But things are changing. Thanks to technology, in multiple industries the suppliers of desired goods and services and the customers that demand them can now increasingly work together to make incumbents and lawmakers irrelevant. As such, a smart political move would be to embrace the change and endorse permissionless innovation.