Virginia DMV and Taxi Unions versus Consumers

Competition always has been, and always will be, disagreeable to those who are affected by it. Thus we see that in all times and in all places men try to get rid of it.” —Frédéric Bastiat

Last week, the Virginia Department of Motor Vehicles (DMV) sent cease-and-desist letters to app-based, ride-sharing services Uber and Lyft for operating without proper permits. With its decision, Virginia has joined a growing number of states and localities that have taken action against the two popular ride-sharing services.

I personally have the Uber app installed on my iPhone and have used it with great satisfaction. For those unfamiliar, here’s a basic explanation on how it works: In a city where the service operates, you can request one of their drivers to pick you up. The prices are transparent and clearly listed. The app allows you to select the closest driver, see the estimated arrival time, track the driver en-route, and immediately get informed when the driver arrives. Once you reach your destination, you will also receive an opportunity to review the driver and service. There’s no need to fumble for cash or your credit card during payment—qqqthe receipt for the ride comes in the form of a text (your payment information is already stored in the initial registration).

Uber is user-friendly, convenient, affordable, and reliable, and has a demonstrated record of safety and customer satisfaction. What’s not to like? Law professor Glenn Reynolds explains in a recent op-ed in USA Today:

Services like Uber and Lyft disrupt the current regulatory environment….

In most cities, traditional taxi services are regulated by some sort of taxi commission. Similarly, limo services—the ones that provide the black Town Cars favored by big shots (and used by many Uber drivers)—are regulated by some sort of livery office. The rules strictly forbid the two sectors of the market from competing with one another. And, generally, entry is limited so that neither faces too much competition in general. In holding down competition, these regulators act on behalf of the entities they supposedly regulate for the benefit of consumers.…

In the world of Administrative Law, this phenomenon is known as “regulatory capture.” Set up a government agency to regulate an industry, and in short order it will wind up regulating on behalf of that industry.

In addition to dealing with numerous bureaucratic hurdles, innovative ride-sharing services such as Uber and Lyft have received the ire of taxi unions all over the country and internationally. Last year, ReasonTV produced a short documentary that summarizes the recent “Uber Wars”:

Everywhere it seems that entrenched interests are colluding with government officials to set up arbitrary barriers of entry to prevent competitors from entering the market and engaging in other forms of outrageous, self-serving behavior.

This is nothing new. Established industries have made protectionist arguments against “unfair competition” for centuries. In his debates against the protectionists  and vested interests of his time, the French classical liberal economist Frédéric Bastiat exposed the absurdity behind protectionism in his famous satirical parable “The Candlemakers’ Petition”:

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun….

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds—qqqin short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

Although Bastiat successfully dismantled economic fallacies with devastating logic and wit, he also realized it is human nature to seek privileges at the expense of everyone else. The battles between competitive markets and individual liberty versus protectionism and collectivism are still being fought today.

Uber and Lyft remain under siege on multiple fronts. Bureaucrats are using the hackneyed “protect families” excuse to crackdown on ride-sharing services, forcing consumers to use only government-licensed transportation services. Meanwhile, established taxi monopolies are resorting to intimidation, outright violence, and other hostage-taking tactics. Recently in London, taxi unions brought the city to a standstill in protest of Uber’s “unfair competition.” However, the stunt seems to have backfired as Londoners and tourists alike were displeased by the massive traffic jam. Uber registrations in Britain went up 850 percent as a result of the strike.

The controversies involving Uber and other ride-sharing services are likely to continue. Despite all the challenges, Uber currently operates in over 100 cities globally and is still expanding. The real “unfair competition” is the rent-seeking behavior of taxi unions and other vested interests against new, innovative technologies and services. The ultimate losers from bureaucratic cronyism and union thuggery are the consumers.

Aaron Tao is the former Assistant Editor of the Independent Institute's blog, The Beacon.
Beacon Posts by Aaron Tao
  • Catalyst