September 25, 2017

I am not one of the 3.5 million passengers who took an Uber in London last year and face being inconvenienced by the decision of the city’s transport executive, Transport for London, not to renew the company’s licence. Nor, for the past dozen years at least, have I taken one of London’s black cabs. My preferred way of getting around any city is walking. You can look at the architecture rather than anxiously staring at a rapidly-whizzing dial. The exercise means you don’t need to worry about visiting the gym, and on many journeys in central London it isn’t a lot slower.

Do I care, then, about the fate of Uber and its 40,000 drivers in London? Yes, because protectionism is ultimately bad for all of us. It stands in the way of productivity growth – the very lifeblood of wealthy societies.

Transport for London’s reasons for refusing to grant the licence are unconvincing. It cites Uber’s approach to reporting crime and obtaining medical certificates – matters which surely would be easy enough to solve through talking to the company. According to Uber, the issues quoted by Transport for London were never raised in discussions – it claims that a series of meetings prior to last week’s announcement were cancelled.

The decision looks rather more a case of a public body stepping in on behalf of two vociferous vested interests: left-wing unions and drivers of black cabs. Uber has been squashed because it is a threat to existing labour. We have become used to industries falling to the disruptors but this, it seems, was a disruption too far. You don’t have to support all of Uber’s employment practices to be concerned at the implications for the future of other innovations which powerful interests might find inconvenient.

That Uber has worked in the interests of the consumer is hard to deny. In a study of 21 US cities, in all but two Uber was found to have undercut existing taxi services. In Its 2016 survey ‘Mapping the World Prices’, Deutsche Bank found a knock-on effect of reducing fares charged by existing taxis – by 30% in the case of New York. As for the suggestion that passengers are paying for their cheap rides through reduced safety it doesn’t stand up to the evidence. In New York complaints against taxi drivers saw an overall reduction after Uber began services in the city. That suggests, if anything, that the coming of Uber forced existing taxi companies to improve driving standards and the civility of their drivers.

Uber not only offers cheaper fares compared to established taxi services – it also forces its competitors to reduce prices. Credit: Lauren Hurley/PA Wire/PA Images.

But has it all come at the expense of taxi-drivers themselves? Inevitably when industries are disrupted someone gets hurt. An Oxford University study of taxi-drivers in US cities in 2015 found that the earnings of drivers employed by taxi firms fell by 10% in the wake of Uber. Yet this was matched by a 10% rise in the earning of self-employed drivers – which include Uber drivers. This came in spite of 50% rise in the number of self-employed drivers. Uber hadn’t damaged the existing taxi industry to anything like the extent it had created new opportunities for taxi-drivers. The overall effect of Uber was to grow the taxi industry substantially. Through lower fares and a more efficient system for summoning a cab, Uber has enabled the taxi sector to win passengers from other modes of transport, be it public transport or the private car. It has also persuaded people that a night out is affordable where previously they might have stayed at home.

Urban planners won’t be pleased to think that Uber is diverting passengers away from buses and metro systems, but if it is helping to dissuade people from driving their own cars around cities that is surely a good thing. Our cities struggle hard enough to cope with cars, but more particularly in finding somewhere for them to park while their occupants are at work, shopping or at the theatre. If, as many cities are trying to do, we are going to reduce the number of parking spaces in urban areas we are going to need a far more innovative and budget-priced taxi sector – of which Uber is surely part.

Through lower fares and a more efficient system for summoning a cab, Uber has enabled the taxi sector to win passengers from other modes of transport, be it public transport or the private car.
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On one issue, I do sympathise with existing taxi firms. They are not on a level playing field with Uber, thanks to the huge costs of buying their licences. In New York, for example, a taxi firm might pay $700,000 for a licence, while Uber pays nothing. Metropolitan authorities have been using taxi licenses as a form of taxation, which Uber has cleverly managed to find a way around. Surely, however, that doesn’t justify banning Uber from operating – it just demands that governments review their taxation structures so as to capture the activities of Uber in the same way as traditional taxi services.

As for the charge that Uber drivers don’t get paid holidays, sick pay and so on, it strikes at the wider issue of the gig economy. For the worker there has long been a trade-off between employment and self-employment: security and regular hours on the one hand and flexibility and (often) the chance of higher earnings on the other. Many Uber drivers are attracted to the business because flexibility is vital for them. They are doing it to supplement earnings from other employment or business. Last year, Uber lost an employment tribunal case in London brought by two drivers over their legal status as self-employed contractors. Yet many other value the freedom to choose their working hours.

As the Oxford University study showed, the net effect of Uber has been to increase the earnings available from taxi work, by more effectively matching demand with supply. Go to any railway station or city centre taxi rank and it is the same: lines of taxis waiting for a fare, often in vain. By enabling passengers to hail a cab online, Uber has reduced that slack time. That is how societies grow rich: by increasing productivity. London’s move against Uber, by contrast, is making its own little contribution to economic stagnation.

The case against Uber
London takes a stand against Uber and its "extreme capitalism"

By James Bloodworth

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