Unfare Competition

It’s not really a huge surprise that Brussels, the home of EU bureaucracy, has recently banned ‘cab app’ service Uber from the city. The Brussels court unashamedly declared the company “unfair market competition” to the town’s two (yes, two…) taxi companies, and drivers face a €100,000 fine if they use the app to pick up customers.

This isn’t a one-off, either; Uber’s had a bumpy ride from the start. Across the USA and Canada they’ve endured cease-and-desist letters, impounded cars, sting operations and suspended trading. Taxi drivers in Chicago are suing the city itself over them,  Berlin’s slapped on an injunction, and in France enraged taxi drivers are getting physical.

Uber hit London in Summer 2012. Given the range of ventures on the scene- Black cabs, mini cabs and fleets of Addison Lee, as well as apps like Kabee and Hailo – Uber’s operation should be uncontroversial. Not so. Instead, the Licensed Private Hire Car Association (LPCHA) has called upon TfL to ban cab app services for failing to conform to relevant legislation, citing , uninventively, public safety concerns.

Reading all of this Uber come across as renegade cowboys, tearing through cities kidnapping passengers. Reality is far more boring.

Uber’s critics deem them an unlicensed taxi company (or as per the Chicago lawsuit, an ‘unlawful transportation provider’), who blatantly violate regulations. In actual fact, Uber are a new kind of entity: an app-based, ‘logistical’ intermediary. They use GPS to connect passengers with self-employed (and in the UK, licensed) drivers, and handle payment through a registered card. Their trick is that in only ‘matching up’ independent drivers with riders, they don’t count as a taxi operator.

Additionally, in the UK private hire vehicles can’t ply for trade like registered taxis and must be booked in advance. It seems that a rider requesting a pickup through Uber counts as a booking, allowing a nearby driver to accept a request and be there in minutes. In these ways it does seem that Uber and other like it have thrown away the rulebook, but only because they’ve been ingenious enough to innovate around it. Uber’s model also brings other innovations too, such as price discrimination through ‘surge’ pricing, truly flexible work for drivers, and a highly responsive rating system of both drivers and passengers.

There’s no wonder that incumbent players are worried. But it’s sad, if not surprising, that anti-Uber sentiment comes not from governments angry at rulebreaking but businesses threatened by fresh thinking.

State intervention imposes huge costs and barriers to entry on the taxi industry (think of London cabbie’s ‘The Knowledge’, fixed taxi fares, and America, where taxi medallions have sold for over $1m) - scuppering competition and innovation. Reform of the industry with its often cozy cartels is long overdue.

Companies like Uber show other firms how they can improve their game. In fairness there is an argument for ‘leveling the playing field’; it’s not one actors want to use. When Uber works around (or even flouts) a jurisdiction’s regulation, other players can use Uber’s success as evidence that restrictions are superfluous to providing a good service, and therefore unfair on them.

Instead of demanding more relaxed regulation, however, incumbent actors have decided which side their bread is buttered, and would rather keep the status quo than improve their service. Instead of competing, they cling to the regulatory chains binding them and wail for others to be shackled by them too. They might cry the cry of public safety, but it’s the safety of their market share which they’re really concerned about.

Sadly, vested interests have had far too much success in this area. Where Uber hasn’t been banned completely, lawmakers have often caved in and introduced new restrictions. Frequently, this doesn’t stop protestors. And it isn’t just Uber who has such woes. Companies with similarly innovative models such as AirBnb and Aereo have also faced an uphill struggle of acceptance.

TfL should disregard LPCHA’s demands. It certainly isn’t up to the government to protect old industries and vested interests, but sadly so many other cities clamping down on Uber adds false weight to their claims. It’s beyond obvious that consumers, not regulators, and certainly not business rivals should be the judge of an effective (and safe) service. That said, the fact that cab app services are making so many competitors uncomfortable is a pretty good indicator that they’re doing something right.

We’ve said this before and no doubt we’ll have to say it again

In the short term, if you want to alleviate hunger then the obvious thing to do is give the starving food to eat. If you want to stop people getting wet then give them that kagoule we’ve just mugged off the trainspotter at the end of the platform. And if people are poor, poverty being not having money, given them some money.

This is, obviously, not the long term solution to any of these problems: that good ol’ mixture of capitalism and free markets is what has alleviated our own poverty, is what is alleviating it for billions more currently and will, estimated by the end of this century, abolish absolute poverty once and for all for our species. But as we know, the long and the short term are rather different: telling people to farm better does work but doesn’t alleviate the immediate suffering of famine.

All of which leads to this interesting paper at Vox. Making a poiint that we’ve made here a number of times: whatever it is that you’re trying to do do please make sure that you’re doing it efficiently. That is, achieve your goal at the least possible cost. They’re rather more worried about inequality than we are (we reserving our ammo for dealing with what we see as the real problem, absolute poverty, the solution to which see above) but they’re making absolutely the same point about efficiency:

Other countries also have similar programmes that are sold as pro-equality but are inefficient or even harmful for that goal (IMF 2014a). In developing countries, measures that tax, subsidise, or price-regulate food and energy tend to be highly inefficient tools for improving the income distribution, and frequently even have the opposite effect. A disproportionately small share of social spending goes to the poorest 40% of the population (IMF 2014b). Of the $400-plus billion that countries spend on fossil fuel subsidies each year, far less than 20% of the benefits go to the poorest 20% of the population (International Energy Agency 2011). Conditional Cash Transfers, on the other hand, have proven highly effective – they reach the poor and promote education and health.

Don’t try to rig markets, don’t try to freeze or subsidise prices. If you want the poor to be able to consume more just give them money so that they can buy more.

This has domestic lessons for us in the UK as well. The much talked about idea of “predistribution” is exactly this. Attempting to cock up markets so as to gain a more pleasing distribution of consumption. It won’t work for it’s, by definition, cocking up markets. Redistribution is a more efficient method of achieving that consumption levelling goal. And if the nation has run out of appetite for more redistribution then, well, that’s just tough, isn’t it? As it does appear to have done…

Subsidy is not the way to export success

UK Chancellor of the Exchequer, George Osborne, says he wants to see more ‘Made in Britain’ stickers appearing around the world. So would I. But we have to create the right conditions for that to happen.

We certainly don’t want ‘Made in Britain’ stickers to appear round the world only because we are subsidising our production. We tried that in the 1970s with shipbuilding, steelmaking and volume car manufacturing. It just loaded cost on taxpayers and created vast monopolies that grew inefficient because they faced no effective competition. But in fact, other emerging economies such as Korea could do all these things better and cheaper than we did.

Adam Smith pointed out 250 years ago that by means of glasshouses and hotbeds you can grow good grapes in Scotland, and make wine out of them – but at around 30 times what it costs to make wine in France. So we should stick with what we are better at than others – design, fashion, finance, tourism, education and luxury goods such as Scotch Whisky.

What we certainly should not be doing is subsidising industries such as renewable energy. If these are potentially money-making industries for the future (as the government say, to justify the subsidies), then private investors would be well ahead of any government investment bureaucracy, that is for sure.

Perhaps Mr Osborne is riled by the fact that Germany, even though its economy is flatlining, has expanded its exports to China, while the UK, even with its devalued pound, hasn’t. But the solution to that is a proper growth agenda. Roll back the acres of regulation on employment and manufacturing, making it easier for people to hire workers and less risky to invest. Then stand back and watch the ‘Made in Britain’ stickers streaming out.

Once more we find Adam Smith was right

This should come as no surprise to us all for, as we all know, almost all of economics is either footnotes to Adam Smith or wrong. But we’ve nice evidence that once again he was right. That evidence comes from a study of entrepreneurs and what is necessary to allow, possibly encourage, them to succeed:

Indeed, entrepreneurialism is strongest in countries that share the English common law tradition – five times higher than those with a French legal origin. There is also a strong correlation between high rates of entrepreneurship in a country and low taxes. Equally, a low regulatory burden correlates strongly with high rates of entrepreneurship. On the other hand, those government and supranational programmes that politicians love to announce to encourage entrepreneurship – such as the EU’s Lisbon Strategy – tend to fail. The lesson is clear: to encourage innovation and entrepreneurialism, governments should do as little as possible, beyond cutting taxes and regulations.

It’s always interesting to see people pointing to the Common Law as we’re quite certain that it’s one of the major beneficial attributes of our society. But leaving that aside this is remarkably similar to Smith’s comment:

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.

One other point that the study makes: there’s a very large difference between self-employment and entrepreneurialism. I, for example, when writing am self-employed but I am not an entprepreneur. When I am fossicking around for scandium I am both and when I find a nice large pile of it I will be employed by a company but still be an entrepreneur. and as the study notes the rates of the two things can often move in opposite directions. The rate of self-employment in Silicon Valley, the most entrepreneurial spot on hte planet, is actually half the self-employment rate for California as a whole.

More of Surrey is now under golf courses – about 2.65% – than has houses on it

We all know what’s wrong with the British planning system: the British planning system. It won’t allow anyone to build housing where people actually want to live and insists that housing can only be paced where no one does wish to be or, alternatively, in the middle of flood plains where they’ll get swept away every few years. And this is why, as the man says, more of Surrey is under golf courses than is used for housing:

Cheshire lays into “supporters of urban containment policies who argue that Britain is a small island that we are in danger of concreting over”, claiming it is a myth because green belts cover one and a half times as much land as all of England’s towns and cities put together. “Moreover, there is little or no public access to green belt land except where there are viable rights of way,” Cheshire says. “Green belts are a handsome subsidy to “horseyculture” and golf. Since our planning system prevents housing competing, land for golf courses stays very cheap. More of Surrey is now under golf courses – about 2.65% – than has houses on it.”

He calculates that there is enough green belt land within Greater London – 32,500 hectares – to build 1.6m houses at average densities. “The only value of green belts is for those who own houses within them,” Cheshire argues. “What green belts really seem to be is a very British form of discriminatory zoning, keeping the urban unwashed out of the home counties – and, of course, helping to turn houses into investment assets instead of places to live.”

The answer is, of course, to blow up that planning system. We might, for example, simply say that all golf courses in Surrey now have planning permission for housing on them: that would mean doubling or more the land available for housing without losing even the slightest iota of farmland or wilderness. But a better idea would be to adopt our long written plan here at the ASI, Land Economy. In essence, simply state that low density housing may be plonked where people wish to live.

We’re never, ever, going to solve the “housing crisis” without reforming the very thing that causes it, the planning system.