Striking taxi drivers snarled traffic in several European cities yesterday in a show of solidarity against a common threat. Unlike other protests of the past few years which have largely been against austerity measures, this time workers from London, Paris, Berlin and Madrid were unified against Uber.
A smartphone app that connects drivers and passengers in a ridesharing program, Uber has already made strong headway in many other countries. Of course, it has also already met strong resistance from taxi drivers looking to protect themselves from a new competitor.
The public’s reaction has been mostly unified with the view that taxi drivers are just trying to protect their turf, and that this is on balance harmful for consumers.
At the same time, though, one could also sympathize with these poor taxi drivers. Imagine you were in an industry with high barriers to entry imposed by the local city’s government. You needed to go through a licensing program and pay a fee to be able to legally call yourself a taxi driver, and to pick up customers. Then, seemingly out of the blue, something happens which causes your initial “investment” to decline in value.
The arrival of Uber changes the rules of the game for taxi drivers. I would be upset too if this happened in my own line of work.
Still, chagrin over a new competitor that removes the old rationale for why you paid such a high levy to enter an industry is not a reason to not allow the new competitor in. If anything, the ire that taxi drivers have should be directed at the local city governments that imposed strict licensing requirements on them in the past. It was these laws that unnecessarily increased the costs to enter the industry. It is also these old laws that are now making a new low-cost competitor in the taxi world so threatening.
We can’t change the past. The costs that taxi drivers have already incurred to enter their industry cannot be reversed. But we can at least take this as a lesson for the future. Licensing requirements raise the cost of entry to a given industry, and protect the profits earned by the people already a part of it. These requirements also make it unusually painful for those that completed them when a new competitor shows up.
If you want to remove the pain these types of regulations cause, don’t stop new competitors from competing – remove the regulations!
(Originally posted at Mises Canada.)