Wednesday, July 18, 2012

Market regulation

A perception exists that a lack of government regulation in the marketplace results in a kind of rule of the jungle, empowering scoundrels to rip off and otherwise deceive consumers at every opportunity. Absent government monitoring, many believe that consumers would be essentially thrown at the mercy of businesses and a qualitative race to the bottom would ensue.

The reality, however, is that the competitive pressures of the marketplace impose their own regulation and sense of order, as this Washington Post article on the taxi industry demonstrates:
With Uber drivers, “I get a ‘Good morning. How are you? Do you have a special route you’d like me to take?’ They are never on the phones. There’s no radio.” 
The Uber man’s name appears on Whyte’s phone, along with a photo, tag number and a customer rating. When the black sedan pulls up, a neatly trimmed man in a white shirt and tie steps out and opens the door for Whyte.  
Mohammad Bardawil, 56, like all Uber drivers, owns his sedan. Uber doesn’t directly employ drivers or own vehicles. Bardawil runs his limo service and picks up Uber customers as time allows. Uber’s software lets him sign up for duty with a touch of his iPhone. Aspiring Uber drivers must pass a test on D.C. geography. Uber then inspects the driver’s car; nothing over seven years old is permitted.  
Other customers have given Bardawil 4.6 stars out of five. When Whyte had a bad experience with a different driver and gave him only two stars, Uber wrote with profuse apologies and promised to talk to the driver. Try complaining to the D.C. Taxicab Commission about a cabbie, Whyte says; the response is often chirping crickets.
The Uber car service, much to the chagrin of some Washington politicians, is essentially unregulated. Far from resulting in a poor customer experience or lowering standards, the company has imposed rules of its own on the marketplace and actually lifted the quality bar. The customers are happy and the drivers are happy -- everyone wins. 

Contrast this with the regulated model, which has left not only consumers upset, but is threatening the livelihood of some cab drivers as well:
Some D.C. taxis, passengers complain, are old, rickety, hot and smelly; the cabbies don’t take credit cards; they’re illegally choosy about whom they pick up, and they pay more attention to their phone calls than to their driving. 
...Last week, a day after the D.C. government awarded VeriFone Systems a contract worth more than $35 million to wire cabs for credit card payments, Global Positioning System tracking that will let the city monitor all trips and video advertising aimed at riders, the company’s stock surged by 11 percent. 
Drivers won’t see any revenue from those TV ads. 
“I have no objection to credit card readers because people don’t have cash,” says Meles, 59, an Eritrean immigrant who has been hacking for three decades. “But is it necessary for only one company to provide the machines?” 
Meles already has a credit card machine in his 2004 Ford Crown Victoria, and he’s locked into a contract on it. Now he’ll have the city-mandated reader, too. “This one already costs me $50 a month,” he says. “Now, I’ll own two!” 
...Worse, Alemu says, is a new rule imposing suspensions on drivers who get five inspection violations in a year. 
It’s very easy, he says, to get slapped with violations. Once, he got a ticket for failing to put up a “No Smoking” sticker on his rear window. 
“That cost me $25!” he says. “One officer can put you out of business. What if your car is too dirty? You’re out of business.” 
The new rules will push him, his wife and two small children into poverty, Alemu says. “I’ll go on food stamps and housing assistance,” he says. “I’ll be a burden for the rest of everyone’s life.” 
...Senor Hassan, as he’s known to his fellow hacks, is a legend in the D.C. cab business, a Syrian immigrant with a huge laugh and a mini-fleet of 22 cabs. He came here in 1966 after the government nationalized his farm. 
America and the taxi business gave him a new home, freedom to make his own hours and a belief that the market works best if left to its own devices. Now 74, he is appalled by the city’s decree that he take his cabs off the road because they are eight, 10 or 12 years old. “They run beautiful,” he says. “They pass inspection. Why don’t you get new buses and trains every five years? How about planes? They don’t make them get new planes every five years because the rich people who own the plane would say to them, ‘Kiss my a--.’ ” 
Hassan had to spend $400 each on the meters the city mandated a few years ago; under the new rules, those meters would become trash, replaced by the VeriFone system, and he’d have to buy new $45,000 handicapped-accessible cabs to make up 20 percent of his fleet. 
“I’ll be out of business,” he says. “I can’t even afford to buy my own new car. I’m finished. Finished.”
This is the difference between letting a free market function and central planning/rule by bureaucrat decree. Under the former, customers and businesses can establish win-win relationships, where each finds the cost/benefit balance that they prefer. Under the latter, government decides what services are offered and the costs that are charged that can leave both the rider and driver grumbling. 

The question is not why libertarians prefer that more of our lives be governed by market forces instead of government, but why anyone would prefer the opposite.

Update: And here's the latest with taxis in New York City:
Bill de Blasio, the New York public advocate and presumptive candidate for mayor, emerged earlier this year as an unlikely ally to the city’s usually maligned yellow taxi industry. 
Fund-raising records for Mr. de Blasio released this week show that the industry, known for its deep pockets, did not overlook that support. 
Mr. de Blasio’s campaign received about $85,000 in the last six months from executives, lobbyists and other affiliates of the yellow taxi industry, slightly more than 10 percent of his receipts for the fund-raising period, according to papers filed with the city’s Campaign Finance Board. 
The contributions coincided with an aggressive attempt by the industry to derail a Bloomberg administration plan that would have allowed hundreds of new metered livery cabs in northern Manhattan and in the other boroughs, parts of the city traditionally underserved by yellow taxis. 
Mr. de Blasio loudly opposed the mayor’s plan, saying the administration had not received the proper permission from the City Council to enact it, and in May, his office filed a brief in support of a lawsuit filed by the yellow taxi industry against the city. That suit prompted a judge to halt the plan, leaving it in limbo; the city, which is counting on $1 billion in revenue tied to the plan, has appealed.
Want to get money out of government? Get government out of people's lives, and leave decisions such as the number of taxis that should be working NYC streets to the market where it belongs.

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