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In Uber fight, Silicon Valley & Washington philosophies clash

DC Councilmember Mary Cheh (Ward 3) stepped into a firestorm yesterday when car service Uber claimed that the council was about to forbid lower prices for its service. This fight resembles so many policy debates around technology, because it's a choice between two fundamental philosophies.


Photo by Frank Gruber on Flickr.

Should a market have a number of rules which define ahead of time what companies can do, or should it create space for companies to try innovative things, knowing that many will fall amid competition? From Uber to patents to telecom policy, this is perhaps the central debate in technology policy today.

Cheh thought she was helping Uber. The company and DC regulators are embroiled in a dispute about whether the service is legal. That's because "black car" sedans can pick up passengers, but only to transport them for fixed fares deermined ahead of time. Want to charge a rider by time and distance at the end of the ride? Then you're a taxi and have to charge set taxi rates, say DC regulators.

Uber claims their service is legal. Cheh's amendments would have made it unambiguously legal, but only so long as the service charges 5 times the price of a taxi for the "flag drop," the initial amount on the meter at the start of a ride. Perhaps not surprisingly, Uber's flag drop charge was exactly 5 times the current taxi flag drop fee.

The political details have been reported widely in the press. Uber members flooded Council inboxes, and Jack Evans (Ward 2) claimed to have received 5,000 emails. A number of councilmembers, like David Catania (at-large), said they didn't want to be setting policy around protecting the taxi industry, while Marion Barry (Ward 8) stood with taxi drivers.

Cheh decided to pull her amendments to give her a chance to rework them, likely in consultation with Uber. She said she did consult with Uber and thought they had a compromise; Uber's CEO says they never agreed to this language.

This story is a classic case of Silicon Valley meets Washington, even more literally than usual. Many startup companies encounter the world of laws, lobbying and legislation and find the culture gap baffling. It's not just Congress (which, for that matter, steps all over the District of Columbia government all the time); it's state legislators too, like the California state senators who tried to ban Gmail when it came out.

Often in these kinds of cases, everyone means well. Cheh is one of the Council's most thoughtful members and a strong supporter of transportation choices. She's no enemy of innovation; her staff organized a ride in Google's self-driving car and she raved about the experience.

The permission model or the innovation model?

But there is still a culture gap here. Specifically, there are two ways of thinking about how business meets law: the permission model and the innovation model. In one, there's some gatekeeper that has set out a list of things you can do and things you can't. If you want to do something different that nobody has done, you can get permission from that gatekeeper to allow it, if it has enough merit and/or you have enough influence. In the other, you can do what you want, unless it's so harmful that someone takes action to stop you.

Neither model is really purer or more original than the other. Some businesses have always worked according to one type, others in another. Mercantile England gave charters to companies to settle and trade in the New World. And the gatekeeper is not always the government. For instance, food marketing has always been more of a permission model: in order to get anyone to sell your new food, you have to get grocery stores to give it space on shelves, which generally means paying them.

Television has also always been a permission model. The first television networks got the rights to broadcast on certain frequencies from the government, which was the gatekeeper deciding which companies could be broadcasters and which couldn't. But when cable came along, the cable companies became the gatekeepers, and now they negotiate with channels about carrying their content or not; periodically, these negotiations spill out publicly when a channel runs ads saying that a cable company is going to cut off customers' access to that content.

Zoning converted an innovation modelyou could build whatever you wantedinto a permission model where you have to get the okay from a zoning board to build something outside set parameters. The early frontier was more of an innovation model, where land was just about free and you could go set up a farm without having to buy someone else's land first.

The innovation model built Silicon Valley

Silicon Valley enjoyed the innovation model for a very long time. The Internet and protocols like TCP/IP and email, developed by academics, allowed anyone on one system to connect to any other system and share information. People could build websites that didn't need to get permission from the equivalent of the cable company. AOL and similar services had a more cable-like online offering at first, but the open Internet won out because users preferred it.

That's starting to change in a few ways. One is that fewer cable and phone companies control access to subscribers, and are starting to try giving some favored applications more privileges, especially to get around data caps, than others. A second is patents.

Patents turn an innovation system into a permission system by carving up the space of possible things you could do but haven't yet, and giving them to anyone who comes along and pays a fee to grab that piece of idea land. Patents don't stop someone from building a product, but they do force them to check with everyone who has patents in the area first and get their permission.

That impedes someone from building a better website that effectively competes with an existing one. It even stops organizations like transit agencies from doing the mostly-obvious, like letting riders track trains and buses in real time, because a "patent troll" has the patent and wants to extract money from anyone stepping nearby.

A number of technology/policy/economics writers, like Tim Lee, have been talking about the destructive effects of patents for some time, but running into resistance from an interesting quarter: lawyers. It seems that most lawyers, accustomed to the world of law where everything is set up with a rule, find the permission system of patents more familiar and comfortable than the innovation model. The problem is, familiar doesn't mean good; patents are slowing down Silicon Valley and favoring large, established companies.

Uber brings the innovation model to permission-oriented taxi regulations

What does this have to do with Uber? The Cheh amendment seems to be a standard regulatory approach. Uber may be illegal now. Pass a law that lets them do what they are doing. But to minimize the impact, limit the law to only let them do what they do now, and not just anything; if they want to do something else, maybe there can be another law.

Uber is coming at this from the Silicon Valley angle. Just do something and see if people like it. If they do, grow it. They understandably chafe at being given a box that circumscribes their existing business model but also walls off potential future directions they might evolve.

Riders also don't benefit from these rules. If Uber can compete with taxis, why not? Most people feel taxis could be a lot more comfortable, have better technology, and be safer. Giving riders more choices could mean some taxi companies thrive and others go out of business. That's competition, and it's healthy.

Cheh's bill also tried to address these taxi problems. It included provisions to force taxis to upgrade their equipment, start taking credit cards, and more. But it went about that, again, in a regulatory way. Rather than setting some standards (or just encouraging competition), it gave an exclusive contract to one company to put one set of technology in all cabs. That doesn't foster as much innovation as the alternative since the winner has the exclusive right to make the only product in this space.

The best way to improve taxis is to help riders find the best ones. Smartphone apps can start to do this and more and more people across the income spectrum are starting to have smartphones. As I recommended in a Post op-ed in January, let's allow any company that meets certain minimum requirements to pick up customers who phone in or use a smartphone app. Hailing a cab on the street can keep working like it does today.

The one necessary element is to demand that each competing company publish its rates ahead of time in an open format. Then, riders can use one of many apps (which can themselves compete) to compare taxi rates and pick a cab company.

It's not the regulatory, permission-based way of solving the problem, but it's the one that will foster the most competition, innovation, and value for riders.

Update: 2 additional brief points.

First, some Council staffers say Cheh's office really did believe they had an agreement from Uber. Uber's email, which just said the Council was trying to set a price floor without mentioning that it was also trying to eliminate the legal gray area, wasn't entirely forthcoming with all the facts.

It's not yet clear that Uber didn't just decide they didn't like the result of negotiations and could use political muscle instead. That's their right, of course, but something we should recognize.

Second, taxis are a regulated industry today. An innovation model might be better, but most taxis don't operate on one. It is indeed unfair to put a lot of regulations on one group of businesses in a space (the traditional taxis) and none on others (Uber).

My preference would be to move the industry more away from regulation and toward an innovation model instead of vice versa, but it's reasonable for taxis to ask to compete on a level playing field.

David Alpert is the Founder and Editor-in-Chief of Greater Greater Washington and Greater Greater Education. He worked as a Product Manager for Google for six years and has lived in the Boston, San Francisco, and New York metro areas in addition to Washington, DC. He loves the area which is, in many ways, greater than those others, and wants to see it become even greater. 

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This is a fascinating and very telling depiction of this issue. This lucidly sums up exactly how red tape can stifle technological innovation, and why it happens. I'm eager to see how this whole issue will play out in the long run.

by Dave Murphy on Jul 10, 2012 4:01 pm • linkreport

"Everything which is not forbidden is allowed" - that's the core of the American philosophy and why this country exists. You don't need a writ from a King to start a business. Regulators like Cheh think otherwise, that their job is to prevent commerce from happening unless it is expressly allowed. They usually do so based upon principles like "fairness" and "for the greater good."

The Uber case tore this argument apart and allowed people to see what these mandarins are really doing - they're using regulation and price controls to protect favored interest groups, in this case, the taxi industry. What matters to you and me, ordinary citizens, isn't important. This time, however, we won thanks to social media. And, in the future, I hope we elect council members with a more modern approach to business and society.

by Joe Flood on Jul 10, 2012 4:03 pm • linkreport

Can someone explain why DC taxpayers are funding the GPS devices and other items that taxis will be using? If these will be part of the cost of doing business in the city, then those conducting the business ought to be paying for them.

by Andrew on Jul 10, 2012 4:16 pm • linkreport

@Andrew

I thought that the cab fees and advertising revenue were paying for them, not taxpayers directly?

by Adam L on Jul 10, 2012 4:27 pm • linkreport

[This comment has been deleted for violating the comment policy.]

by Wise on Jul 10, 2012 4:32 pm • linkreport

Andrew - DC taxpayers are not paying for the GPS/smart meters. See below from the press release announcing the award of a contract for the new meters:

"The cost for installing the system as well as the operating costs of the DC Taxicab Commission will be paid for from a trust fund supported by a 50-cent-per-ride surcharge. The only cost to drivers will be a small installation fee. Under this user-fee system, general tax revenues will no longer be used for any Commission costs. This will save almost $4 million from the District’s general fund. It also means that the approximately 50 percent of riders who are not District residents will now be able to pay a share of the costs of administrating the taxicab industry and no longer ride on the pocketbooks of our residents."

by DupontDem on Jul 10, 2012 4:45 pm • linkreport

All signs point to taxis and taxi cash being hugely important political forces in this city. (Money orders bought with cash have also been an important political force.) Until there are greater checks and accountability in regards to these things, it is hard to trust any of the policy motives in this area. What happened to fare increases paying for credit card machines in cabs? Why is Joe Taxpayer suddenly on the hook for this? I think that cab drivers need to be protected and regulated, but some of this situation smacks of pay to play and looks awfully suspicious.

by aaa on Jul 10, 2012 4:55 pm • linkreport

Thanks for the clarification.

by Andrew on Jul 10, 2012 5:17 pm • linkreport

I mostly agree. But taxis serve a role as part of our transit infrastructure, so as a consequence, there is a strong compelling reason to ensure even pricing across tax services. When a person steps on to a curb and hails a taxi, he wants to know what he's going to get.

Regulated taxis and app-based dispatch services are going to have to exist side-by-side. We can't expect the city to only rely on one model or service.

by JustMe on Jul 10, 2012 5:22 pm • linkreport

@JustMe

We'll just have to see how long the traditional taxi model lasts. It seems like an easy way to get around traditional regulation, and mandated fares, is to just become an dispatch-only service. I can easily see many of the larger cab companies like Silver, Yellow, Diamond, etc. re-branding themselves to fit into a Uber-like model where they would be subject to less regulation.

As for independent operators, they may be relegated to servicing very high traffic areas like transit stations and downtown instead of (attempting?) to provide service throughout the city and just leave that to dispatch services.

by Adam L on Jul 10, 2012 5:28 pm • linkreport

I saw a NYC taxicab parked in a lot along NJ Ave SE with some other older cabs. I suspect that it is awaiting is "rebirth" as a DC cab. No surprising. We get the reject cabs from New York, which has real standards for their cabs.

by dcdriver on Jul 10, 2012 5:51 pm • linkreport

"Thee" instead of the? Error there?

Also, how does your proposal to ensure rates are posted work with their demand based pricing? I realize maybe the formula could be posted (and I think the app tells you how much it is going to be depending on the day), but I still remember quite a few folks complaining when they woke up to a $200 bill from Uber on 1/1/12, instead of their usual $30 or whatever.

by H Street Landlord on Jul 10, 2012 5:59 pm • linkreport

H Street Landlord: Fixed the typo. As for the demand-based pricing, I would have the protocol for the open data incorporate that. Set up a rule that, say, the higher pricing has to be set a certain number of hours ahead of time. App authors can then know that as long as they refresh data every X hours they will have the correct information.

by David Alpert on Jul 10, 2012 6:10 pm • linkreport

That makes sense.

by H Street Landlord on Jul 10, 2012 6:24 pm • linkreport

Your attitude toward patents and patent holders reflect too much of Google's i.e. Google only respects their patents and will protect their intellectual property but not others'. Thomas Edison was one of the most innovative inventors and held the most patents. Many entrepreneurs start companies based on patents and hope that their patents will help them compete against the likes of Google. Thieves want to be able to steal other people's intellectual property all in the name of innovation and open source. Are you saying that Google will be willing to donate and open source every part of their business?

by True Inventor on Jul 10, 2012 6:49 pm • linkreport

I love it when people in the land of the free find out that they're not as free as they thought.

by Jasper on Jul 10, 2012 7:57 pm • linkreport

@ Adam L

"I can easily see many of the larger cab companies like Silver, Yellow, Diamond, etc. re-branding themselves to fit into a Uber-like model where they would be subject to less regulation.

As for independent operators, they may be relegated to servicing very high traffic areas like transit stations and downtown instead of (attempting?) to provide service throughout the city and just leave that to dispatch services."

So how do you actually get the cabs to serve all areas of the city since many will not go to SE now which would only become worst.

by kk on Jul 10, 2012 8:47 pm • linkreport

@kk

I'm not sure you can force cabs to serve a particular area of the city. Even if DC government alleged race/income discrimination, I can't see the city taking individual operators to court.

At the end of the day, it will likely turn out that certain areas of the city will have dispatch-only services. Regular cabs will likely only be available at Union Station, hotels, downtown core, and maybe a few nightlife hotspots. Other than that, I doubt they'd service any other low-traffic areas. People living there may have to use a dispatch service to get a ride; just like folks in the suburbs.

Now, the Council can certainly regulate that no available for-hire vehicle can refuse a fare, regardless of whether it is hailed on the street or dispatched from a smartphone app. So if Uber has an available car, the driver wouldn't be able to refuse to pick up. I imagine that would be a pretty easy sting operation but would also raise holy hell.

by Adam L on Jul 10, 2012 10:49 pm • linkreport

@ David

I've lived in DC for 30 years and use cabs almost daily. According to news stories there are 8000 to 10000 cabs in DC. The majority are independents. Isn't it a little impractical to expect these guys to publicly post their fares?

The overwhelming majority of cabbies are disadvantaged minorities and would likely fall into the category of lower middle income at best (or probably more accurately the working poor), working in one of the last blue collar industries left in DC. They are locked into one of the lowest fare systems in the US, with fare increases that have significantly lagged inflation (especially fuel and insurance costs). If I was a cab driver I would be furious that Uber showed up in town and began to provide unlicensed cab services, and now wants to be rewarded for breaking the law by being allowed to undercut the already low fare structure.

by DupontDem on Jul 10, 2012 11:01 pm • linkreport

This reminds me of the mobile vending issues the city is trying to resolve now.

Vending, just like taxi service is/was broken, leaving the city with only hot dogs and crappy merchandise, because of the monopoly of the depot owners and suppliers who pimp the street vendors, providing protection (overnight parking) and supply, while lobbying that any new service is punishing these low-income working vendors, when in reality the depots are raking in the big bucks, and the vendors are little more than indentured servants.

The government is trying to provide a fix to a broken system and in comes a needed new model that blows up the existing system, but does so by throwing out the good with the bad. Social media then comes into play by providing sound bite outrage, without a clear picture of all issues and groups like UBER and the mobile vendors wanting a totally free market to innovate, without having to deal with all the conflicting needs that jurisdictions must address in a civilized society, like health, safety, and access.

I love the silicon valley analogy, because it strikes at the fundemental flaw that existed then and with these models, access to service. The big challenge for regulators with the internet was equitable broadband access and making sure that the companies did not only service the areas where they would make the greatest profit, thereby creating deserts and further disenfranchising low-income and rural areas. Not everybody has cell phones and the mobile vendors are not going to food deserts, they are jammed around the existing clusters of high traffic customer centers.

Permission and innovation models are simply the access points to the market, where the real challenge is the management and maintenance of the systems, which in both the cases of taxis and vending was broken for decades, mostly because of the lack of quality management and maintenance.

by Yes on Jul 11, 2012 5:52 am • linkreport

Dupont Dem is actually recognizing the concern for the drivers. Reject this kind of destructive interference from a city council that can't keep it'snosrout of anything.
I learned a new phrase " Intrusive Destructiveness" which well describes the City Council and it's excessive meddling and overkill. How it makes mountains out of mole hills, and clutters the city, congests the streets, and makes life in the District infuriating, all while moving money from the people to the corporations..
The poor beleaguered taxi industry has been target of their "intrusive destructiveness" for years now. They have cut the income of the drivers by 1/3, and eliminated multiple fares with the meter, replacing the simple zone system,, maknig a mountain out of a mole hill. So only a few years later, Fenty's meter is being replaced by another meter, a clear violation of the drivers privacy with it's GPS. Why didn't they wait three years, not to waste the money! .And the drivers are being shaken down, and the public will bear the costs. So doesn't anyone see the corruption of Mayor Gray. the bill wasn't even passed and he announces the $35 million contract for another meter,, already!,, He takes money form the people and hands it to the corporations!
We now have the destruction of the taxi industry and delivery to the big businesses, for no reason requiring this interference. No multiple fares reduces service, reduces income and wastes fuel, increases pollution for NOTHING!.
With the help of the DC government, Emporer Adrienne, corrupt Mayor Gray, and intrusive city council,, a simple short cab ride from Union Station to very nearby Brooklandt, hat was $4.00 is now $13.00. But of course a city council determined to destroy will also require the 6500 cabs to be repainted the same color. A solution where no problem exists, but they can intrude and make DC a lot uglier! More pollution and expense over NOTHING!
So look at who is really hurt by this,,cab drivers who send part of their income back to the families in the home country and poor dc residents who are dependant on cabs. Take their money , and give it to the corporations. People like the wealthy city council members prance around in leased SUV"s at our expense, how would they ever know what it is like to be poor. You and I have cars, right..
Thirty five million dollars could probably buy an entire new fleet of cabs for DC,, multi colors, electric, non polluting, spanking new. What would ever be good enough for this city council?? It's us ,, the reidents of Dc that are in Jeopardy,, get rid of the council, form a democratic legislature, a constituent assembly where you will have a voice, and 13 inbred hacks cannot destroy the quality of life in DC. "Taxation Without Representation" what an embarrassing joke.. Make your own democracy!

by Dan in DC on Jul 11, 2012 5:52 am • linkreport

Dan in DC and Dupont Dem:

Please give me a break. I have no sympathies for the taxi industry and drivers who have allowed the state of affairs to reach this point. You think people would be paying more to ride Uber cars or slower mass transit options for no reason? No, it's because taxi drivers, by and large, are offering an unpleasant transaction (that is if they even respond to your calls or actually agree to take you somewhere that's not in the downtown area). Rather than try to fix this problem with small potatoes regulation, I simply ask the DC Council to get out of the way of healthy competition from Uber and others. That's the only way the taxi industry will improve.

by I. Rex on Jul 11, 2012 9:11 am • linkreport

@DupontDem: "Uber . . . now wants to be rewarded for breaking the law by being allowed to undercut the already low fare structure"

How is Uber undercutting cab fares when they charge significantly more? What Uber is really doing is usurping those customers who dislike cab service but are unwilling to pay the high cost for a black sedan...so they pay for something in between the two. When you look at it that way, the cab industry is really complaining that they're losing customers to a competitor who provides better service at a higher fare. Which is a somewhat valid argument given that cabs are not allowed to charge higher fares themselves, putting them at a disadvantage.

So there are two options:
1) eliminate the Uber-model and only allow a flat rate (black sedan) fare system and a distance-based fare (cab) system; or
2) have a regulated (pre-set) distance-based fare/rate system for any on-street pickup and allow fluctuating pricing for appointment (e.g., online/app and phone-ins), so long as those prices are published, or a flat rate system

With option #2, everyone is on level playing ground. Cabs can: pick up on-street at the regulated rate so that people know what price to expect when they hail a cab; schedule a pick-up ahead of time and charge whatever they'd like, either fluctuating distance-based fare or flat rate depending on their preference (and, really, the preference of the customer because if the customer thinks the price is too high they can pick another company or hail a cab on the street).

I don't think the government ought to be in the business of making sure a proprietor don't lose any customers to someone else who provides a better service because they cannot afford to keep up.

by 7r3y3r on Jul 11, 2012 9:18 am • linkreport

If there had been a 6th season of The Wire, cab industry corruption would have been a fascinating story arc.

I hate DC cabs. Most everyone hates DC cabs. The council's lazy way of handling the insane cab commission is proof that this city is hostile toward business and innovation. Sad to live in a city where a novel business idea like Uber is restrained by a snakebit council. The only thing that will improve cab service is no-holds-barred competition.

by MJ on Jul 11, 2012 9:29 am • linkreport

[This comment has been deleted for violating the comment policy.]

by not new here on Jul 11, 2012 9:36 am • linkreport

@7r3y3r

The two-tiered systems is essentially what we're going to have. Traditional hailed cabs will have to abide by government-mandated fares while on-demand services will be able to charge whatever they feel is appropriate.

The issue, as I described in my earlier comment, is that such a dual system leaves very little incentive for anybody to exist in the traditional fare model. It is likely that some of the larger taxi companies will move to doing just as you suggest and rebrand themselves as an Uber-like service. If the independent operators were smart about it, they would band themselves together in a co-op and offer a similar service to Uber themselves, thus allowing them to skip out on the established fare regulations.

The only problem, then, is that we're likely going to see a drop in the total number of traditional cabs. Those who do operate under the regulated fare system will likely only pick up fares in the high-traffic places I've mentioned.

by Adam L on Jul 11, 2012 9:51 am • linkreport

Sounds like a class argument to me. Give Uber to the fortunate DC residents who can afford it. Let the others eat cake.

Personally, I'm not as anti-taxi as the many who visit this site. I haven't had the best experiences but they surely haven't been as bad as those in NYC. I've had more pleasant experiences here than not. But in this era of constant complaining about anything that doesn't make you have an A+ day, this is to be expected.

Much of the anti-taxi arguments are clearly political. Taxi industry supports candidate A = must be a bad thing for the city. Much like if the unions support Candidate A..it must be just as bad.

No, taxi's aren't going anywhere in THIS city..just like they aren't in any other. If you wan't to pay more for sedan service, then have at it.

Sooner than later cabi is going to be usurped by something silly like "Google Bike" in which the bike is equipped w/some sort of GPS system. Then, we'll start complaining about how Cabi is so behind the times.

BTW, how exactly did Cheh get her "understanding" from Uber so wrong? She likely didn't. Uber has the money people on its side.

by HogWash on Jul 11, 2012 10:03 am • linkreport

@Adam L

I see your points but without a medallion system, there should be enough cabs to satiate both markets, no? (In my scenario, a cab can engage in both practices: on-demand and street hails; it's just that the pricing would be difference for each.) I just can't imagine cabs consistently holding off from street pickups in the hopes for an on-demand request so much so that the lack of street-hailable cabs becomes a problem.

And I agree that less densely populated areas will likely have to use on-demand prices in a two-tiered system, but I don’t think that’s a problem. I just don't see why all areas of DC have to be afforded lots of on-street hailable cabs…we already have a transportation system that services low-traffic areas at a subsidized rate: buses. But if people clamor for cabs they can readily hail on the street as opposed to making an appointment then maybe DC should just go all in and have it be a government operated (as opposed to simply regulated) company much like WMATA and then we wouldn’t have the problem of a cab refusing to take someone to an undesirable part of town.

The only issue that, imo, is of true concern is cab companies/proprietors colluding to keep on-demand prices artificially high.

by 7r3y3r on Jul 11, 2012 10:58 am • linkreport

@7r3y3r I just can't imagine cabs consistently holding off from street pickups in the hopes for an on-demand request so much so that the lack of street-hailable cabs becomes a problem.

But that's the incentive. The fewer cabs that are available on the street means more people being forced to use on-demand services at a higher cost. Drivers would be stupid to trawl streets wasting gas in the hopes of a fare, which is why I think the only places that will still use regulated cabs are areas where there are going to be guaranteed pickups like hotels, Union Station, downtown, etc.

But I agree with the sentiment that street-hailed cabs shouldn't have to operate everywhere in the city. It's a fruitless enterprise and hopefully the market will expand to fill that demand through services like Uber; there's no need for yet another government-run taxi service (it's called MetroAccess).

by Adam L on Jul 11, 2012 11:24 am • linkreport

@ 7r3y3r - How is Uber undercutting cab fares when they charge significantly more?

Cheh's bill set a minimum charge for Uber service that actually matched Uber's current minimum charge. Despite the postings at many neighborhood sites attacking Mary Cheh saying she was trying to price Uber out of the market, she was in fact specifically trying to make their current operations legal. Uber's owner however objected saying he wants the option in the future to offer a lower cost service at unspecified lower rates. That is why he organized the effort to bring down the bill, and it is that risk to cabs operating under the current fare structure that I am referring to.

As to your options, I like Number Two with a flat rate schedule for appointment pickups.

by DupontDem on Jul 11, 2012 12:11 pm • linkreport

Speaking of taxicabs and New York City, this ran in the N.Y. Times the other day:

Their Meters Keep Running, but the Fares Barely Make Ends Meet

by C. P. Zilliacus on Jul 11, 2012 12:15 pm • linkreport

David Alpert wrote:

Second, taxis are a regulated industry today. An innovation model might be better, but most taxis don't operate on one. It is indeed unfair to put a lot of regulations on one group of businesses in a space (the traditional taxis) and none on others (Uber).

In my personal opinion, the taxicab and "black" sedan industries should be freed from all economic regulation (specifically including barriers to entry, such as a New York City-style medallion system). Not just in D.C., but everywhere. They should not be limited as to where they can pick-up (in other words, a D.C. cab should be able to pick-up a fare in Montgomery County and vice versa).

Taxicab regulators should stick to making sure that meters run accurately and honestly; and that taxi vehicles and black sedans and the people that drive them have the correct licenses; that they pay their taxes; keep insurance valid; and pass safety inspections and vehicle emissions tests (very nearly every District of Columbia taxicab I ride in has the "Check Engine" light glowing, which is usually a sign that the emission control system is malfunctioning in some way - not good for air quality).

by C. P. Zilliacus on Jul 11, 2012 12:27 pm • linkreport

I'm not sure why innovation/regulation is seen as the crux of this issue. The two forces at work in my mind are policy and profit. Uber and taxi drivers are driven by profit. The city council is driven by policy - they want to create a city where taxis can exist to benefit driver and consumer alike.

There are two reasons to have structured fare systems in place.

1. For consumers. A rider comes to a city and hails a cab. They don't know the policies, but assume that the cab driver is honest. If they don't assume that, they can look at the fare schedule posted in the taxi and ensure things are appropriate. They can then decide if they want to take a taxi or not.

2. For drivers. A driver picks up a fare. They tell the fare what the rate is. There's no negotiation - it's yes or no.

If there were no regulations in place, drivers and passengers could negotiate prices. Either out-of-towners would be ripped off, or cab drivers would race to the bottom on price. Neither works to create a healthy taxi economy.

Since Uber is currently the only company in its space, it doesn't want regulation. But if another company were to enter that space without regulation, there would be a race to the bottom.
(This is the same reason taxis work on a medallion system - to artificially limit supply and keep prices and profits reasonable for drivers.)

I'm not sure how Uber relates to its drivers - I assume that much like Diamond Cabs, Uber drivers pay for the privilege to take Uber fares. This means the pricing structure is still regulated - but by Uber instead of City Council. I'm not sure why that's any better (I don't have a voice on Uber's board).

by Charles on Jul 11, 2012 12:27 pm • linkreport

@C. P. Zilliacus

You appear to have some cognitive dissonance going on here. First you say, "In my personal opinion, the taxicab and "black" sedan industries should be freed from all economic regulation" and then say, "Taxicab regulators should stick to making sure that meters run accurately and honestly."

What are taxicab meters with government-set rates if not the most intrusive form of economic regulation? I'm not saying I don't want meters, but one can't have it both ways.

by Adam L on Jul 11, 2012 12:36 pm • linkreport

@ I. Rex

I am no fan of the quality of DC cabs either, but when the average driver makes less than $35000 a year (according to salary.com), works 12 hour shifts, gets no benefits because they are independents, or even if they work for a cab company are considered 1099's (meaning they also have to pay both the employee AND employer portions of Social Security and medicare) its kind of unrealistic to expect first class taxis. Meanwhile the drivers can't get higher rates approved for themselves, but Uber shows up and wants the right to charge whatever fare the company wants to charge.

by DupontDem on Jul 11, 2012 12:41 pm • linkreport

@DupontDem

The good part about Uber breaking that regulation is that now cab companies will have the same opportunity to charge whatever they want to charge. Hence my suggestion for a co-op of independent operators a la Uber. They can compete on price, service, and availability.

by Adam L on Jul 11, 2012 1:12 pm • linkreport

Uber has the money people on its side.

Yes. They are called "customers."

Uber shows up and wants the right to charge whatever fare the company wants to charge.

That's because Uber offers a different service.

As I said, cabs are a part of public transit/transport infrastructure, and they're needed and necessary. The DC government needs to figure out how to make cabs more viable, not how to undercut other businesses.

by JustMe on Jul 11, 2012 1:14 pm • linkreport

@JustMe

The question is, does this future Uber lower-cost hybrid service offer "a different service" from a regular cab? Because that's what their objection to the price floor is based on.

by MLD on Jul 11, 2012 1:22 pm • linkreport

The question is, does this future Uber lower-cost hybrid service offer "a different service" from a regular cab? Because that's what their objection to the price floor is based on.

My understanding is that the lower-cost service involves lower-end cars, but the mechanism for dispatching the service is the same.

by JustMe on Jul 11, 2012 1:48 pm • linkreport

@JustMe

I don't think you said this, but I'm curious: do you believe cabs are a necessary part of public transit infrastructure?

Because I'd argue that they're neither a part of the public transportation infrastructure nor a necessary part thereof. First, cabs are independently owned and operated unlike WMATA. In other words, regulation by the government does not make something public. Second, even if they were considered a part of public transit infrastructure, I don't see how they're necessary given the fact that we have buses, the metro, and MetroAccess for those persons for whom either is not a viable option. Why should the government ensure that individuals have door to door transportation access outside of their own doings (personal car) or what a private company is willing to provide (sedans)?

The idea of public transportation, to me, is for the majority of people in a society to decide that it's best to pool their efforts into a collective to provide transportation access to all regardless of profitability. So I travel 1 mile on a bus but pay the same bus fare as someone who travels 10, and the profits from the S2 line go to pay for the costs of a lesser-grossing bus line. Any financial shortcomings within the system are paid for with appropriations from everyone's taxes. But with taxis, we keep fares artificially low through fare regulation (presumably in order to make cabs accessible to a large percentage of the population) but if the operator doesn't make a profit he's SOL. There is no government appropriation to help balance his budget. So really, we're regulating a business to the point of almost making it a public entity but not actually assuming the financial responsibility. When drivers are stuck with a financial constraints and possible loss the government is imposing on them through fare regulation that seems unfair to me. Either make cabs a public entity wherein DC owns the cars and assumes financial profits and losses or regulate it only to the point necessary (for instance, for safety) like we do sedans.

by 7r3y3r on Jul 11, 2012 2:04 pm • linkreport

: do you believe cabs are a necessary part of public transit infrastructure?

Yes. We create policies to ensure that there is a method of widely available service by car at publicly agreed upon rates, and we provide the public with certain guarantees that this service will be available at certain levels of service.

by JustMe on Jul 11, 2012 2:07 pm • linkreport

@ JustMe - That's because Uber offers a different service.

Uber was trying to operate as a cab service too. That's why they got in trouble. Now they want the law change to make their slight variation on providing cab services legal. If I was an incumbent can driver, I would be pretty ticked off that I can't get to raise my rates but this brand new company wants the law changed so it can charge whatever it feels like charging. From the existing cab driver's perspective, why is the Council's rush to give blanket approval to Uber not undercutting historic businesses? I'm not saying the drivers are right or Uber is right, but both sides have decent arguments and both have legitmate interests that need to be considered here.

by DupontDem on Jul 11, 2012 2:09 pm • linkreport

@JustMe
My understanding is that the lower-cost service involves lower-end cars, but the mechanism for dispatching the service is the same.

In my view the current Uber service is "different" because it is premium, and you pay a premium. What separates this lower cost service from a regular cab other than the fact that you hail one that happens to be in sight with your hand, and you hail the other that's within a certain radius with an electronic signal?

@7r3y3r
Why should the government ensure that individuals have door to door transportation access outside of their own doings (personal car) or what a private company is willing to provide (sedans)?

Because having on-demand personal transport is beneficial and doing it with cabs (vehicles for hire) is more efficient than everyone driving their own car and having to park it at both ends. And it is very hard to have on-demand hail taxi service without some sort of regulated pricing structure. How much harder would using a cab be if you had to hail one and then decide based on whatever combination of fare structure that cab had whether to take that cab or not?

We also regulate to try to avoid a boom and bust cycle of oversupply and shortage - if everyone could set their own prices, there might be lots of cabs charging very little that then go out of business, leaving a shortage of cabs that then start to charge high prices.

When drivers are stuck with a financial constraints and possible loss the government is imposing on them through fare regulation that seems unfair to me. Either make cabs a public entity wherein DC owns the cars and assumes financial profits and losses or regulate it only to the point necessary (for instance, for safety) like we do sedans.

Well if they are facing losses they can always quit and find another job - nobody's forcing them to be cab drivers. I'm not sure why either of your extreme choices of regulation are better than what we have now though.

by MLD on Jul 11, 2012 2:23 pm • linkreport

What separates this lower cost service from a regular cab other than the fact that you hail one that happens to be in sight with your hand, and you hail the other that's within a certain radius with an electronic signal?

That is precisely the difference, along with having a known price ahead of time from the dispatcher. In the same way that "hailing" a cab over the phone is different than hailing a cab on the street. In one case, having different companies with different price structures and different tiers of service is reasonable. In another case (the street hailing), it most certainly is not.

by JustMe on Jul 11, 2012 2:27 pm • linkreport

@JustMe
That is precisely the difference, along with having a known price ahead of time from the dispatcher.

Except with Uber, you don't know the price beforehand. Wasn't that one of the issues?

by MLD on Jul 11, 2012 2:43 pm • linkreport

The "poor taxi driver" argument is a red herring. Should we regulate and protect every industry where folks make less than the average U.S. income? Should we tell McDonalds how much it should charge for hamburgers or how much ketchup it is allowed to use? Should we ban upstart hamburger joints that want to charge less than McDonalds for better food? Competition is ALWAYS a good thing for consumers. The struggles of countries like Greece prove what can happen when you over-regulate, stifle innovation, and try to protect industries. It turns your country into a third-world has been that produces nothing of real value.

by theTruth on Jul 11, 2012 2:46 pm • linkreport

Except with Uber, you don't know the price beforehand. Wasn't that one of the issues?

You know the rates beforehand, and can simply call another dispatcher if that's what you want, whereas you can't expect people to negotiate with every random car they hail on the street.

by JustMe on Jul 11, 2012 2:58 pm • linkreport

I'm not sure what to think of your second update. I think your article is better without it.

Uber is doing what they can to exist in a market where there existence is basically not allowed. They're eking out a space around the rules. With your second update you make it sound like they should sit at the table with the regulators. I'm not sure they should.

It always seems that the regulators have the upper hand in destroying and disabling businesses. Once they get regulations, the market isn't free anymore.

However, innovators creativity is unbounded and many many times they find a way. I hope Uber can survive this and I hope their creativity leads to much much more freedom in the taxi industry.

by Jason on Jul 11, 2012 3:44 pm • linkreport

"It is indeed unfair to put a lot of regulations on one group of businesses in a space (the traditional taxis) and none on others (Uber)."

Why? Taxi operators voluntarily agree to be bound by additional regulations in exchange for the right to pick up street hails. Any taxi owner who decides this agreement is no longer in his/her best interest is free to transition to operating as a livery driver (using either the traditional phone model or a business plan similar to Uber's.)

by Jacob on Jul 11, 2012 4:51 pm • linkreport

Once they get regulations, the market isn't free anymore.

Your point?

by Tyro on Jul 11, 2012 9:26 pm • linkreport

I don't completely buy the idea that the innovation model and the permission model are two competing frameworks for business development. Industries by and large begin under the innovation model, but the innovations put forward do not always benefit the public at large, and time and time again have led to significant risks to public health and safety. When these risks lead to actual incidents, new regulations are put forward in the aftermath in order to prevent future disasters, the cumulative effect of which can be to turn an innovation-based industry into a permission-based one. There is an excellent series of user-contributed diaries at DailyKos called How Regulation Came to Be which details several of the more egregious disasters that led to the regulatory framework we currently live under.

In the case of the taxi industry, Wikipedia tells me that it's been around for 372 years, over which time there's been ample opportunity for shady operators to innovate new ways to fleece the taxi-riding public and endanger public safety. I don't claim to know specifically how DC's taxi regulations came to be, but we should remember that this blog got its big break specifically because a taxi driver refused to follow these existing regulations when he attempted to refuse David Alpert to his requested destination. One could argue that this driver's own personal business plan--to refuse to take customers to locations to which he didn't want to drive--is itself a sort of innovation, albeit one that does not benefit the public.

Uber maintains a rating system for drivers, and also for passengers (called a "client star rating"). I'm guessing about three years before there's a major public dust-up involving the inability of a client to get an Uber car to show up. Will it be acceptable to have a service that is operationally taxi-cab-like in many respects but which has broad discretion to refuse rides? The car-for-hire industry as a whole--taxis and limousines--definitely needs to evolve to take better advantage of newer technology. But I'm not sure that allowing a company to simply choose for itself which features of taxi-like service and which features of limousine-like service it wishes to offer is the right way to go.

by thm on Jul 12, 2012 2:27 am • linkreport

Adam L wrote:

You appear to have some cognitive dissonance going on here. First you say, "In my personal opinion, the taxicab and "black" sedan industries should be freed from all economic regulation" and then say, "Taxicab regulators should stick to making sure that meters run accurately and honestly."

No, that's consistent. I believe - strongly - that the taxicab owner or operator should set the rate(s) charged by the meter - not a government agency.

Consider Sweden, which freed its taxicab industry of economic regulation many years ago. Note: taxis are still regulated in terms of vehicle safety, emissions and driver qualification (taxicab drivers in Sweden must have a drivers license somewhat like the CDL issued in North America to truck and bus drivers). Read more about the taxicab industry in Sweden in a short write-up here.

In Sweden, meters are still required by law, and additionally, each taxicab must prominently display (inside and outside the vehicle) how much a "sample" trip costs (that "sample" trip is the same across the entire nation). Taxicab regulators do not concern themselves with what the rate is, beyond making sure that is the rate programmed in to the meter, and that the meter accurately records each kilometer driven.

What are taxicab meters with government-set rates if not the most intrusive form of economic regulation?

I strongly agree. Please see above.

I'm not saying I don't want meters, but one can't have it both ways.

I think we can have deregulated taxicab service with the benefit of meters.

by C. P. Zilliacus on Jul 12, 2012 12:49 pm • linkreport

re: the whole discussion about the right to hail a cab anywhere in the city.

I have no idea what you folks are talking about. If cabs would patrol my neighborhood, of course, I'd be happy. But I would be absolutely thrilled if a cab would just come when we call the dispatcher! And my neighborhood is hardly out of the way or a pain to get to. It's en route from a cab depot on Benning Road and Union Station.

Cabs in D.C. suck. big. time. So I'm rooting for Uber. I didn't know about the service before this controversy erupted. So next time I have to call a cab and they blow me off, I'll download the Uber app.

by lou on Jul 12, 2012 1:33 pm • linkreport

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