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Innovating ancient ride-hail regulation

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In mid-February, two Uber executives will go to trial in Paris for organizing alleged illegal taxi services. In London, Uber almost faced a major regulatory crackdown with the support of mayor Boris Johnson, who affirmed these regulations are needed to “level the playing field” with traditional taxicabs. And in some cities around the United States — Las Vegas and San Antonio, for example — Uber was outright banned until this past year.

Whether cities are regulating or banning Uber, the rhetoric used to justify these actions plays on this idea that Uber is constantly breaking the law and therefore must be regulated like taxicabs. Unsurprisingly, these bans and regulations are supported by the city cab companies, which view Uber as a threat to their existence.

Putting aside the special interest stink of these actions, does it actually make sense in the 21st century to regulate Uber like taxicabs?

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In London, for example, the regulation of hired coaches dates back to 1636. At the time, King Charles I proclaimed there needed to be a small, competent group of hired coachmen for the nobility. His son and successor to the throne, Charles II, started issuing licenses for the coachmen and, specifically, only to those who were favored by the nobility. Since then, Parliament has restricted many aspects of the industry. Beginning in 1851, coachmen were required to take the Knowledge test — a comprehensive exam about London’s roads.

London’s Knowledge test still exists today and is possibly the world’s most difficult exam administered to cab drivers. It requires cabbies to memorize the city’s maze of landmarks and 25,000 streets. Aspiring cab drivers spend two to four years studying for the Knowledge test. Today, such a requirement is overkill because drivers now have access to far superior technology — mainly, GPS. These technologies not only give directions but also provide second-by-second information on traffic patterns.

In a world without GPS, a Knowledge exam might make some sense, but it’s overkill in a day and age when London drivers only need a small fraction of that information.

New York City’s regulations date back to the early 20th century, with major regulatory changes coming about on the heels of the Great Depression. One of the justifications was that sweeping unemployment led many people to become taxi drivers. This created associated problems, like “too many cabs chasing too few riders.” Today, new technologies and different economic conditions mitigate the problems that existed during the Great Depression. For example, technological platforms let drivers see whether there are customers in a certain area — rather than aimlessly driving around looking for customers, squandering time, wasting fuel and spewing pollution. Aspects of apps like UberPool and the LyftLine allow one car to meet multiple demands at once.

While perhaps both London and New York’s regulations made sense centuries ago, there’s no reason to assume we need to extend these regulations just because they’re old, have always been used and “It’s the law!” If that were sufficient to discredit entrepreneurial changes in economic practices, we’d still be dwelling in the dark ages. In the battle for women’s suffrage, for example, opponents of progress proclaimed, “It’s the law,” to maintain the status quo.

The truth is that those who benefit from the law want to keep or enact the law and will make up many reasons to justify why the law is necessary. It is no surprise that the London taxi lobby pushed to limit the supply of for-hire vehicles with the arrival of the telephone: Before telephones, for-hire vehicles were not a major competitive threat to taxi cabs. Fortunately, London pushed back against the lobbyists and allowed the growth of for-hire vehicles.

If we want to live in a world that is constantly growing and improving, we should analyze old regulations and barriers to entry that were, too often, created in order to cartelize or monopolize an industry. The beautiful aspect of a disruptive technology lies not only in the innovation we get in goods and services, but also in the innovation we can get from the legal rules themselves.

Liya Palagashvili is an assistant professor of economics at SUNY-Purchase, an affiliated scholar with the Mercatus Center at George Mason University and one of Forbes’ “30 Under 30” for 2016. Jon Hartley is a Forbes economics contributor and co-founder of Real Time Macroeconomics.

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