Despite the conventional wisdom common on both the Left and the Right, regulations are not universally anti-business. Often, regulations are anti-some-business and pro-other-business. Moreover, though they are typically characterized as pro-consumer, many regulations actually limit consumers' options and raise their prices.
Over the past few months, the D.C. Council has been trying its best to teach this lesson with its bad example.
Last July, the council proposed an ostensibly "pro-consumer" measure that would have raised consumer prices and limited consumer options. The proposal would have made it illegal for a sedan service to charge anything less than five times what taxicabs charge. In an unusual show of candor, the draft legislation made the council's motives clear. Under a heading called "Explanation and Rationale," the council declared: "These requirements would ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service."
Economics teaches us that a policy like this is to be expected in our system of government. Its costs are large but widely diffused among consumers who find it hard to organize in opposition, while its benefits are highly concentrated among a small group of producers (the taxicab industry) who find it easy to organize in support.
This time around, however, the model didn't hold: Consumers quickly rallied in opposition. That's because the law threatened the livelihood of a firm called Uber, a San-Francisco-based start-up that lets consumers use a smartphone app to summon clean, reliable sedans to their location. Since the company relies on tech-savvy consumers, it was able to use Twitter and other social networking sites to alert consumers to the proposal and to rally against it. D.C. Councilman Jack Evans told the local ABC affiliate that he received more than 5,000 emails in opposition to the proposal. The legislation was quickly pulled, and council members vowed to revisit the issue later in the year.
Last week, they revisited it. On Tuesday, the council unanimously approved a new legislative framework for "digital dispatch" services. Uber, for one, is uber-happy about it. The company's blog calls the framework "pro-innovation, pro-consumer, and pro-driver."
To be sure, this is a significant improvement over what council members were considering. They will not be regulating a valuable consumer service out of existence so that a well-connected taxi industry can maintain its precious monopoly. But when you dig into the legislation, it appears that the council earned Uber's praise by -- you guessed it -- finding a way to privilege Uber. That's because the legislation mandates that "public vehicles-for-hire using a digital dispatch service shall be licensed."
As tech reporter Ryan Lawler points out, the licensing requirement erects a barrier to entry for other businesses. SideCar, for example, is a West Coast service that, according to its website, "instantly connects people with extra space in their cars with those who need to get from one place to another." It is, they say, "like a quick and hassle-free carpool." Since these instant carpoolers are obviously not licensed, they'd be illegal in DC. That's handy for Uber. The company managed to cross the regulatory velvet rope and, alongside taxis, obtain access to a lucrative market. But once inside, Uber put the rope back up.
And how did Uber manage to get past the powerful taxi lobby anyway? The answer is on Page 2 of the bill: It stipulates that sedan-class services "operate exclusively through a digital dispatch service" and "shall not solicit or accept street hails." In other words, Uber gets its own monopoly status on the condition that it not invade the taxis' turf.
You can have your monopoly, as long as I get mine.