A couple of weeks ago, the Washington DC city council was considering a new measure that would protect the cab industry from competition by artificially inflating prices for consumers. The legislation was aimed at stopping the spread of a new startup that’s spreading in cities across the country, and recently becoming very popular amongst those in Washington, DC. The name of the startup is Uber—the company allows you to call up a car service (usually a Lincoln Town Car) to your location using your smartphone. It’s a more comfortable, competitively priced alternative, to taking a cab. It’s also extremely convenient, since the billing is done with your stored credit card, and no money being physically transacted between the driver and passenger. Needless to say, it’s an innovative new way of doing business that could change the way transportation operates in big cities. And it’s been a godsend to many in DC, who are plagued by cab drivers who refuse to take you to certain parts of town, won’t accept credit cards, or are just plain rude.
The amendment before the city council, the minimum fare language in the Taxi Amendment bill, was most likely a reaction to Uber’s announcement that it would soon be offering a new fleet of hybrid cars, meaning lower cost rides and service that’s better for the environment. In response, the DC council decided to attempt to pass a law that would impose a minimum cost that all car services must charge. It was shelved thanks in part to the large public outcry coming from Uber’s diehard customers. But shouldn’t the government be striving for the best possible deal for consumers? Why would they want to pass a law making sure that citizens pay more? Put on top of that the great environmental benefits of Uber’s new service, and things could get really confusing. But there’s nothing to be confused about—what happened is a perfect example of crony capitalism.
Crony capitalism can be found at every level of government. It happens when politicians decide to pick winners and losers, deciding who should get special treatment, instead of letting the market decide who deserves to survive and who doesn’t. I’ll let you take a guess of who politicians usually decide to protect (One hint: it’s not whoever donates less to their campaigns). The incident is another example of business inviting regulation from the government in an attempt to keep out competitors. It happens often, as entrenched industries that refuse to innovate often find it easier to lobby government to protect their perch at the top rather than compete with new businesses that provide innovative goods and services.
There are plenty of examples we can find in everyday life. In Chicago, restaurants are using laws to keep food trucks from operating. All across the country, licensing laws are used to keep people from entering into business. Did you know you need a license to braid hair in Mississippi? You do, and you’ll need to complete 3,200 hours of coursework to obtain one. You also need a license in Illinois and Washington State and others across the country. Picking winners and losers also extends to tax breaks being given to some companies and not others. Did you know that the DC City Council recently gave Living Social a $23 million tax break to stay in the district? Why isn’t that same tax benefit extended to all businesses? Certainly, the tax bill would save other small businesses if the same credits were extended could to help them to create more jobs.
It happens with big business and the Federal government as well. H&R Block and Jackson Hewitt, two of the nation’s largest tax preparers, are proponents of more tax regulations. And why does the financial planning industry want government to regulate them? Tim Carney has a great roundup of more examples of entrenched businesses welcoming, and even encouraging, more regulation of their industries.
It’s not over for Uber’s fight with the DC council, as the proposal has now been pushed back to the fall. As council member David Catania rightly says in this Washington Post article, he works for the people, not the cab companies. It might behoove policymakers at all levels to remember this principle.
Zack Christenson writes on digital tech issues for the American Consumer Institute