Regulations for app-cabs: Good Cop, Bad Cop?

New rules are being ushered in for app-based cabs and if Maharashtra could set a good example, we might be finally able to tackle surge pricing with fare-caps, and fill in other gaps through app-based taxi permits, cabs painted white-with-yellow-stripes, 24×7 Control room, SMS alerts and the much-due mandatory police verification of drivers.

Sounds good on the surface. But nothing could be more tangled than exercising regulation in an industry that is as elusive and cryptic as the sharing economy. States like California (The harbor of THE Silicon Valley itself) are still struggling to get their heads and legal molars around this new and amorphous industry.  The difficulty is not just in the ‘how’ this time, but the ‘why’. Something that is particularly alien for regulators so far.

How tough is being tough on ‘not-taxis’?

It’s not a news any more – how vehemently is this schism creating resentment and confusion across the world. From Canada where taxi drivers took to the streets protesting against Uber; to New York where people with disabilities got concerned with their accessibility; to France where Uber drivers led a solid protest against Uber; to the recent spate of strikes by drivers of Ola and Uber in major pockets of India – the ‘no taxi’ argument is getting hard to swallow as time passes by.

May be there are some tips to tap in templates like ‘Unfinished Business: A Blueprint for Uber, Lyft and Taxi Regulation’. May be there are not. Nonetheless, in this report by Schaller Consulting in 2016, Bruce Schaller, Principal of Schaller Consulting pointed at many salient eggshells. He was deftly gathering what he could from his experience at largest taxi and city transportation agencies and consulting to local governments and the private sector across the country.

Whilst he affirmed  that achieving an effective and equitable blend of regulation and market competition is clearly critical to realizing the potential of both TNC and taxi services as they evolve and expand; he also notes that regulatory structures and provisions need to be carefully designed and administered to achieve the goals of service, safety, competition, equity and regulatory effectiveness.

Yes, service, safety, competition, equity for all stakeholders – both riders and drivers – that’s what laws and self-regulation should boil down to. No matter whether the semantic difference between regular taxis and app-taxis is at play or not.

Though another pithy work by Merethe Dotterud Leiren and Jørgen Aarhaug shows that the difference between taxi and non-taxi is not simply a semantic trick to evade classification and resultant regulation, the authors come to demonstrate (through interviews with providers on both sides of the divide), that the ‘taxi’ essentially signifies a range of professional, communitarian and public interest effects which are not present or are altered in the virtual taxi service brought to life by sharing economy platforms.

As to the very abstract notion of sharing economy, many researchers have noted with deep drills the dissonance between the connotations and ideals of ‘sharing’ and the ways these practices play out in a market context – yes there the emphasis is very much on ‘economy’. If ‘economy’ gets an accent, ‘sharing’ can’t be screamed as a safety net.

Look at what Merethe Dotterud Leiren, Center for International Climate and Environmental Research (CICERO) and Jørgen Aarhaug, Institute of Transport Economics from Oslo, Norway arrive at when they make some interesting contentions in their work ‘Taxis and crowd-taxis: sharing as a private activity and public concern’  in 2016.

Even if virtual technologies have contributed to intensify the tension between a ‘universalist’ perspective and a ‘competitive’ approach, regulations of the taxi market happen to provide existing taxi owners and dispatchers some protection. They of course simultaneously expect them to guarantee transport preparedness and that some vehicles are accessible to people with special needs.

Haven’t historically too, taxi regulations contributed to ‘tidying’ up the market specially as taxis are construed as important services for the society as a whole, including 24-hour preparedness and transport services where there may otherwise be no public transport?

So would distinctions based on permits, professionalism level of drivers (a taxi driver has to have good conduct and certificates on competence and safety from authorities) and use of taximeters hold enough water?

More so as a study by Leiren and Aarhaug in Norway gleaned that Uber drivers have certain competitive advantages in comparison to conventional taxi owners around administrative and fixed costs. These are small for Uber drivers as compared to traditional taxi dispatchers, where the taxi owner is obliged to enter several different market segments.

The study also threw another big question towards the fan: Is altruism really at work to drive and not pay taxes’ here in this economy?

Are taxi apps or Airbnb-style businesses akin to Kickstarters or Napsters?

Let’s look at ‘Regulating the sharing economy’ where Kristofer Erickson, and Inge Sørensen, from University of Glasgow recommend some valid questions that are about time. They argued in 2016 itself that understanding the social and economic motivations for and implications of participating in the sharing economy is important to its regulation. What are the personal motivations, group dynamics, and social norms that govern membership and breathe life into these markets? How are the costs and benefits of mutuality shared between members and platform operators?

It turns out here that the practices and participation in sharing and collaborative ventures are motivated by a variety of factors. For example, patronage; the wish to ‘do good’; the feeling of belonging to a community; and the social status or capital accrued by the act of sharing  – but do such intrinsic motivations remain in a market that we are witnessing now? What happens when presumptions of collaboration, freedom and flexibility sidestep equally important tenets like working conditions, liability and lack of regulation?

The researchers mentioned earlier also point out a paradox. Sharing economy businesses are incentivised to keep participants (sharers) from communicating with one another, as this could provide a basis for collective action or the emergence of competing services. Is this logic not contradictory to traditionally sustainable means of governing common-pool resources, where close ties and communication between providers and appropriators are crucial to sustaining governance?

When Rob Shields defined virtual as ‘real but not concrete’ he also argued that: ‘To describe something as “virtual” indicates that it is not strictly according to definition, as in a “virtual office”, which is to say not literally an “office” as one might understand an office to be, but an office “in effect”.

‘In effect’: and that’s the very point that most apps are missing as they clamor for no-regulation.

What muddles the waters here is this aspect: One of the dangers posed by the sharing economy is that regulators and citizens confuse sharing economy goods with public or semi-public goods. Public goods are non-excludable, and therefore ‘shared’ among users by default.  Now because of this non-excludability, public goods are frequently under-produced by society, making it a desirable aim of regulators to provide them.

On the other side: Sharing economy goods are used by many but excludable, making them more like club goods like some researchers (Buchanan, Fremstad etc.) indicated early on. So if a Sharing economy service optimises the use of a durable good or an underemployed worker by making them available to more consumers, but those who cannot pay are excluded from use, what is altruistic about it?

Not to forget, all those algorithms, trademarks and technologies that make up sharing economy platforms themselves are private goods, protected by corporate secrecy, contract and intellectual property rights.

That brings us back to the starting point in the maze again: How do regulators sort out issues related to working conditions, trust, risk, liability and individual agency?

The answer, ironically, lies in asking some rough questions.

  1. Are User ratings, as purported by these apps, really a substitute for laws? What about capacity to be manipulated by dishonest or malicious participants? Their lack of transparency in the way ratings are assigned and commercial bias? Or the sheer lack of context in the midst of single-digit reporting devices?
  2. Who takes care of information asymmetry and negative externalities (imposing costs on others), low barriers to entry and exit that these models are skeletally made of?
  3. Don’t crowd-taxis tend to provide services when it is profitable to the driver? Who would be responsible for loss of service in time periods and areas, which may not be attractive? What about rural or under-served areas? Specially as competition that crowd-taxis provide might soon make the traditional taxis fold? Haven’t we seen how in Sweden several smaller communities no longer have a taxi service, thanks to the deregulation of the taxi market? Or how rural areas in Norway, in Salten and Troms, struggle with a lack of taxi services.
  4. What about basic rights like wheelchair accessible vehicles, baby cribs and green/environmental-friendly standards that our citizens direly need but cannot impose on these vehicles?
  5. Should we be concerned about the undercurrents of black or informal economy when taximeters are not in vicinity?
  6. Taxi markets have seen limited price competition and low fare elasticities but if we look at app-based companies, they do not have the same expenses like taximeters, uniformed vehicles, dome lights, accessible vehicles, 24h service and full-time employment. So yes, they would be better perched to give a cheaper service, but is that a level-playing field at all? Specially when an Uber driver can select which travel demand to serve, but on the contrary, a taxi driver has to accept the trips and responsibilities that come his way, by legal and official obligations?
  7. Who will cater to people with disabilities or persons without smartphones? Haven’t Uber and Lyft often pushed back against requirements that a certain percentage of its fleet be accessible to riders in wheelchairs, arguing that majority of their drivers are using their personal cars?
  8. Would the professional weight of a driver fade into obsolescence as navigation devices and tools make drivers lose their unique expertise and local competence?
  9. Who will answer for concerns about poor transport preparedness, accessibility issues, quality assurance and tax evasion?
  10. When Lyft, Uber and similar platforms posit that their participants have their own driver’s licence and insurance, thus, dissing requirements for criminal records checks and other status checks; do they take into risks to workers and customers? What of the continued status of permits, insurance, and qualifications which may not be suitably updated, monitored or maintained?
  11. Also what about Eraut’s professionalisation theory, since crowd-taxis can be offered by anyone? The conventional explanation tells us that a profession is a job that requires special education, training or skills. Who ensures continuous training and maintenance of standards for professionals when they are not employees?
  12. Is it not possible that thanks to network effects and the obvious absence of competition (or portability) between services, participants may find themselves locked into a single platform, and hence, subject to unfavorable conditions?

Understandably, Francesco Russo and Maria Luisa Stasi also that in sharing economies where network effects play a key role, competition law becomes particularly pertinent.

Things are turning into a ticking bomb as we comb through these questions. Because as soon as 2025 itself, the sharing economy is slated to hit 335 billion USD in global revenue according to PricewaterhouseCoopers estimates.

That calls for some tough but well-postured action from the regulators and industry experts.

Not throwing the baby out with the bath water

Schaller’s blueprint suggests some well-nailed ideas that can bring assurance and trust without jeopardizing that much-needed competition and tech-led innovation:

  1. Taxis should come under a two-tiered regulatory structure that distinguishes between dispatch and flag trips.
  2. Look for the end result instead of the red tape. Like, Driver-related risks can be managed using both forward-looking (fleet management and monitoring tools) and backward looking methods (fingerprint checks, police verifications)
  3. Encourage development of data systems to track motor vehicle collisions, bad driver behavior and serious customer complaints. While these systems should be developed by each company, with periodic reporting and audits, regulators should review results, deal with companies that are falling behind, and develop and disseminate best practices.
  4. Drivers’ core interests include fair treatment, job security, decent wages, a social safety net and a voice in key decisions that affect them, instead of being “subjected to all of the downsides of ‘entrepreneurship’ with few of the upsides” or feeling “squeezed and at times dehumanized by a business structure that promises independence but often leaves them at the mercy of increasingly powerful companies.”

So here, legislation should provide drivers with civil rights protections, and should ensure that worker benefits are either provided by law or left to meaningful channels of negotiation between drivers and companies. At the same time, laws should allow room for companies to exercise an appropriate level of control over their operations that is critical to prompt, reliable and consistent service.

As  the father of airline deregulation,  a leading academic economist and head of the Civil Aeronautics Board in the 1970s: Albert Kahn, observed : ‘the proper object of any regulatory structure is to find the best possible mix of competition and direct regulation.

It’s probably high time that officials focus on outcomes rather than processes.

But the reasoning for regulation cannot be dismissed anymore.

Laws that are raw vs. laws which are helpless

The tussle between tech-powered companies and regulators is getting more frequent and global. The issues being raised are not the ones that can be brushed under any carpet now. We heard how ridesharing companies Uber and Lyft got into a confrontation in Seattle when the city attorney’s office wanted to release information to the public such as locations showing where Uber and Lyft passengers are picked up and dropped off. The companies retorted saying that the information in question constitutes sensitive trade secrets, and releasing it could damage their businesses.

Or what happened when bills to legalize and regulate ride-sharing struggled massively in Texas, Florida, New York, New Jersey etc. We also know how Uber and Lyft pulled out of the Austin, Texas, market. Just because of a mandate that all drivers pass a fingerprint background check, thus taking work away from 10,000 app-based drivers.  Their logic was: such onerous checks could hamper driver on-boarding process.

Or maybe it is never a ‘just because’? There’s always more underneath that meets the eye, the ear, and in current times, the gavel.

Yes, Law-makers and executors are not supposed to impeded innovation and free-markets but the industry and its customers should also be wary of any Faustian bargains.

They always cost, and quite dearly.

– Pratima H










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