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Step one in obtaining government privilege is to have a seat at the table

by Matt Mitchell on January 28, 2013

in Government-Granted Privilege

The weekend edition of the WSJ featured an interview with Uber founder Travis Kalanick by Andy Kessler. It offers a nice lesson in how regulatory bodies can get captured by incumbent firms. In city after city Kalanick and his team encountered regulations and regulators intent on privileging the established taxi and luxury limousine industries.

The interview touches a bit on the Uber experience with the DC Council, (which I first wrote about back in July):

…the city tried to change the law—with what were actually called Uber Amendments—to set a floor on the company’s rates at five times those charged by taxis. “The rationale, in the frickin’ amendment, you can look it up, said ‘We need to keep the town-car business from competing with the taxi industry,’ ” Mr. Kalanick says. “It’s anticompetitive behavior. If a CEO did that kind of stuff—you’d be in jail.”

In the end, the city backed away from its proposal, allowing Uber to operate without the requirement that it charge 5 times what its competitors were charging. So far so good. Unfortunately, however, the legislation that gave Uber access to the DC market also mandated that any firm wishing to serve that market be licensed. As I wrote in The Washington Examiner in December, this adds one more chapter to the story:

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.

The incident raises questions about how much responsibility firms bear for the privileges they enjoy. I honestly don’t believe Mr. Kalanick set out to obtain a privilege for his firm. The problem is that once he had safely passed through the maze of red tape, he hardly had an incentive to ensure that anyone following him got through. And, of course, he even stood to gain if no one did. The simple fact is that when the deal was hashed out, Mr. Kalanick was at the table while the folks at SideCar (and hundreds, if not thousands of other would-be startups) were not. This is how regulatory capture works.

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