Book Review: Jared Meyer's 'Uber Positive'

Back around 2005 a collection of free-market economists trained their minds on cab rides. They pointed out the information asymmetry that defined this form of transportation. Cabdrivers were in the position of picking up riders about whom they knew nothing. The latter was bad for driver, but also for passengers simply because a friendly passenger who regularly over-tipped had no better chance of successfully hailing a cab than one who routinely failed to tip; that, or who regularly stiffed the driver altogether.

The primitive solution was for cabdrivers to hand quality passengers a short-wooden pole with a colored flag on it. The idea was that good tippers would always have this pole in hand ahead of each ride, they could hoist it high while hailing a cab, and they would be more likely to be picked up precisely due to their track record of treating drivers well while similarly tipping them well.

Then entrepreneurs happily intervened. Specifically Travis Kalanick, founder of the amazing transportation service (and surely much more in time), Uber. In his new monograph for Encounter Books, Uber Positive: Why Americans Love the Sharing Economy, Manhattan Institute fellow Jared Meyer makes an excellent case for what he describes as the "sharing economy" brought to life by people like Kalanick. It's transforming how we get around town, travel, and eat, right before our eyes.

Even better is what it means for the average American; particularly younger Americans struggling to earn money in an economy that remains weak in a relative, very American sense. Meyer points to the internet and smartphone as the source of this economic advance that has happily rendered what he describes as "dead capital" rather useful. To the extent that young and old alike have access to an automobile, they now have a live capital good that can be utilized on the way to increased income.

Kalanick's brilliant insight was that in a world of smartphones, passengers in need of a ride could be matched with drivers in possession of a car. Cab access would no longer be limited to those in heavily populated areas. Even better, the asymmetry that once existed between driver and passenger would be erased. Meyer notes how all of this empowers the consumer, but arguably Kalanick's greater insight was that the best way to please passengers is to please drivers first. Thanks to Uber's app, passengers can rate drivers, but just the same drivers can rate passengers. You can't have one without the other, and as the price of accessing drivers floats to reflect market realities, Uber drivers are where we need them when we need them. Contrast this with price-controlled cabs that have proven historically difficult to access when it's raining, snowing, or when traffic makes being on the road the opposite of remunerative.

What's not to like about this? As evidenced by Uber's market capitalization that continues to rise, Meyer is very correct that Americans love the sharing economy. But what about politicians wedded to cab cartels created by politicians? The story is not as positive, hence Meyer's book. Meyer writes that "Policy makers often fail to realize that a twenty-first century economy cannot flourish while it is under the thumb of outdated laws and regulations." Very true.

Applied to New York City, which is Meyer's main focus, he rather interestingly points out that socialist leaning Mayor Bill De Blasio attained campaign funding from cab moguls wedded to the old system. They're as one would expect not fans of Uber and others like it. Meyer notes that as opposed to aiding consumers, De Blasio's calls to slow Uber's growth are meant to protect "special interests" at "the expense of consumers."

Those special interests are the owners of cab medallions in New York City. Meyer fascinatingly points out that even though the City's population has grown quite a bit over the years, the number of cab medallions for the not-so-ubiquitous Yellow Cabs has declined from 16,900 to 13,437. A protected market for the existing order for sure, but not one that aids consumers. This is particularly true for those who reside outside Manhattan. Meyer reports that low-income neighborhoods have experienced a twelve-fold increase in service thanks to Uber, and similarly Uber's drivers have increased service to non-Manhattan/non-airport passengers by 27 percent versus 6 percent for yellow cabs.

So while consumers and drivers have plainly benefited from a technology-driven transportation revolution, special interests formerly protected by medallion limits that were once barriers to entry, have not. As Meyer tells it, a Yellow Cab medallion that fetched $1.3 million as recently as 2013 is now selling for roughly $700,000. The old guard as it were wants a bailout. Let's hope not.

Indeed, Meyer observes that "when the crucial aspect of competition is missing from markets, established companies often do not worry about improving their services to attract and maintain customers." Absolutely. So while it's certainly true that the quality of cabs in New York has improved over the years arguably thanks to commands made by the City's leadership, these advances plainly were not enough to please customers. Evidence supporting the latter is the rising popularity of Uber and others like it. Command economies are the living definition of sclerotic, whereas Uber's success is a function of pleasing passenger and driver alike. Everyone wins, including arguably traditional cabs that will be forced to up their game.

Very importantly, this improvement in the competitive environment ultimately promises to redound to driver safety too. Precisely because the traditional cab ride involves cash exchanges, the business model, according to Meyer, "is conducive to crime and violence." Uber's innovation likely foretells more and more in the way of cashless exchanges that will enhance driver safety all the while making it difficult for passengers to escape paying their fares altogether.

Insurance? Meyer notes that Uber drivers are insured much more than what New York's Taxi and Limousine Commission (TLC) requires, which adds to passenger peace of mind. All of this matters simply because as Meyer points out, passenger safety is frequently cited as a reason for regulators to restrain the growth of the sharing economy. Ignored by regulators and their apologists is that Uber is behind the major advances that boost driver and passenger safety alike.

The above reveals itself as even more crucial when we consider drinking and driving. Meyer cites surveys revealing that Uber's arrival in Seattle coincided with "a 10 percent decrease in drunk-driving arrests." He adds that after UberX launched in California cities, "monthly alcohol-related crashes decreased by 6.5 percent among drivers under thirty (amounting to fifty-nine few crashes per month)."

Beyond all the job opportunities created by the sharing economy, the evolution of apartments, houses and cars into capital goods, and the increased safety wrought by these advances, what can't be forgotten is that Uber, Lyft, Airbnb and others are thriving precisely because they fulfilled market needs previously unmet. Competition always and everywhere redounds to the consumer and provider, and it surely has here.

If there's a disagreement with Meyer it concerns his conclusion that "A regulatory framework for the future must embrace flexibility if it is to allow for the next transformation product or service to reach the market. One way to do this is to conduct regulation by specifying explicit ends (in terms of consumer safety) but leaving the means to reach those benchmarks open to innovation." But as Meyer himself so skillfully points out, Uber and others have already well exceeded the levels of safety required by always behind-the-times regulators. More importantly, just as Uber caught regulators unaware, so will future innovations. If regulators had a clue about the future, they wouldn't work as regulators. In their defense, we're asking them to do the impossible. The answer in a perfect world should always be no regulation. Meyer would likely agree.

Meyer's better conclusion in a book that readers will very much enjoy and learn a great deal from his is essential point that "it should not be the norm for American businesses to have to ask for government permission to innovate." So very true. Uber is a shining example of why we don't need regulation, not to mention the unseen: If Uber can thrive in protected markets, imagine the future advances that will be ours to enjoy if politicians get out of the way altogether.