Uber versus the Buenos Aires Cartel Is Battle of David and Goliath

By: Adam Dubove - @dubdam - Jan 14, 2016, 8:44 am
The real war is between cartels and millions of consumers’ freedom to choose. (Guillermo Tomoyose)

EspañolThe arrival of Uber in Buenos Aires is imminent. The company behind the ride-sharing phone app has begun filling several managerial positions in Argentina. The second largest South American city may finally join Bogotá, Rio de Janeiro, Santiago, and 300 others around the world, including 15 located in Latin America, that offer this service.

But it will not be easy. National and local governments, unions, and taxi drivers around the world have opposed Uber for putting their decades-long, monopolistic business models at risk. A service offering better cars, lower fares, higher security, and personalized attention is a threat to those privileged enough to have never faced competition.

In Argentina, there are additional problems. Uber’s business model is a direct attack on a sector that has operated under a fascist system. And that’s a big deal in a country like Argentina, where Italian-style fascism was the official ideology in 1946, and in many ways is still celebrated today.

The taxi industry is the best example of that fascist model. On paper, taxi drivers own their vehicle, but they have no legal authority over their cars. The Buenos Aires government sets what color the car paint should be, what kind of equipment they can put inside, how many hours they can work, and how much they can charge. And city authorities are the one who decide who can work, granting licenses to those that pay juicy fees — a taxi license can cost US$25,000, more than the vehicle itself.

The taxi cartel hates competition and knows how to effectively suppress choice. In August, Buenos Aires officials targeted an individual who decided to buy a bike and start a pedicab service, after growing tired of recycling trash to survive. The authorities first imposed a fee per 10 blocks (and additional fees for longer distances). Then they banned the service, before ultimately permitting it to continue, while stipulating that pedicab drivers could only accept voluntary payments.

EasyTaxi and SaferTaxi, two companies that allow individuals to request a taxi through phone apps, also felt the state’s fist. Last week, Buenos Aires banned those services because the law only allows individuals to solicit a taxi the 20th century way: by telephone or by hailing a car on the street.

A petition on to lift the prohibition has already collected more than 7,000 signatures, and continues to grow.

Taxi drivers’ fear is understandable. Uber’s disruption in the market is what cars were to horse wagons, or what electricity and the electric lamp meant for candle makers.

Unions, who see their privileges under threat, are already in action. Sacta, the company that verifies and regulates taxi operations in Buenos Aires, reportedly utilizes EasyTaxi to lure drivers in so they can fine them US$500 and suspend them for 15 days.

Benefits for Everyone, Privileges for the Few

Uber is here to break a model that resembles a guild from the Middle Ages, rather than a modern market economy. Its advantages lie not only in more comfortable and cheaper trips, but also the availability of rides in regions not regularly covered by taxis or where waiting times are high.

The possibility of paying with credit cards reduces the risk that comes with carrying cash, both for the driver and the customer.

Uber’s revolution is not just technological, it’s economic as well. It allows people who want to become drivers to turn their cars from consumption goods into capital goods. To employ a fashionable word, it empowers individuals. As economist Don Boudreaux explains, services like Uber and Airbnb create capitalists by making idle goods like cars and spare rooms profitable.

Just like the state stopped the poor garbage man from becoming an entrepreneur with his bicycle, the taxi cartel in Buenos Aires will prevent thousands from becoming their own bosses with Uber. Arguments about safety or “jobs” are red herrings. What’s really at stake is the system of privileges at complete odds with the modern world.

The battle also isn’t against Uber per se. The new Cold War is one waged against millions of potential consumers who could benefit from a better service.

We can safely predict that the ride-sharing app will have a battle on its hands operating in Buenos Aires. The violence and harassment seen in other cities against Uber drivers will probably happen there too.

The terms for the battle are set. On the one hand, there will be those who stubbornly defend a fascist model. On the other, many will uphold the freedom to choose, as millions of consumers already have in cities across the world, giving Uber the popular support they need to face regulators. Whose side are you going to be on?

Translated by Daniel Duarte and Scott Myers.

Adam Dubove Adam Dubove

Adam Dubove is a journalist, co-host of The Titanic's Violinists radio show, and the secretary of the Amagi Institute. Follow him on Twitter: @dubdam, and read his blog: Diario de un Drapetómano.

Despite Being All the Rage, the Cuban Economy Is Still Locked in a Cage

By: José Azel - Jan 13, 2016, 10:47 am

EspañolIn 2010, when the Castro government announced its plan to “update socialism,” some thought that Cuba had finally begun moving toward a market economy. The centerpiece of the plan consisted in the firing of up to 1.3 million state employees and granting them permits to work “outside the state sector.” Cuban Orwellian doublespeak, it turns out, does not permit the utterance of “private sector,” even for the self-employed. The permitted self-employment (known as cuentapropismo) is limited to humble domestic activities in more than 200 trades, such as shoe shinning, umbrella repairs, babysitting, and the like. Naturally, each of these activities is encumbered with stifling regulations and taxes. Not surprisingly, nearly six years after the government's announcement, the plan has produced little in terms of economic development. Rather, it has magnified the people's hopelessness as manifested by the increased exodus of desperate Cubans seeking to reach the United States. Raúl Castro’s version of economic reform is a minimalist adaptation of what Chinese reformist Chen Yun called the “birdcage economy.” I was recently reminded of this historic label by economist Fernando Menéndez in his work titled “The Market and the Birdcage: A Critical Assessment of Cuban Reforms and Transition Prospects.” Although Deng Xiaoping is usually credited as the architect of China’s economic reforms, it was mostly Chen Yun who provided the theoretical and practical underpinnings for the strategies adopted by Deng. As early as the mid 1950s, Chen sought to moderate Chairman Mao Zedong’s radicalism, but it was not until after Mao’s death in 1976 that his birdcage theory was implemented. Chen’s vision was to use market mechanisms to better allocate resources, but always within the confines of the central plan like a bird in a cage. Yet, he was fearful of losing control: “You must not hold the bird in your hand too tightly or it would be strangled. You have to turn it loose, but only within the confines of a cage. Otherwise, it will fly away.” Chen’s idea was to always use the centralized state planning of a command economy to provide boundaries for the market mechanisms. Thus, the marketplace would be firmly restricted so as to not lose control. The birdcage could be large or small, but the reforms would not be allowed to “fly away.” In the case of the Cuban reforms, General Castro has not only kept the birdcage extremely small, but has also increased repression to ensure that his self-employment permits do not result in a fly-away market. The Cuban cuentapropistas can barely spread their wings within the confines of the Castro birdcage. It's not just a question of the scope of the reforms or the size of the birdcage. It is also the accompanying mindset. When Deng Xiaoping introduced his version of market socialism in China, he famously declared that "to get rich is glorious." In contrast, General Castro insists that any new, "non-state" economic activities will not be allowed to lead to the "concentration of property." That is, the accumulation of wealth will not be permitted. Recognizing General Castro’s economic adjustments as a birdcage economy is helpful to understand that the changes are not designed to promote economic freedoms or development. At best, they are a clumsy effort to improve resource allocation within an inescapable central plan. And the general has no intention to let the market fly away. The Cuban political reality is that Raúl Castro and the Cuban military will limit, frame, and condition all allowed marketplace activities. This conditioning includes relaxing travel restrictions for Cubans, a policy that is often presented — incorrectly — as evidence of reforms. In the context of the birdcage economy, granting travel permits is simply a method of exporting Cuban unemployment and underemployment to the United States. What US policymakers have not understood is that, in Cuban doublespeak, allowing work “outside the state sector” also means authorization to go work in the United States and send remittances back to Cuba. With this methodological insight of the birdcage economic philosophy, all claims that Castro’s reforms are a gateway to political freedoms become vacuous. What is worse, such arguments embody a shameful, condescending proposition that Cubans should not aspire to be free. The unspoken suggestion is that Cubans are unworthy of freedom and must acquiesce to live in a birdcage, but what is the intellectual justification for such a proposition?

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