Colombian media outlets recently leaked the details of the government’s plan to regulate “luxury transportation services,” which are to include Uber, Lyft, and similar companies. What we know so far is quite discouraging, since it appears that the policy change is designed to benefit the dominant players in the market at consumers’ expense.
First, only registered taxi drivers will be allowed to operate a luxury vehicle. They will have to scrap their old cars and transfer their operation permit, which can cost over COL$100 million (US$32,000), to their new luxury taxi.
This means that, naturally, the number of available vehicles will not change.
Second, only registered companies will be authorized to use mobile apps. In other words, Uber won’t be able to continue its operations. Further, the decree bans private cars from providing transportation services, thus ending any chance for UberX to continue. What is even worse is that the few operators authorized to work will be able to set fares as they please. This is the legal equivalent of rigging the taximeter.
This is a hard blow for private initiatives which aim to improve people’s lives by solving crucial problems. In this particular case, creative, new ventures arise because regulators turn a blind eye to the real causes of congestion in large cities.
At first sight, Uber’s main success is to increase the supply of available cars. Those who have tried to take a taxi in Bogotá during rush hour will have noticed that the number of vehicles is insufficient. The quota system has failed for the simple reason that it violates a basic economic law: when the government aims to regulate the supply and prices of goods and services, it will only create scarcity.
The new regulation legalizes the taxi monopoly’s abusive position of market dominance. As the number of vehicles remains constant, with not enough cars to satisfy demand for taxis, the operators’ power to set prices will inflate consumers’ costs. This will obviously boost the privileged operators’ earnings, and Uldarico Peña and other owners of large taxi fleets in Bogotá will be able to line their pockets while facing no real competition. A COL$200,000 (US$65) fare to the airport will be more usual than you imagine. It would be different, of course, if there were no entry barriers for new competitors in the market.
When there are not enough taxis on the street, people tend to pay higher fares willingly. So we can expect a great migration of standard taxi drivers to the new luxury modality. As a result, there will be less vehicles offering a lower, standard fare. The main losers will be those who won’t be able to afford higher prices for a simple cab ride.
It’s time for the government to let go of the idea that it can control everything. No matter how many training sessions bureaucrats impose on taxi drivers, the best regulation is consumer choice based on satisfaction. After any ride in a car operating with Uber, the app requires users to rate the service. The bad drivers are dismissed from the system. The new regulation will strip users of the power to help create the type of product they want to consume.
For a city like Bogotá, where public transportation is inefficient and broken, unpaved streets are the norm, the government’s regulatory abuse against consumers is bad news. The new regulation, in fact, is a death sentence for the country’s sharing economy.
It’s just a matter of time before Netflix, Airbnb, and other innovative services succumb before the regulators’ scaffold.
Andrés Londoño Botero is an economist from the University of Los Andes (Bogotá) and master in public-policy candidate at the Hertie School of Governance in Berlin, Germany. Follow @andreslondonob.