The New Uber Economy – Thanks to Politics and Money

VOX POP-The rise of Uber is a demonstration of how money influences government decision-making. The app-based taxi service has been able to come into the market even though they were technically in violation of law when they first entered the market in California. 

The government response, directed by the lobbying efforts of Uber, was to change the laws so that this new service would not be in violation of the law. They were able to negate law enforcement efforts to limit their business because of deep pockets. 

More significant than the success of Uber is the difficulty of developing any new business that can have an important impact without evaluating the influence of government. The successful formula is not new but in order to function it requires the ability to change the laws. Uber now does this on a world-wide basis. 

Are we to fault this company because it is necessary to buy political influence to exercise a sound business principle? From my perspective, clearly no. They are doing what the government has been blocking for decades in the taxi industry. 

The Los Angeles Airport Commission has already approved the service at Los Angeles International Airport. The taxi industry is opposed to this because of the potential loss of customer base. The Los Angeles City Council recently decided not to approve the recommendation of the Los Angeles Airport Commission to allow airport pick-ups. They want more time to study the effects of this change. Could they be looking at both sides because they need more time to get additional campaign contributions? 

The artificially high prices being charged by taxi companies prior to the large-scale introduction of Uber are based on the fact that the government has provided protection for the taxi industry for decades. The lack of competition is what kept prices high. Now, the advent of competition has greatly reduced the price to go from point A to point B. 

The important thing is Uber had to have the capital to invest to influence government officials, since they have been providing protection to the taxi industry. It is clear that no local taxi company, in any city, can compete for government preference with this new service based upon the revenue generated. We see a new industry developing based upon a good business plan. And that plan had to include the cost of obtaining political approval for this venture. 

What becomes of ventures that are not able to generate sufficient funding to influence legislation? Those companies remain lawbreakers and are shut down. 

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Since the mid-1960s there have been private car services in most low income areas of major cities. The reason for this is that taxicabs would not come into these areas to provide service. Their services were technically illegal because the government would not license the cars. In order to enforce these laws, cars were taken from drivers and some were even jailed to discourage the behavior in others.  

This new industry has paid legislators to create special laws and regulations for the application of a new business model. This is the power of money. Because it is an app-based business, as opposed to a telephone-based business, Uber is now considered part of the new economy. 

The principle that is used by Uber is simply one of supply and demand. As the price of any article drops, demand for that article increases. This simple economic formula applies to so many industries but is rarely used to its full effectiveness because of the need to involve government officials. And that requires the payment of money in one way or another. 

Billions of dollars of gross revenue allow the Uber business model to take a small amount of that revenue and use it for political "contributions.”  These contributions cause the laws to be changed.

 

(Clinton Galloway is the author of the fascinating book “Anatomy of a Hustle: Cable Comes to South Central LA”. Galloway is a CityWatch contributor and can be at [email protected].)

 

 -cw

 

 

CityWatch

Vol 13 Issue 65

Pub: Aug 11, 2015