Sadiq Khan’s pledge to crack down on Uber smacks of the worst of crony capitalism

 
Shanker Singham
London Faces Gridlock As Black Taxi's Protest Against Uber App
It is immoral when governments give in to incumbent elites and crush disruptive competitors with regulation (Source: Getty)

In the fight to succeed Boris Johnson as mayor of London, one thing that did not attract much attention was that both candidates attacked the ride-sharing app Uber. Sadiq Khan did so first, threatening a crack-down on the service in response to a black cab driver who called into a radio show, and Zac Goldsmith, no profile in courage, quickly followed suit.

It has become fashionable for politicians all over the world to attack Uber, with regulatory assaults launched in countries like France and Italy (to name just two). Even more disturbingly, the sharing economy in general has come under fire. In an extraordinary intervention, leading US senator Elizabeth Warren argued that the so-called “gig” economy is problematic because the benefits its participants receive mean they do not demand that government saves their old economy jobs.

This is a manifestation of crony capitalism – a vested interest elite with incumbent power calls on the government to regulate its competition out of existence. Of course, cabbies, especially those who drive the traditional London black cab, don’t really look like an elite. Neither do the French taxi cabs that regularly hold up Paris, nor cab drivers all over the world who are famous for blocking competition and raising their prices in ways that damage consumers, especially the poorest.

Read more: Will driverless cars be the end of public transport?

But just because their arguments sound reasonable – who would not support ensuring that cab services are properly regulated? – it does not mean that they are economically sound or that they will result in greater prosperity. There is something terribly wrong when the siren voices of protectionism and crony capitalism find such easy backing as they did from (now) mayor Khan.

If Khan does indeed crack down on Uber, the losers in this particular market distortion will be London’s consumers who could be denied the choice of a valuable service at a fraction of the cost of a London cab. UberX prices are less than half those of a black cab, and consumers have the added advantage of knowing exactly where their potential rides are, and how long they will take to pick them up.

The reality is that Uber has brought car hire within the reach of millions in London. What consumers save can be spent on other goods and services. Yes, it is immensely disruptive for the cosy black cab monopoly, but they can compete in any number of ways – by providing a better service, or having better knowledge of the hidden alleys of London, for example. They could even develop better technologies to compete with Uber – it has no lock on the concept which has made it so successful. As with all industries, disruption is bad for the incumbent elite, but good for consumers and the poor.

Read more: Europeans need a Tea Party to reject crony capitalism

Crony capitalism is fundamentally immoral because it destroys wealth. The market, in this case for private car services, ends up shrinking because a competitor is forced out – not by the ordinary working of market forces but through government coercion. The result is that the poor are pushed deeper into poverty. Such activity is corrosive and immoral, as are all who support it.

The other damaging effect of monopoly is the quiet life it gives the monopolist, who does not have to give a good service, innovate or in general keep up with the times. Anyone who has waited for a train or sat in a doctor’s waiting room knows the energy-sapping effect of monopoly.

What governments must do is understand the difference between legitimate prudential regulation (which is much less frequently required than is commonly thought), and a naked attempt by an incumbent to knock out competitors and protect a privileged position. When faced with the latter, for the sake of their people, especially the poor, they must stand firm.

But what should not be forgotten in this case is that, when the chips were down and moral courage was required, mayor Khan was found wanting. He sided with the incumbent elite against the interests of consumers and the poor. If he wants to be a mayor for all Londoners, he will have to do much better than this.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles