Whoever threatens Uber, threatens progress

Peter de Keyserby Peter de Keyzer, Chief Economist BNP Paribas Fortis and author of ‘Growth Makes You Happy’
Keynote speaker of our Expat Financial Affairs conference 2014

Politicians often try to block the rise of disruptive innovators like Uber or Airbnb. Although they call in the welfare of society as an argument to do that, in reality they are often defending the interests of small interest groups, protected guilds or even monopolists. Take the example of Uber…

With Uber a consumer can order a taxi through his smartphone. He can immediately see the location of “his” taxi on the app’s small map. The Uber driver also knows where he can go pick up his client. For tourists or expats in a strange city it is far easier to call a cab with one push on a smartphone button than to try to explain in a strange language where exactly the taxi should come for the pick-up. Furthermore, all the hassle with cash is history for the payment for the ride happens with the customer’s credit card data that are linked to the app. No more trouble with change when you share a ride with friends – the fare is neatly and automatically split among the credit cards. After the ride the customer can evaluate the quality of the ride, the car’s cleanliness and the driver’s friendliness with a star evaluation system. Consistently underperforming drivers are being expelled from the Uber system to guarantee a high quality.

The combination of ubiquitous smartphones and dirt cheap mobile internet makes these innovations possible. It allows Uber to directly connect supply and demand in the market for local private transportation. Nevertheless politicians often have a problem with this development. In Brussels for example Uber is completely outlawed and potential drivers face huge fines if they are caught doing rides for Uber. Any other business would react to new competition with better service, a better offer and more attractive prices. Not so for the existing cartel of taximen – they simply try to have the competition outlawed. Surprisingly enough politicians often go along with this tactic. They choose the side of the well-protected cartel which has the power to wreak havoc on the city through blockades. Citizens, commuters and tourists alike are being left out in the cold. Nevertheless, they are the ones that are constantly reminded of why the taxi sector is a monopoly: often bad service and dirty taxis, no innovation and expensive rides.

Sadly enough the political reaction to a phenomenon like Uber is symptomatic – and not only in Brussels. Innovation is often seen as a threat to a small and often well-protected group of insiders rather than as a source of progress for society as a whole. Luckily in the past we did look much more at the benefits to the whole of society and not to the short term disadvantages to a small group. “The men who lit the gas lanterns” lost their jobs when electrical street lighting was introduced. Coach drivers disappeared when the automobile was introduced. Typists had to retrain when the photocopying machine became widespread. Millions of people lost their jobs in agriculture when tractors and other agricultural machines entered the fields.

In history’s rearview mirror we call all of this progress. However this progress consists of so-called creative destruction – a term first coined by Austrian economist Joseph Schumpeter. He realized that the constant dynamism of a capitalist economy rests on the constant disappearing as well the constant appearing of companies, sectors and even whole industries. Whoever prevents the destruction, prevents the creation of new industries and stands in the way of progress for all.

Everybody wants progress. Yet when innovation knocks at the door interest groups, monopolists and protected groups often succeed in getting politicians to halt this progress. Often agains the longer term interest of society. Government is often ready to support innovation with truckloads of subsidies and advantageous regulations. But watch out if an unsubsidised Uber is capable of truly providing disruptive innovation. Then it is blocked because it seems to be a threat to the status quo. The truth is exactly the opposite: the status quo is the only real threat to progress.

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