June 6 2014

New Battlefront in Business: Uber & Lyft Meet Government Regulation

Patrice J. Lee

If you live San Francisco, New York, Washington, D.C., Boston, or any of the 60 other metropolitan cities and locales across the country, you’ve likely heard of or used your Smartphone to find a ride around town or home after a festive evening.

New companies like Uber and Lyft allow riders to get where they need to go safely –and sometimes at a lower cost – than traditional car services and taxicabs. They represent technology’s answer to what some customers consider the frustrating problems of trying to hail a cab, order a cab during peak times, or get cab service to areas that taxicabs don’t frequent or choose not to service.

The state of Virginia is none too pleased about these new businesses because unlike traditional cab services that are heavily regulated  and especially highly taxed, they consider themselves to be in a different classification from cabs.

Yesterday, Virginia sent letters to both companies demanding that they cease business operation immediately, claiming that they are operating illegally. Both of the companies and the individual drivers face fines if caught and at least one Virginia county police department plans to assist in enforcing this order.

Almost as immediately, a Facebook page popped up online asking riders to fight back and call Virginia to demand that they turn back their decision.

The tech media website cnet.com reports on the new development:

The battle between ride services Uber and Lyft and the state of Virginia is kicking into high gear.

After issuing civil penalties against the app-based services in April for operating without proper permits, Virginia's Department of Motor Vehicles sent cease and desist letters to Uber and Lyft on Thursday. The letters, penned by Richard D. Holcomb, commissioner of the Virginia DMV, orders the companies to stop operating in violation of state laws or face fines.

"I am once again making clear that Uber must cease and desist operating in Virginia until it obtains proper authority," Holcomb said in one of the letters.

Both companies said they were disheartened and shocked by the letters but hoped to work with state officials on a solution that will allow the services to continue operating in the state.

"Uber has been providing Virginians with safe, affordable and reliable transportation options for months and has continued to work in good faith with the DMV to create a regulatory framework for ridesharing," Uber spokesperson Natalia Montalvo said in a statement. "The DMV decision today hurts thousands of small business entrepreneurs who rely on the Uber platform to make a living, create new jobs and contribute to the economy -- and it hurts the countless residents who rely on Uber to connect them with affordable, safe and reliable transportation alternatives."

Holcomb wrote that Virginia was currently studying the relationship of the ride-sharing services' business models and the state's passenger carrier laws and "strongly suggest[ed]" that the companies focus on participating in the study rather than continue their "illegal operations."

There are a couple of big forces at play here at this intersection of business and government.

First, there is cronyism. Established, unionzed taxicab monopolies have probably used political influence to lobby government officials on their behalf. They see Uber and Lyft as competition for passengers and will do whatever is necessary to put that competition out of business. Cronyism appears when big companies secure tax breaks, protections, special treatment, and other regulations from government that secure their business advantage and make it difficult for new companies to get into the same business.

Second, government likes to exert authority when and where it can, especially if tax revenue is at play. In this case, the state is playing catch up to regulations on these new peer-to-peer transportation programs. They don’t consider themselves taxicabs and  argue that they are just providing a platform that enables individuals to facilitate private ride arrangements. That is different from offering a ride-share business.

Riders in urban settings like the Lyft cars bearing big, pink moustaches and Uber. Using mobile apps they can quickly connect to a nearby driver with a private car for a lift to where they need to go. Once you arrange your ride, the apps allow you to track the car until it arrives, contact the driver, and verify their vehicle.

As a regular Uber rider, I can attest to the ease and convenience of arranging a ride, the friendliness of drivers, and the safety of trips. What taxicabs stock their vehicles with free bottles of water and mints?

Using these services is also supporting small business as each driver is an entrepreneur. They own their vehicle and choose to give others ride for a wage. Most –if not all- of the drivers are part-time and use Uber, for example, as a secondary job to supplement their income.

Enterprise and government will always be in contention as technology constantly spurs new innovations that improve Americans' lives. Government can create space for innovation to thrive, but it can also be a roadblock to progress.

 

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