“In America, what is holding back entrepreneurs from using digital technology to re-invent consumer banking and finance, including mortgage banking, is federal deposit insurance, federally-guaranteed mortgages, student loans (and other loans), the Fed’s manipulation of market rates, and the Consumer Financial Protection Bureau. Digital financial entrepreneurs can’t compete on a level playing field with the government subsidies provided to Too Big to Fail Banks, Fannie, Freddie, and FHA…
…which combine with the Fed’s manipulation of rates to distort rational markets and hinder competition. If you want a free, fair, vibrant, and innovative market for consumer finance, America needs to wean itself off these well-intended government subsidies, which inappropriately favor certain individuals and large or government-sponsored financial firms, at the expense of others. The government’s excessive regulation of consumer banking and mortgage lending, stems from these subsidies. American consumers are bearing an enormous (tens of billions a year), largely hidden cost of a lot of arbitrary and non-substantive government-mandated regulation and compliance. I believe the day is coming where financial entrepreneurs utilizing innovative digital technology will figure a way to compete with these government subsidies (maybe because the cost of compliance and regulation eventually exceeds the benefit of these subsidies!!!) and provide consumers with such overwhelmingly better financial services and experiences that consumers “revolt” against their governments and their excessive regulations (like they have with Uber).” Mike Perry, former Chairman and CEO, IndyMac Bank
“The old way of creating services and regulations around producers doesn’t work anymore,” Ms. Kroes (a V.P. of the European Commission) wrote. “If you design systems around producers it means more rules and laws (that people say they don’t want) and those become quickly out of date, and privilege the groups that were the best political lobbyists when the laws were written.”, L. Gordon Crovitz, “Uber Shocks the Regulators”, Wall Street Journal
Uber Shocks the Regulators
Digital technology has undermined the old idea that taxis need close government supervision.
By L. GORDON CROVITZ
June 15, 2014 5:58 p.m. ET
Maybe going on strike wasn’t the best way for London taxi drivers to protest Uber, the Internet-based car service invading from Silicon Valley. When riders couldn’t get cabs last week, the number signing up for Uber soared to more than eight times the normal rate.
Britain’s Skills Minister Matt Hancock posted a wry comment on Twitter : “Does anyone have details of this #Uber app everyone’s talking about? It sounds awesome. I’d never heard of it until today . . .”
Taxi drivers also clogged city centers and airports in Paris, Berlin, Madrid and Milan in demonstrations that mark a new era of digital dislocation. The Internet first undermined the business models of Yellow Pages, music companies and print newspapers by providing digital alternatives. Now online tools like Uber are changing how industries in the physical world operate.
A cyclist rides past parked taxis during a protest by London black cab drivers against a new private taxi service ‘Uber’, a mobile phone app, on the Mall leading to Buckingham Palace in central London on June 11, 2014. Agence France-Presse/Getty Images
In the case of taxis, digital technology is disrupting laws and regulations dating to the era of horse-driven carriages. “Regulators will be left unable to justify limits that no longer have economic, social or political rationales,” observed Larry Downes and Paul Nunes in “Big Bang Disruption.” “The devastation when it comes will be that much more dramatic.”
Riders in more than 100 cities in 36 countries can now use their mobile phones to order cars via the Uber app, which tells them how long they’ll wait and uses data to monitor drivers’ safety and performance. Drivers often prefer Uber because it gives them more control and enables higher peak pricing when cars are hard to get. In Europe, many of the striking drivers said they objected to regulations limiting their activities as Uber frees up the market.
Recent investments put an $18 billion valuation on Uber, which launched in 2010—more than the combined market value of Hertz and Avis. That $18 billion can be understood as a market estimate of the waste caused by taxi regulations around the world.
Taxi and limousine commissioners limit new entrants and suppress competition between taxis and car services. They micromanage the manner of hailing rides, the number of licenses issued, and how many cars a company may own. These rules protect existing owners at the cost of better service for consumers and more flexibility for drivers.
Uber uses technology to create efficiency by enabling supply to match demand. It’s closing the gap between what taxis and car services have been allowed to provide and what consumers want. Its success undermines the long-held idea that the taxi industry requires close government regulation.
Uber founder Travis Kalanick knew he’d be challenging the close relationship between regulators and the regulated, who have no interest in competition. In a Wall Street Journal interview last year, Mr. Kalanick explained why he doesn’t ask for regulatory permission before entering a new city. “We don’t have to beg for forgiveness because we are legal,” he said. “But there’s been so much corruption and so much cronyism in the taxi industry and so much regulatory capture that if you ask permission upfront for something that’s already legal, you’ll never get it. There’s no upside to them.”
Uber is applying the “permissionless” genius of the Internet, where no one needs a license to start a website or approval to start broadcasting, to the analog challenge of getting a ride. It usually works. Only a few cities, including Brussels, Miami and Las Vegas, have banned the service. More often in cities that threaten Uber, the company succeeds by asking its customers to swamp regulators with emails, calls and tweets. Chicago Mayor Rahm Emanuel dropped citations and lawsuits against Uber following pressure from voters.
Some officials at traditional bureaucracies are rethinking regulation. Neelie Kroes, a vice president of the European Commission, wrote a blog post criticizing the recent anti-Uber protests. She acknowledged the disruption caused by new technologies but warned that “digital innovations like taxi apps are here to stay.”
“The old way of creating services and regulations around producers doesn’t work anymore,” Ms. Kroes wrote. “If you design systems around producers it means more rules and laws (that people say they don’t want) and those become quickly out of date, and privilege the groups that were the best political lobbyists when the laws were written.”
She urged her fellow Europeans to embrace entrepreneurs: “Otherwise we will be outpaced to our East and our West. We’ll be known as the place that used to be the future, but instead has become the world’s tourism playground and nursing home.”
This is an encouraging sign that Uber is persuading regulators that the permissionless innovation of the Internet should also apply to the physical world. If this trend continues, it will have done even more than revolutionize how we get a ride.Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com