“Monopolies invariably produce bad products at high prices.”, Ted Forstmann, legendary financier


What Uber and School Choice Have in Common

As Ted Forstmann used to tell me, ‘Monopolies invariably produce bad products at high prices.’



Sept. 28, 2014 6:57 p.m. ET

When President Lyndon Johnson announced the creation of the Transportation Department 48 years ago this month, he said that one of the agency’s goals would be to “bring new technology to every mode of transportation.” Nearly half a century later, Uber is doing just that, allowing customers to order and pay for trips on their smartphone. Satisfied passengers, drivers and investors are singing Uber’s tagline: Choice is a Beautiful Thing.

But choice threatens entrenched interests like cabdrivers, who are deploying intimidation tactics and red tape to protect their turf. An Uber driver I rode with recently in Miami told me that he’d received two $1,000 tickets in as many days for picking up passengers at the airport.

In January French cabdrivers smashed windows and slashed tires of Uber cars at a protest in Paris. Public Utility Commissions and Municipal Transit Agencies have issued “cease and desist” orders against Uber and competitors like Lyft. “You’re changing the way cities work,” Uber CEO and founder Travis Kalanick explained at a tech conference in May, “and that’s fundamentally a third rail.”

Mr. Kalanick shows no signs of ceasing or desisting. Uber announced in June that it had raised an additional $1.2 billion in financing, bringing the company’s valuation to an astounding $17 billion. Mr. Kalanick’s deft maneuvering around political and bureaucratic roadblocks reflects the confidence of a man who knows where he’s going and knows he has the right of way.

He reminds me of legendary financier Ted Forstmann, with whom I worked, along with Wal-Mart‘s John Walton, to provide $200 million in private scholarships to inner-city children. When we began the project in 1998, teachers, union leaders and their political benefactors said choice was a threat, much as cabdrivers say now. But as Forstmann used to say, “Monopolies invariably produce bad products at high prices.” The 1.3 million parents who applied for the scholarships illustrated the tremendous demand for alternatives.

Both Mr. Kalanick and Forstmann were demonized by defenders of the status quo. But when entrenched interests win, everyone loses. I learned that lesson in 2008, when I was part of an effort to bring more than $20 billion in private investment to Pennsylvania. A group of investors wanted to partner with the state to lease the Pennsylvania Turnpike. A private operator would have invested billions to improve the roadway and streamline operations, but no such deal happened.

Purported champions of public safety and public works fought against the project, arguing that tolls would rise and employees would be fired. After three extensions and legislative inaction, the investors pulled their offer due to the tightened credit markets of the global crisis.

But who really won? Not commuters, who didn’t benefit from the lower tolls the private lease would have required, and who now face longer drives. Not toll workers, who lost jobs due to gross bureaucratic mismanagement.

Innovation also unlocks the value in idle cars, rooms, tools and hands—and opens a channel for billions of dollars of capital to spur economic growth and create new jobs. “Money is like blood; it must flow. Hoarding and holding on to it causes sludging . . . and, like clotted blood, it can only cause damage.” Adam Smith ? Try Deepak Chopra, doctor and two-time Barack Obama backer.

What’s true for blood and capital is true for transportation. Washington is always focused merely on passing bills for more government spending on infrastructure. But this Beltway bickering takes place far away from where the rubber really hits the road, on the highways and back streets.

What is needed are not simply new legislation and regulation; what is needed is new thinking, new leadership and a new collaborative relationship among union representatives, policy makers and business. At stake is not just our failing infrastructure, and failing schools, it’s the country’s ability to compete successfully on a global scale. We should all hope Mr. Kalanick and others like him succeed.

Mr. Courtovich is founder of Sphere Consulting, and founding president and chief operating officer of the Children’s Scholarship Fund.

Posted on September 30, 2014, in Postings. Bookmark the permalink. Leave a comment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: