Outdated regulations halt Uber in its tracks, but innovation must prevail

Ride-sharing company Uber has led a charge by companies who are upsetting applecarts in their respective industries. The power and convenience of mobile platforms can efficiently match assets, labour, or both with those who need them. Established players in regulated markets are on notice, and the regulations, in many cases, have been left looking unfit for purpose.

The modern world has been built on what economist Joseph Schumpeter described as “creative destruction”. When regulations are out of date, or can be circumvented by new technologies or new ways of doing things, new entrants can disrupt incumbents by innovating outside of the reach of regulators.

When Skype, the popular voice and video communications service, was first launched, it was illegal in many parts of the world. It has since established a global market for voice over IP technologies, lowering prices for voice and video communications and changing how millions of people communicate.

A new entrant can offer compelling services which attract so many customers, so quickly, that sheer weight of numbers persuades (or even forces) regulators to recognise the new reality – witness the 850,000-strong petition that greeted the decision to remove Uber’s licence in London.

Uberisation

Uber has been the poster child for a 21st-century sharing economy that challenges 20th-century regulations. The firm has been valued at close to US$70 billion, riding out concerns about the viability of its business model and a series of headlines about poor corporate culture and bad behaviour.

Uber’s innovation inspired numerous other start-ups across different sectors throughout the world – from rivals like Didi Chuxing and Lyft to holiday letting agent Airbnb, jobs and skills matcher TaskRabbit and WeWork, which hooks up gig economy workers with shared workspaces and services. We are seeing Uberisation across multiple industries.

The significance of the sharing economy goes well beyond disrupting a particular regulated market. Uber’s ambition is to eventually make ride hailing so cheap and convenient that many people would forgo car ownership altogether. It has the potential to reinvent urban transport and transform cities while reducing road accidents and pollution.

The enormous value in the data it collects from the millions of rides every day could potentially exceed ride hailing itself. The on-demand movement started by Uber and co could change our life styles and lead to new ways of living and working.

However, such dramatic innovations inevitably rub up against regulators and encounter push backs from vested interests. The question is how to effectively maintain the balance between regulation and innovation. The refusal by Transport for London (TfL) to renew Uber’s licence – an appeal notwithstanding – raises serious questions on whether existing regulations in UK and Europe are killing off promising innovations.

Failing to compete

It should be a worry that despite significant research and development investment in digital technologies by the multi-billion euro EU Framework Programmes and the £150m Digital Economy Programme from the Research Councils UK, the EU and UK have so far failed to produce many serious digital “unicorns”, private companies valued at US$1 billion or more.  One exception is Spotify, the music streaming company started in Sweden in 2008 and valued at US$8.5bn.

There are simply no challengers in Europe to the US-based “FANGs” (Facebook, Apple, Netflix and Google) or the Chinese “BATs” (Baidu, Alibaba and Tencent).  Stringent regulations in some EU countries, combined with language and culture barriers, have fragmented the European single market, which make it more difficult – and more expensive – for new entrants to challenge incumbents and scale up operations in Europe.

Uber successfully disrupted a regulated market by circumventing regulations and offering convenient services to 40,000 drivers and 3.5m customers in London alone. However, its future success in the UK and Europe is by no means guaranteed.

TfL should think again. Despite its various mistakes, Uber is still a young company, and all the issues are fixable, aside from the fury of the incumbent Black Taxi drivers, perhaps. Killing it is not in the interest of consumers and drivers, and it will damage the reputation of London as a place for innovation.

Back in 1865, the Locomotive Acts (also known as the Red Flag Act) was passed in the UK. The law required self-propelled vehicles to be led by a pedestrian waving a red flag or carrying a lantern to warn people about the vehicle’s approach. We can all laugh at how ridiculous this now seems, but the flags served a purpose in their time, before becoming obsolete.

TfL should bear this in mind. Regulations should not stop innovations that improve people’s lives. Uber has clearly improved many people’s lives in London and all around the world, offering employment opportunities alongside affordable and convenient door-to-door transport services for a large number of consumers. If there are issues and concerns, then TfL should work constructively with Uber to address them. The sharing economy is here to stay, and London has a chance to show the rest of Europe what progressive regulation looks like in a world of rapid innovation.

Feng Li, Chair of Information Management, Cass Business School, City, University of London

This article was originally published on The Conversation. Read the original article.