In January, the Washington Taxicab Commission welcomed Uber, a smartphone-based car service, to the District with a sting operation. The charge: operating without a chauffer’s license. Uber won that fight, but its future in Washington remains uncertain.
Uber lets users hail a limousine from their smartphones. A customer loads his or her credit card information into Uber’s smartphone application to arrange and pay for a ride. A driver picks up the customer at the location; when the car arrives, the app charges the card. After the ride, the customer can rate the trip on a five-star scale. Many Washingtonians find Uber faster and more pleasant than waiting for a taxi.
That’s not good enough for the D.C. Taxicab Commission, which has proposed new occupational licensing requirements arbitrarily targeting each of Uber’s innovative ideas. Addressing the independence of Uber’s drivers, one measure mandates that each driver contracts through a sedan company that owns at least 20 vehicles. Another requires that each sedan come equipped with a device capable of providing a “detailed written receipt.”
The most common justification for occupational licensure is consumer protection—we do not want just anyone performing heart surgery. But how does an unlicensed barber threaten consumer safety? Or an on-demand limo driver? Consumers who get a poor haircut can simply take their business elsewhere.
Competition provides natural regulation that keeps quality high. Uber’s five-star rating system keeps drivers accountable. Any additional regulations from licensure in most industries are redundant—at least as far as protecting consumers goes.
Economists have long argued, though, that support for licensing does not primarily come from consumers. It comes from producers. The time and expense of getting an occupational license makes it more expensive to enter a profession. Ergo, fewer people do. The laws of supply and demand then push up pay. Licensing raises occupational earnings by an average of 15 percent.
Occupational licenses, like labor unions, effectively create a legal cartel. Like all cartels, licensure benefits insiders by keeping out competition. Which explains why taxicab drivers—not consumers—wanted the D.C. Taxicab Commission to crack down on Uber. Freedom of Information Act requests show that the commission has received zero complaints from Uber users wanting a paper receipt.
Milton Friedman had it right:
Licensure therefore frequently establishes essentially the medieval guild kind of regulation in which the state assigns power to the members of the profession.… In consequence, in the absence of any general arrangements to offset the pressure of special interests, producer groups will invariably have a much stronger influence on legislative action and the powers that be than will the diverse, widely spread consumer interest.
Dan Roberts is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm