Editor's note: This article originally appeared in the November issue of Townhall Magazine.
One of the hottest issues for the national Republican Party in the fall of a midterm election year is... taxi regulation?
It sounds odd, but it’s true. The Republican National Committee has been trying to make a national issue out of Uber, the pseudo-taxi service smartphone app that has experienced explosive growth and many local regulatory fights.
It hasn’t always been about Uber, specifically, but rather the larger issue of disruptive upstart companies undermining the legitimacy of the existing regulatory state. A growing number of Republicans believe this battle can be used to make serious inroads with a younger demographic, which currently skews heavily Democratic.
THE PEER-TO-PEER ECONOMY
The phrase that pays with venture capitalists and Silicon Valley investors nowadays is “the peer-to-peer economy.” Much has been written about this emerging business model but it can be boiled down to this: Entrepreneurs are using the Internet to connect people directly to each other to exchange goods and services. Think about how eBay lets users sell directly to each other, or how StubHub connects live event fans to re-sell tickets.
What the peer-to-peer economy does, among other things, is circumvent the government. Re-sold products don’t have to pass safety inspections. Craigslist transactions often pass under the nose of the IRS. But it’s not clear that any of these services are more unsafe than, say, pawnshops or garage sales. Peer-to-peer apps just make these things easier and more available on a wider scale. The Internet makes a yard sale available to the entire country.
Nearly every industry has a “sharing” aspect to it now. EatWith is an app for non-professional chefs to welcome guests into their home. 1000 Tools allows those with home projects to borrow tools from each other rather than renting or buying from a big-box store. TaskRabbit can help you find amateur contractors and other home services. Airbnb lets hosts rent out rooms or their entire homes on a short-term basis to visitors. But the granddaddy of them all—the biggest company and the biggest lightning rod in the industry—is Uber.
Uber is a private car service that competes with traditional taxicabs but with the convenience of a smartphone. You sign up for an account, enter credit card information, and the service will use your phone’s location to find a nearby car. Often, in less than 10 minutes, a car will be at your door.
There are a few different levels of service with Uber. The Black Car service is similar to a private limo service—high-end vehicles, privacy, trained drivers. But Uber’s political opponents object most to its UberX service—something closer to ridesharing in which anyone could use their own car to become an Uber driver.
Emphasis on could though. Uber has repeatedly stressed that they take Social Security numbers and do extensive background checks on all applicants for the ridesharing service. Its critics contend that the safety checks Uber does aren’t enough.
In Boston, for example, the Boston Taxi Drivers’ Association implored the mayor of Boston to institute orders to “regulate and license” Uber drivers and vehicles, saying that it was necessary for the “public well-being, convenience, and safety.” Uber also faces a lawsuit from Boston Cab Dispatch, among others, for violating multiple federal and state laws.
The ridesharing company has been intermittently prohibited from operation in Los Angeles, Washington, D.C., Virginia, and other places. It’s banned throughout the country of Germany, and in London, England.
And it faces lawsuits in San Francisco, Chicago, and in Boston, mostly from the entrenched union interests that are threatened.
Adversity from local politicians and regulators is something all these peer-to-peer startups are facing. Airbnb was outlawed in San Francisco until earlier this year when the city council passed an “Airbnb law” intended to regulate and tax the entire enterprise of short-term rentals. Businessweek reported on New York City’s regulation of EatWith, as a Health Department spokesperson firmly stated, “The city does not allow meals to be served to members of the public in someone’s home.”
WHO'S IN ON IT
A 2014 survey from Vision Critical and Crowd Companies found that the percentage of Americans participating in the peer-to-peer economy is still quite small: less than 1 in 4 Americans have used a peer-to-peer service and that includes purchasing from some relatively established websites like eBay. Low participation rates persist for married people and people with children.
But that is also what makes current peer-to-peer users so politically appealing to Republicans: They are young. Nearly half of all 18-34 year-olds are participants in the peer-to-peer economy.
So unlike highway funding or investment taxes, the impacts of regulations on the peer-to-peer economy are immensely visible to these voters. When regulators impose taxes on Uber, or when they outlaw Airbnb, there are consequences on young peoples’ day-to-day lives. Young people, if it needs mentioning, are a demographic that the Democratic Party has had a stranglehold on for a long time, and are a key component of the Obama coalition.
This is why some conservatives have decided to make Uber, the symbolic upstart at the center of political controversy, an example for why and how Republicans should nurture innovative, disruptive companies. The Republican National Committee has run a petition drive throughout summer and fall 2014 “in support of innovative companies like Uber” in order to try to make inroads with a demographic that conservatives have struggled with in the past.
The RNC has been incredibly pleased with the response. There has been an outpouring of support, and press coverage has been positive and intrigued by the RNC’s pro-technology push.
“I can’t overstress the importance of finding a real-life example for us to contrast what we believe in with what the other party believes in,” RNC spokeswoman Kirsten Kukowski tells Townhall. “This is something that’s 100 percent applicable to a lot of people’s lives, especially as Uber continues to expand. It’s not just Uber … it’s Lyft, it’s food trucks, it’s Airbnb.”
“There are a lot of these innovative companies that, if government got out of the way, we would have a real shot at a free market.”
GOVERNMENT DOESN'T GET OUT OF THE WAY
It’s that “government getting out of the way” part that these disruptive peer-to-peer companies struggle so mightily with, especially because Democrats control some of the big urban centers where the companies are trying to get off the ground.
On July 1st of this year, a judge shut down Uber’s operations in Pittsburgh, ruling that the Pennsylvania Public Utility Commission’s concerns over “public safety” were enough to halt the ridesharing operations (An Uber competitor, Lyft, was also shut down in the ruling). Across the state in Philadelphia, a different ridesharing service called Sidecar has been prohibited from operations since 2013, after the Philadelphia Parking Authority deemed it to be an illegal taxi service.
Sidecar remained shut down, but Uber and Lyft both received temporary 60-day permits to continue service in the Keystone State. And after a contentious summer, Pennsylvania Gov. Tom Corbett, a Republican, publicly voiced his support for the ridesharing companies.
This doesn’t always break down cleanly along partisan lines. The Democratic mayor of Pittsburgh has long pushed for the legalized operation of some of these ridesharing companies. What it is, however, is an easy-to-grasp example of regulation harming upstart businesses to protect unionized incumbents.
“Everyone’s in favor of small business,” an aide on the House Small Business Committee tells Townhall. “It’s something you see broadly as a split between the two parties. … Republicans do, especially in our committee, take the position that we don’t want to over regulate and stifle innovation before we know what they’re doing.
“I think that Republicans don’t want to crush innovation before it starts.
“Appreciation for small business is not a partisan issue; both Democrats and Republicans agree on the importance of these firms and great innovation that comes from these firms,” the aide continues. “Innovative new startups are vital to economic growth and job creation, therefore we must be cautious that we do not create inappropriate barriers to entry or regulatory hurdles.
“From a Republican perspective, one thing that remains quite clear is that government needs to allow them to prosper rather than stifle their innovation with overregulation from the start.”
All of this sounds fine; but how do national-level Republicans take advantage of what has been, so far, policy that is the purview of local and state regulation? Can a presidential contender really make hay out of local taxi regulations?
“Currently, much of the debate surrounding which laws and regulations to subject these new businesses and their services and products to is occurring at the state and local level,” the House aide says. “And although in the future as these firms grow and become involved in interstate commerce the federal government may have a role to play; we should carefully watch how it plays out at the state and local level to see what is beneficial or what is burdensome rather than prematurely erecting more barriers to entry at a federal level.”
Rep. Sam Graves (R-MO), as the chair of the House Small Business Committee, has been making sure members of Congress are aware of this emerging segment of the economy. In January, the committee held a hearing on peer-to-peer businesses, with representatives from Sidecar and 1000 Tools. In that hearing, they provided members of Congress with a broad base of information on how these sharing companies are transforming the economy, and the necessity for a light hand when it comes to regulation.
While conservatives hash out their peer-to-peer policy prescriptions, many progressives have begun uniting in an anti-peer-to-peer movement. Progressive economist Dean Baker wrote “Don’t Buy The Hype: Airbnb and Uber Are Bad For the Economy.” The Huffington Post published “5 Very Good Reasons Why I’m Not On Board With Uber.” And the always reliable liberal Salon had a screed titled “Why Uber Must Be Stopped,” which described the peer-to-peer economy as a form of “unrestrained hypercapitalism.”
The price of doing business, these progressives believe, is for these new peer-to-peer companies to play by the same regulations and pay the same taxes that their incumbent competitions does. They simply don’t believe that people can safely engage in free economic transactions. They cannot conceive of a world in which people voluntarily coordinate and look out for each other without government coercion. Also, of course, they parrot union talking points about how the incumbent, monopolistic, over-regulated unions are the “safe” option.
It’s these barriers to entry that conservatives can seize upon. Government is in the business of creating barriers to entry. Conservatives should be about preserving an environment in which startups can flourish.
“It’s a borderline lifestyle thing,” says Grover Norquist, president of Americans for Tax Reform and a grassroots activist. “You are a different person because you like Uber. And the other team wants to shut it down. … All the Democrats can think about is how to tax it. How we can sue it. We don’t like it because the people who do it can’t be unionized.”
DISRUPTION AND INCUMBENCY
What’s also playing out is a bitter fight among these new companies. Uber is the big boy on the ridesharing block, but Lyft, Sidecar, and other services are trying to compete on that turf. These companies aren’t just fighting the incumbent taxi cartels; they’re beginning to fight against each other.
Lyft, underdog in the fight, has alleged anticompetitive practices on the part of Uber. They claim Uber has “recruiters” who book short trips with their drivers, then attempt to recruit those drivers during those trips. This may be aggressive, but not necessarily malicious. Headhunting happens in the professional world all the time.
But Lyft also alleges that Uber recruiters have booked thousands of Lyft trips, only to cancel on those drivers before pick-up. This tactic is designed to tie up Lyft drivers, making waits longer for real customers, while keeping Uber’s lines of communication open and giving Uber the advantage among consumers.
Uber denies the charges of malice, but it’s important for pro-innovation conservatives not to be pro-incumbent. In the niche-specific ridesharing market, Uber is the big company. It may be the case that Lyft is making false allegations to curry public opinion against a big company, but the size of the company doesn’t merit defense on its own.
Another concern is that Uber could agree to regulatory rules, which would allow its operation in many markets that would nonetheless erect smaller barriers to entry that competitors can’t meet. Cities are eager to be seen as “pro-Uber,” but compromises that allow the operation and regulation of some upstarts may serve to keep others out. Uber, as the largest company, has the investment capital that would allow it to clear some regulatory hurdles and operate as a pseudo-monopoly in a few different markets. Sidecar, for example, has still been shut out of more markets than either Lyft or Uber—erecting more barriers to entry might mean a death knell.
WHERE PEER-TO-PEER IS GOING
“The petition was our trial balloon,” says Kukowski. “The success that we’ve had shows us where the public and where the voters are on this subject. … We’re going to continue to look for opportunities to talk to voters about things like this.
“Sometimes, as a party, we struggle to find real-life examples that people are in tune with to show the contrast between the two parties.”
A pro-innovation stance on peer-to-peer companies doesn’t necessarily have to be a vote-moving issue to make a difference. But it is definitely something a party that has struggled to connect with younger voters can use to start a longer conversation about the downsides to the existing and ever-expanding regulatory state.
“When I get to talk to young people on Uber versus the taxi cabs, free markets versus government regulation, everybody nods. Everybody gets it,” Norquist says. “Careers will be ended. City council members who voted against Uber at any point, when they run for Congress, this will be a death knell. … I think this will destroy a number of careers, for people who started as anti-Uber guys not knowing it was going to be a problem.”
Will Republicans truly be able to use the peer-to-peer economy to make electoral inroads with the young and urban demographics that they’ve traditionally underperformed with? That’s tough to say. Changing voters’ perceptions of the parties and which issues are important takes time. In the short term, though, it’s important to get the policy right.
These disruptive services are incredibly popular in the places that they operate, and even usually pro-regulation politicians have had to make concessions. No matter which party benefits, that’s a win for economic freedom.