A collage of images, featuring most prominently a person holding a sign reading "no justice no peace"

Monthly Archive: February 2015

Economics / Old Blog

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Beneficial competition or attack on legitimate interests: What to make of Uber’s disruption of the taxi industry?

Imagine you are standing on the street and waiting for a taxi to take you home. While you are having second thoughts as to whether the convenience of a taxi ride is really worth the cost, a private car stops in front of you and the person at the steering wheel offers to drive you home for a price significantly below the taxi rate. Once you have convinced yourself of the driver’s competence and reliability, what could possibly speak against accepting the offer? Not much, it may seem.

Granted, the scene just described may appear too unrealistic to merit serious ethical reflection. In cities around the world, however, smartphone technology has recently led to a surge of structurally similar situations. Ride-hailing platforms that act as brokers between private drivers and potential clients have been experiencing rapid growth and offer rates that are often below those of established taxi industries. Uber, the most prominent example, has extended its operation to 54 countries and has created headlines by attracting more than $2bn of investment during the last two years. In many places, however, this expansion has been accompanied by fervent political controversy, and in a number of jurisdictions regulatory opposition has brought Uber’s operation to a halt.

Some of the criticisms voiced in opposition to Uber reflect concerns that seem relatively uncontroversial. For example, the enforcement of adequate safety standards in cars (including mandatory liability insurance for drivers) and appropriate forms of taxation appear to represent valid objectives, both from the point of view of public interest and in terms of ensuring a level playing field in Uber’s competition with traditional taxi providers. At the same time, these objectives do not necessarily conflict with Uber’s business model. Assuming that drivers are subject to the same safety and tax requirements as traditional taxi providers, Uber may still be able to offer lower fares. In the following, I would like to consider two additional concerns that are more fundamentally connected to the way Uber operates and that also seem more difficult to evaluate.

The first concern relates to the interest of drivers that rely on their job as a primary source of income. One of the prominent complaints of taxi associations has been that Uber’s competition threatens the ability of professional drivers to make a living from their occupation. While Uber argues that its drivers are able to achieve incomes far above the average income of taxi drivers, protests by Uber drivers cast doubt on the generalisability of this claim. Moreover, recent data shows that the majority of drivers do not treat Uber as their main source of income, which in turn may contribute to the preparedness of Uber drivers to work for lower rates. If it is indeed the case that Uber’s business model poses a threat to the interest of drivers in being able to make a living from their occupation (be it in the traditional taxi sector or after a switch to Uber), does this interest provide a legitimate basis for banning Uber?

On the one hand, Uber would appear to exemplify the general potential of freelance working arrangements to erode income levels. Given that earnings in the established taxi industry are already at the low end of the income spectrum, we may think that, if anything, policy should aim at improving wages in the taxi industry, e.g. through appropriate minimum wage legislation, rather than allowing income levels to be threatened by Uber’s business model which, in virtue of treating drivers as individual contractors, is not bound by wage regulations. On the other hand, the interest to make a living from taxi driving would have to be defended against the interest of those who are willing to offer their service at a lower price, if only as a partial source of income, and would be prevented from doing so through an ban of platforms such as Uber. Such a defence, it seems to me, cannot necessarily be taken for granted. A judgment on the issue would have to take into account the level of material well-being and the occupational alternatives of both groups.

Setting aside the interest of drivers, the second concern may be cast in terms of public or general interest. While taxi rates are legally regulated, ride-hailing platforms are free to set their prices according to demand and supply. Uber, for example, relies on rate increases in times of high demand in order to incentivize additional drivers to offer their services. As a result, on holidays or in situations of emergency, fares can increase up to fourfold, to levels far above standard taxi rates. Regulated taxi fares, in contrast, may be thought to serve an important public interest in the availability, in general, of rides at rates that are affordable for a relatively wide section of the population. To the extent to which the success of Uber and other ride-hailing platforms leads to an erosion of the supply of fix-rate taxis, people with urgent transportation needs may find themselves in situations without affordable options.

Is the interest in affordable rides compelling enough to justify a ban on unregulated services such as Uber in order to protect the supply of fix-rate taxis? The answer to this question does not seem obvious either. Among the countervailing interests to consider are the interests of customers who would take advantage of Uber’s service during times at which fares are below the taxi rate. Among them are equally going to be people with urgent needs, some of whom may in fact not be able to afford the regulated taxi fare. And to the extent to which the taxi fare is affordable for them, can they be expected to effectively subsidise the rides of others? One consideration that seems clearly relevant here is the existence of alternative modes of transportation that may serve to protect the interest in generally available affordable transportation. An answer thus appears even more context-dependent than in the case of the first concern. What do you think?

Animals / Old Blog

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On taxing meat – why (not)?

A recent study indicates that reducing the consumption of meat would help considerably to slow down climate change. It may even be one of the most efficient ways to do so, since livestock emissions are making up 14.5 percent of all human causedgreenhouse gas production – which is a little more than that of all cars, trains and planes combined. In addition animal suffering and the adverse effects of excessive meat consumption on human health present two strong reasons why industrial meat production should be severely regulated. Introducing a “sin tax” on meat therefore seems to make a lot of sense from an ethical point of view and also from the perspective of (health) economics. After all, we put so-called “sin taxes” on other behaviours that we consider bad for people or the environment like smoking or fuel. If taxing meat can be supported by even more compelling reasons (after all, neither oil nor tobacco suffer in the production of the desired goods), governments seem to be obliged to engage in it. Surprisingly, however, there has been little discussion so far in politics or the media about it.

One of the main concerns seems to be that taxing meat seems to hit those the hardest that fight with bringing food on the table on a daily basis, namely people with low income. Every excise tax is discriminating towards the poor, since it raises the prices on goods without regard to income. In the case of taxing food I think that most people will react extra sensitive: eating is one of the most basic human needs while smoking or driving a car is (often) not. It seems therefore quite harsh to tax something that most people consider as basic. Especially in countries with a meat based diet (e.g. Germany or the US) people might find that one of their basic sources of nutrition is being taken away. But apart from the strong sentiments, it may be unjust to tax food in general, since poor people will be left with even fewer choices than they have now. This is a serious concern, since many poor families are already in need of food stamps or other subsidies by the government.

Still, I think that analogous arguments from the discussion of taxing fuel or smoking hold. Just as you do not have to smoke and you do not have to drive everywhere (at least if there is public transport available), you do not have to eat meat in those large amounts in which we consume it in the first world. In Western countries, where there are still plenty of choices what groceries to buy and consume, there are many alternatives to the daily dose of ham or sausage. Taxing meat also does not need to make it totally unaffordable. After all, taxes do not need to be sky-high: a moderate rise in the prices of meat may lead to the desired result that people curb their consumption and keep it on a moderate level. In addition, gains from the taxes may be used to promote the production of meat alternatives (e.g. vegetarian spread or sausages, which are still remarkably expensive in most supermarkets) and in subsidizing farmers and companies that provide good conditions for their animals. Thus, animal suffering may also be relieved, which is no small reason. As long as we are talking about a moderate increase in pricing (maybe) together with an investment in supporting meat alternatives I think that taxing meat seems just enough given the benefits.

Another argument may be raised against “sin taxes” in general. A true libertarian might object that the main purpose of taxes is to finance government not to control or even punish people who pay them. However, we may ask what it is we are paying for exactly. If all we want is some sort of Nozickean minimal state the objection is quite valid indeed. But if we also want that the state takes care of our environment and the needs of our descendants, we may also want to finance this enterprise. In the case of climate change I think that the costs and the needs of those who are and will be affected are the decisive reasons, not considerations of paternalist control. States may have to save money in order to deal with the effects of climate change in the future, e.g. with the effects of floods or blizzards. They also need the money to invest in techniques to combat climate change, e.g. alternative energies. Hence, meat taxes would serve a classic purpose.

Of course, one may wonder whether taxing meat is feasible in practice. We may think of the effects of other sin taxes, e.g. people buying cheap cigarettes duty-free or on the black market, or people driving to other countries only to buy fuel). A black market for meat or cheap imports surely does not seem to be desirable considering the pain that may be inflicted on animals. Also, what should be avoided for the same reason is the meat industry trying to counter the effects of the tax by making their production more effective and cheap. Here, only better standards and harder regulation will probably be the best route (and will naturally make meat more expensive). Hence, much more effort is involved in dealing with the problem of our considerable meat consumption than a simple sin tax. Still, I think a moderate meat tax is a good place to start.