Uber Regulatory Test Case: Who is in charge?

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While many consumers are celebrating the rise of Uber, those who have invested in the taxi industry are rightly upset by Mr Turnbull's support for the multinational's "disruptive" business model. It is timely that a national test case is being heard in the courts to see whether this is a truly "disruptive" business model or otherwise an illegal thwarting of existing regulations.

I have argued previously that Uber's business model does not take into account numerous externalities, in particular, those that relate to the pay and conditions for its own drivers. Of course, consumers appear not to care about what it costs to pay an Uber driver, as long as it means cheaper fares for consumers. At least while the cheaper fares last.

But taxis are one of the few remaining regulated monopolies in the country, and taxi drivers share none of the regulatory advantages that Uber is cashing in on. Indeed, ACT Liberals Opposition Leader Jeremy Hanson recently spoke on 666 ABC Canberra and faced an uphill battle to convince the host that Uber were doing anything other than providing a cheaper, better service.

In my travels, I have heard others suggest that Uber's system works better than government regulation. One simply gives a driver a low rating, states they were taken the "long way", and then the company sympathises and offers a refund. That may be well and good, but while an existing regulatory monopoly is under threat, governments have done little to deregulate taxis or to make the market truly competitive.

And herein lies the real problem. Operating a taxi is expensive. Not because it necessarily is expensive, but because the regulatory model makes it so. Uber seems to be changing transport policy through sheer economic power rather than through government adopting a coordinated approach to dealing with the so-called "digital disruption".

If any new start-up can run rough-shod over existing regulations, then government needs to get ahead of the game. So far, however, government has buckled to pressure to the point where they are more or less congratulating Uber for upsetting a regularity model that government itself created.

The national test case means that government policy has yet again been left to the courts. Thankfully, the courts seem to take their unelected role more seriously than our elected representatives. Uber appears to be in a good position, but the current two-tiered regulatory model is more a result of poor policy than the case of Uber's smart business model.

Any business model that makes prices for consumers cheaper while paying workers less is hardly a recipe for success. Yet taxi operaters who comply with the law are currently being punished for doing so. That doesn't mean that Uber have it all wrong, but is does not auger well for other heavily regulated sectors of society when a foreign company enters the market and starts telling Australian governments how to regulate. 

Taxi operators are quite rightly upset. They played by the rules but the rules have been changed based on the pushiness of a multinational. Sure, transport reform is timely, but government waiting until a cheeky competitor like Uber comes along with plenty of money to get its own way is yet another example of sovereign risk that does not bode well for the future. 

Why bother to innovate while foreign companies like Uber appear to be running the whole show. Government needs to get its act together.