Uber legal in Victoria, but "mum-and-dad" investors should be up in arms

Uber has been legalised in Victoria.

Today's announcement that Victoria will follow other states and territories in allowing Uber to operate may be good news for consumers. But taxi licence owners, many who are "mum-and-dad" investors, have had the value of their investments destroyed by populist policy and poor foresight by state governments.

NSW recently announced a $1 levy per taxi or Uber ride to fund compensation for taxi licence owners and those suffering severe financial hardship as a result of the regulatory changes. The total package for NSW is $250m.

Victoria's package is more generous, with a $2 levy proposed to provide compensation in the order of $378m for a buy-back scheme. There is also an allocation from the levy for $78m as part of a "fairness fund" for those hit hardest by the reforms.

The compensation funds represent a typical policy response to liberalising long-established regulated monopolies, but the amounts are far from "fair" and the process has been poorly implemented.

In Sydney, taxi licences peaked at about $425k in 2011, and have been in decline since. Licence owners can expect to receive $20k in compensation per licence, with multiple licence owners receiving a maximum of $40k.

In Melbourne, recent market values were in the order of $150k, down from around $500k in 2010-11. Victoria's buy-back scheme will provide for a maximum of two licences with $100k offered for the first licence and $50k for the second licence.

News media reports suggest that consumers are upset about the levy, especially in Victoria, which will add significantly to the cost of using taxi and Uber services. Consumers tend to be happy about moves by Uber to bring competition to the decades-old monopolies in each state. And while the taxi industry is one of the last regulated monopolies to be liberalised in Australia, the transition has been handled rather poorly by state governments.

Taxi licence owners have been mostly kept in the dark about taxi industry reform in Victoria. As late as 19 August, taxi operators in Melbourne had no idea what would be in the reform package announced today. And Victoria's comparatively generous package might make Sydney and Brisbane operators wonder why the differences in the compensation packages should be so dramatic.

Uber users are sure to be happy about the new competitive landscape, but there is more at risk than simply improving taxi prices and services. Investor and voter confidence in state governments' ability to regulate effectively has been diminished for three main reasons.

First, Uber has effectively broken the law and used its capital to force the end of the old monopoly, allegedly paying drivers fines while lobbying governments with media-grabbing publicity stunts. Rather than encourage a proper transition strategy, even the Prime Minister applauded Uber for its "agile" business model. Uber made the policy, not the elected representatives.

Second, taxi operators have been bound by the rules of the regulated monopoly. They played by the rules established under the rule of law. Uber didn't, and, backed by popular sentiment, have cleverly manipulated the taxi industry. State governments continued to regulate taxis but were powerless to enforce their own laws where Uber was concerned.

Third, state government have been slow to act and adequately transition the formerly regulated monopolies. Reform of the taxi industry was decades overdue. This has effectively destroyed the value created under the rules of the regulatory monopoly. While consumers may be unconcerned, the taxi industry did not create itself - it was created as a regulated monopoly by state governments.

If we consider that Melbourne an Sydney alone are serviced by over 8,000 taxi licences, once valued at up to $500k, then significant investment value has been destroyed. Not by competition, but by a company that broke the law, by consumers who readily supported cheaper prices, and then by state governments who restructured the market by implementing rapid, populist policies.

As it stands, "mum-and-dad" investors are paying the price so consumers can obtain cheaper fares. If the same was done to the Australian share market, the economic consequences would be disastrous.

Had state governments transitioned the taxi industry appropriately, then licence owners could have had adequate time to prepare. It is not their fault that state governments were slow to act.

Uber has won, and there will be much rejoicing by consumers. But the way the transition has occurred verges on the unethical, and licence owners are footing the bill. To make matters worse, some commentators are blaming the taxi industry.  This is inherently unfair. In a regulated monopoly, the regulated players have little impact on the rules.

But many "mum-and dad" investors may never trust governments again. And rightly so.

The damage done by populist policy and poor regulatory oversight in the taxi industry is a far cry from the slow, unnatural death of the Australian automotive manufacturing industry. In fact, automotive manufacturers are still protected by tariffs even though the industry is set to end very soon. It is obvious that the "mum and dad" investors in the taxi industry lack the political clout of the automotive industry multinationals.

The "fairness funds" are hardly fair compensation, and, as I have argued elsewhere, the cheaper prices will hardly be worth the cost. Mums and dads are paying for it now.

It is clear that multinationals can manipulate state governments by adopting Uber's approach. All you need is plenty of money, a plan to introduce cheaper prices for consumers, and the boldness to flaunt the law. As we have seen, state governments will then roll over.

Let us now hope that your retirement savings are not next in line.

Book Notes: "The Social Contract" by Jean-Jacques Rousseau

The Social Contract by Jean-Jacques Rousseau

My rating: 3 of 5 stars


It should come as no surprise that reading piecemeal translations of classic works is no substitute for reading the work cover to cover. I was surprised to find that the words used to justify the American and French Revolutions were much like Adam Smith's "invisible hand" - a small part of an otherwise far-ranging discussion. Rousseau's discussion of religion, the state and marriage holds some key lessons for statecraft in the present, but I daresay the focus on the "social contract" (which should more correctly be referred to as the "social pact" in the Rousseauian sense of the term) has overshadowed any other use of the ideas from this classic work. Yet another reason to read the classics for oneself rather than rely on second-hand reports. Reading The Social Contract has highlighted some major gaps in my knowledge, particularly about ancient Rome but also Hobbes. No doubt I will need to revisit Locke, too. Nevertheless, this short book, along with The Prince, Utopia, and The Communist Manifesto, represents an important part of the modern nation-state and is certainly worth more than a skim-read.



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Book Notes: "The Obstacle is the Way" by Ryan Holiday

The Obstacle is the Way: The Ancient Art of Turning Adversity to Advantage by Ryan Holiday

My rating: 4 of 5 stars


To say that I have not been inspired by reading in the genre of "self-help manuals" or "success manuals" would be a lie. I have, and I have gained much from doing so. Nevertheless, after having graduated from the Royal Military College Duntroon and served as an army officer and then taught leadership at the University of Canberra for more than a decade, I have tried to return to the original sources to avoid the retelling of tales that were best told in the original. So Ryan Holiday's work was a return to reading a genre that I have avoided for some time, with the exception of Arnold Bennett's early work. Having read Marcus Aurelius, Seneca et al., and a host of other books inspired by Brett McKay's ArtofManliness.com and the book club that started there a few years back, I have been subscribing to Holiday's reading list email for some time. What impressed me most about Holiday is that he reads, and he reads a lot. This was enough to encourage me to give this book a go. I am very stale right now, and looking forward to long service leave next year. I have worked very hard but a number of obstacles have worn me down. The Obstacle is the Way was therefore quite timely. I must say that I was conscious of the formula: a quote or anecdote from a great person, a you can do it but you need to work hard and it might not always work, etc etc. But trusting in Holiday's reading, I prevented my book snobbishness from making me tune out. What I realised was that reading Holiday was so very similar to listening to one of my own lectures. While teaching a small group of students yesterday, I was impressed that many of them were actually reading, and reading books like Barack Obama's Audacity of Hope. I have been so used to hearing students tell me they do not read that it was a breath if fresh air. So now I have ordered a numbered of other classics. I am re-reading Dale Carnegie's and a host of others I read when I was much younger. I daresay that my other reading over the years will complement a re-reading of some of these classics, and I must say that having finished Holiday's book (and I have ordered another of his, too), I am feeling reinvigorated. It was interesting how the Art of Manliness has been a positive influence and how all of my interests of late have coincided. I am reading the classics and revisiting many others (such as Clausewitz's On War) that I read back when I probably didn't really comprehend what I was reading. Further, Holiday's acknowledgements mention his dog. The Mindful or Mind Full image haunted me so much this week I have taken my dogs for a walk twice in the last two days and I am doing my best to be in the present as my dogs do, at least for the time I am walking around our beautiful village in the crisp mornings of late. This is not really a review of Holiday's work but I am feeling quite euphoric about having completed his work, and I am looking forward to a few months off to regenerate. It is interesting that I have often lived many of the approaches that Holiday mentions, but as I tell my students, it is far more powerful to live such things deliberately. Teaching is, of course, one of the best ways to learn, and, as I have done many times before, it is once again time to practice what I preach. Nevertheless, I have written this as an acknowledgement that Ryan Holiday's work was the catalyst and I am pleased to have read his book.



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