As business models keep falling victim to technology-based Schumpeterian ‘creative destruction’, regulators may ponder whether, if so how, to intervene. This regulatory puzzle has two sides: when/how to regulate, on the one hand, and when to remove (or revise) existing regulations, on the other hand.
There are risks. Regulating new technologies might interrupt chains of innovation and cost much more than the benefits achieved by the regulation, especially once other unintended consequences are factored into the equation. Not regulating may also be risky. Some technologies, like nuclear fusion, must be regulated even if they provide benefit (electrical generation) because of the risks of mass destruction. The precautionary principle, properly applied provides ample justification to do so. That is perhaps the most extreme case of a duality of purpose. Let us consider a much less extreme example: Uber and changes induced by the ‘app’ on people’s hand-phones.
Some say Uber and others like it are destroying the taxi industry. Others say Uber is not destroying but rather transforming the industry. Uber has already become the term for a type of delivery service (‘Uber’ for delivery of various types of goods, dry cleaning, etc), and the term ‘uberization’ is used to encapsulate a phenomenon which one could describe as improving an existing brick and mortar service by using online/mobile technology – in Uber’s case essentially ubiquitous GPS equipped hand phones. This changes not just the way people purchase the service but also the way in which it is provided.
The ethos that animates much of the debate between Uber and other disruptive newcomers, on the one hand, and the legacy industries they seek to replace, on the other hand, is that many technology companies see themselves as middlemen –or in tech lingo, ‘platforms’ – “They are just connectors, with no responsibility for what happens [in the brick and mortar world]” – Some see that there is a degree of arrogance in this, perhaps fueled by the enormous valuations that financial markets give to new players like Uber. For example, when Charlie Hales, the mayor of Portland, Oregon, said that Uber operations in the city were illegal, he was reportedly told: “We’re here; deal with it”. Yet Uber has undoubtedly tapped into unmet needs, at least in London, New York and San Francisco, where it is already larger than the size of the (previous) taxi industry and growing at a very fast rate. This suggests that Uber is a highly valuable business model and should be allowed to continue, and to grow.
Not surprisingly, in countries with a greater appetite for regulation – and perhaps also for the preservation of traditions and the status quo – regulators and courts were (too) quick to step in, including a ban in France. French law requires that those offering transportation for a fee be licensed and have insurance – two requirements that do not seem neither particularly unfair nor unreasonable in principle but which may impose significant administrative hurdles. The question they ask is why Uber should not have to deal with legacy regulation. France is not alone in asking this. Cities such as Amsterdam and Berlin are trying to block the service and Korea took it a step higher by filing criminal charges against the chief executive. Uber had to back out of the Spanish market.
In other countries, there are two ideological prisms that limit the perceived need to intervene. First, there is an ethos that pervades many new technological companies: that is, that they prefer — and it may not be excessive to say, ‘feels entitled’ — to make its own ‘laws’. Second, there is a more traditional upstream reluctance to intervene among neoliberal and conservative policy makers. I personally much prefer the pragmatic approach to economic regulation developed under the late Lee Kuan Yew’s leadership, which has been eminently successful. At bottom, one must ask why regulate or, conversely, why not.
There is one area where regulation may be needed, namely in the protection of personal data and privacy. Because it is the central hub for all the rides, Uber knows much – perhaps too much. It has “sensitive data on journalists who used it for rides […] Regular rides to a cancer hospital? Interviews at a rival company? Uber knows about them, too.” Of course similar statements can be probably be made about social media, but in those cases the information posted is at least voluntarily disclosed. While sensitive data (such as banking information) is typically protected, this is not necessarily the case here. In fact, Uber’s view is that it is merely “doing only what other technology companies regularly do.” Yet, data is the currency of many technology companies worldwide and the most personal data is also often the most valuable in generating targeted ads.
By contrast, regulation to ‘save’ the taxi industry from Uber’s competition is undesirable. Simply put, business models have no ‘right’ to survive. They may, however, expect a fair shot at competing with the new entrant(s). They can legitimately ask to be freed from regulatory constraints that new players do not face or ask that existing regulation (if still justified) apply to the new players. The risk otherwise is unjustifiably asymmetric regulation between the new-technology-based business and the established industry it competes against. Perhaps a better way to ask the question is to see which existing ‘taxi industry’ regulations it makes sense to apply in this technological environment, regulate Uber and similar enterprises the same way, which may imply deregulating the existing industry to create a level playing field. It is about competition and innovation: legacy industries must adapt, notably by developing their own ‘apps’.
The best regulatory vehicles in such a fast moving and uncertain environment should be nimble and not too technology specific. First, as to nimbleness, it was advocated by the late Lee Kuan Yew himself in a 2007 New York Times interview: “Does it work? If it works, let’s try it. If it’s fine, let’s continue it. If it doesn’t work, toss it out, try another one.” Second, as to the proper level of specificity, one can compare the Uber regulatory puzzle to intellectual property. The best intellectual property rules create incentives for, and protect, innovation and creativity, but without unduly restricting access or follow-on innovation. It is a matter of balance. Hence, legacy business that compete with Uber benefit from IP in that it protects their goodwill. Moreover, they are free to develop and protect better products than Uber’s. New players who want to compete in this sphere can do so as well.
Bottom line: Uber has not reduced services available to the public. In fact, it seems to have increased available services, and demand for such services. Many factors are in play, including the flexibility of accessing the service using the app, but also anecdotal data about better vehicles, faster service, lower fares (in some cases), and ease of payment. If this is correct, there is no welfare loss and no destruction of a public good.
One could thus suggest two mobilizing principles:
- While no regulatory intervention should be designed primarily to preserve existing business models, legacy businesses can legitimately expect to be able to compete on the same footing as new entrants;
- New technologies need not be specifically regulated, but their ‘brick and mortar’ impacts (such as on the privacy of users), should be subject to appropriate regulation, unless new entrants show that it should not be.
In sum, the regulation of disruptive technologies requires a non-ideological, pragmatic approach and often a light touch. Singapore’s highly successful approach to economic regulation strikes me as a way to ensure that Singapore continues to draw entrepreneurs and innovators to this great city.