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Of taxis and smart phones: balancing innovation and regulation

21 June 2016

hailing appSharon Masterson, International Transport Forum Corporate Partnership Board

Necessity is the mother of invention – or is it? It could be argued that the time-honoured adage only holds when we know what we want or need. But what if we don’t? “If I had asked people what they wanted”, Henry Ford famously quipped, “they would have said ‘faster horses’.”

While the car was a revolutionary innovation, it was not immediately disruptive. Early cars were expensive luxury items, so the market for horses and carts remained intact until the Ford Model T created a mass market by making the new technology affordable, thanks to more efficient production methods.

What the transport sector is facing today in many areas follows a similar pattern. True, this time around, innovations are not as disruptive to the eye as motor cars replacing horses. Instead, current disruptive forces in the mobility sector hide under the hood of largely familiar-looking vehicles and in the invisible “cloud” – for instance in the shape of autonomous driving, electric mobility or app-based transport services.

But there are parallels. Take ride-hailing via smart phones: The technology has been on the market for several years. Not even the leading players like Uber or Didi Chuxing, its Chinese rival, have come to dominate the provision of mobility. They are rapidly gaining ground against the traditional forms of moving about in a car, however, and within a decade or two could well become dominant. In a recent survey in China, 8 out of 10 respondents aged 18 to 35 said they had already used a car-hailing app.

The potential of app-based transport has certainly fired up investors: Uber recently received USD 3.5 billion from Saudi Arabia’s sovereign fund, and Didi Chuxing raised USD 7 billion from investors and lenders, including 1 billion from Apple. Today, Uber is the world’s most valuable start up, with a market capitalisation of USD 62.5 billion. Conversely, the Nasdaq-listed Medallion Financial, a huge provider of loans to buy taxi licenses, has lost well over 50% of its stock value since December 2014.

Policy makers in many countries have been caught somewhat off guard by the rapid rise of app-based ride-hailing platforms. In many countries, regulation has been lagging and policymakers struggle in balancing the need to ensure public safety, consumer protection and tax compliance with the potential benefits: higher efficiency of transport, better service, more transparency and the simple fact that consumers like the convenience of pushing a smartphone button to order a ride.

What has not been lagging is the response of those who could possibly to lose out. Legal action by traditional taxi operators has led to some app-based services being banned, operators fined, executives taken into custody, and even violence.

Against this backdrop, a reasoned debate about principles that can serve as a basis for regulators to set frameworks is urgently needed – and this is what we have been working for at the International Transport Forum with key actors. Uber and the International Road Transport Union (IRU, globally representing taxi drivers, among others) are both members of the ITF Corporate Partnership Board (CPB),  and we brought the two together at our 2015 summit of transport ministers. For the first time ever, Uber’s chief strategist David Plouffe and Umberto di Pretto, Secretary-General of the IRU, shared a stage to discuss what the rise of the shared economy means for transport. They agreed that new regulation was needed and just disagreed about how to move forward until that happened – demonstrating that constructive dialogue is possible, even invaluable in such a process.

As a next step, as part of the Corporate Partnership Board’s programme of work, a workshop was convened. Representatives from Uber and Lyft, the taxi industry, regulators, academics and other stakeholders came to Paris in November 2015 to seek points of consensus on regulation and identify persistent points of tension that need focused attention to resolve. The report emanating from that meeting, entitled App-Based Ride and Taxi Services: Principles for Regulation, will make fascinating reading for regulators. Among other things, it offers them four pieces of concrete advice:

  • Focus policy regarding for-hire transport on the needs of consumers and society. This will enable the development of innovative services which could contribute towards public policy objectives such as equitably improving mobility, safety, consumer welfare and sustainability.
  • Keep the regulation framework as simple and uniform as possible. Avoid creating different categories for regulating new mobility services. Regulators should seek to adapt frameworks to better deliver on policy objectives in innovative ways and not simply preserve the status quo.
  • Encourage innovative and more flexible regulation of for-hire transport services. Use data and the findings from data analysis for more timely intelligence to inform the policymaking process. Today’s data accuracy and availability mean that more than ever before, policymakers have tools at hand which enable them to take a more flexible approach to regulation and through monitoring, evaluate how these regulations are working, and adapt or streamline as necessary.
  • Work more closely with operators to achieve data-led regulation.. The emergence of digital connectivity and wireless communications has opened the possibility of new types of instruments that could allow better control of the efficiency and provision of services as well as giving authorities a completely new and transparent way of pursuing policy objectives.

The emphasis on the role of data here is particularly interesting. Do app-based transport services increase congestion or reduce it? Do they provide better mobility for people without cars or access to public transport, or not?  These questions, among the most hotly debated issues around the arrival of these services, can only be settled with enough relevant data. (“In God we trust, everyone else, bring data”, former New York City mayor Michael Bloomberg often said, quoting the eminent statistician W.E. Deming).

If regulators learn to work with those who have the data, and learn how to harness the power of this data, it will be for the benefit of businesses and citizens. We have also just published another report on data-driven transport policy. But – in the immortal words of Rudyard Kipling – that’s another story!

Useful links

The reports mentioned above are part of a series of Corporate Partnership Board reports. For more information, please contact either Programme Manager [email protected] or Project Manager [email protected]

Recent ITF reports:

The sharing economy and new models of service delivery

Ministers, the business community, civil society, labour and the Internet technical community will gather in Cancún, Mexico on 21-23 June for an OECD Ministerial Meeting on the Digital Economy: Innovation, Growth and Social Prosperity


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