Cracking down on Uber and Grab will hurt commuters, not protect them

Cracking down on Uber and Grab will hurt commuters, not protect them
Just how valuable have Uber and Grab become for Filipino commuters?

The daily commute around Metro Manila is bad as it is. But impending government regulations are about to make it downright painful.

Starting July 26, the Land Transportation Franchising and Regulatory Board (LTFRB) will apprehend and fine Uber and Grab drivers, and impound their cars, if found lacking the necessary permits.

Before this, LTFRB fined Uber and Grab P5 million each for allowing such illegal or “colorum” vehicles to ply the streets.

The LTFRB maintains that this crackdown is meant to protect commuters. One official said, “Paramount to LTFRB is the demand and the need [of the] riding public.”

But will this crackdown really help commuters? In this article we argue that, given the significant value of ride-hailing services to Filipino commuters, this crackdown will invariably hurt the riding public, not protect them.

Consumer value

RUSH HOUR. In this photo taken January 11, 2016, a major thoroughfare is clogged with traffic in Manila. Jay Directo/AFP

Just how valuable have Uber and Grab become for Filipino commuters?

In the US, a famous study found that UberX generated about $6.8 billion worth of “consumer surplus” in 2015 alone. That is, each dollar spent on UberX generated $1.60 worth of extra welfare for consumers—a hefty 60% return.

Consumer surplus is difficult to measure, and to our knowledge no similar study in the Philippines yet exists (we are open to collaborate with Uber or Grab on this).

However, one need only imagine our lives before Uber and Grab came along. Filipinos are tired of dealing with rude and crooked taxi drivers who refuse passengers based on their destinations, use rigged meters, charge arbitrary fares, and – for some reason – are always out of change.

Uber and Grab allowed us to escape that horrible era. And based on commuters’ recent protests online, they’re not having more of it again.

A crackdown will hurt commuters

While Uber and Grab are a big win for commuters, they are a big loss for owners of regular taxis.

With diminishing ridership and eroding profits, it comes as no surprise that regular taxi owners worldwide are intensely lobbying for government protection against ride-hailing.

At the very least, regular taxi owners ask for a level playing field: that ride-hailing services be subjected to the same regulations as regular taxis. On the other extreme, some taxi owners call for a near or total prohibition of ride-hailing.

Such a crackdown could indeed work in their favor: With prohibitive quotas on Uber and Grab vehicles, commuters will have no choice but to resort to regular taxis once more, thus increasing their market share and profits. Remaining Uber and Grab patrons will necessarily face higher prices and longer waiting times.

By far, the biggest loss would come from the Uber and Grab rides that commuters can no longer hail.

LTFRB’s crackdown next week promises to do just this. Around 80% of all ride-hailing vehicles are considered “colorum” by LTFRB, and cracking down on them could effectively cripple Uber and Grab’s operations.

This move might raise the profits of a handful of taxi operators, but at what cost? The daily welfare of hundreds of thousands of Filipino commuters.

“Colorum” not by choice

Even more troubling is that many Uber and Grab drivers seem to have no choice but to be branded as “colorum.”

For a year now, the LTFRB has stopped accepting and processing applications for Uber, Grab, and Uhop. In the process, 7,000 accredited drivers were denied renewal of their temporary permits, and as of January around 15,000 franchise applications have been denied.

Hence, it appears that Uber and Grab drivers’ “colorum” status is not from a lack of effort to comply with LTFRB’s rules, but rather from LTFRB’s failure to act on these applications.

To make matters worse, the LTFRB even threatened to discontinue Uber and Grab’s accreditations altogether if they “continue to defy the order.”

One might ask: what is licensing good for, anyway, when “licensed” has come to mean rude and devious taxi drivers, and “colorum” is associated with courteous and honest Uber and Grab drivers?

The term “colorum” should also be understood beyond its purely legalistic or regulatory sense: economically, it is a manifestation of an excess demand for rides. Quotas prevent the occurrence of mutually beneficial trades, so they will always incentivize “colorum” activities to make supply meet demand – irrespective of what the law says.

Moreover, “colorum” was coined at a time when no technology was available to monitor vehicles and reward good customer service in real time. But with Uber and Grab, commuters can use their mobile apps to identify drivers, trace their routes, and rate their rides. Any errant driver can be easily made accountable, and drivers themselves can rate their passengers!

Creative destruction

Regulators also worry that Uber and Grab’s fast growth could worsen traffic congestion in the metro.

But insofar as such vehicles are substitutes to taxis of the old, the growing fleets of Uber and Grab should pose no problem if we let old modes of transportation exit the roads.

Indeed, every episode of rapid technological change brings with it some amount of unemployment, and is usually met by fierce opposition.

In the same way that the horse-drawn carriage gave way to the automobile, the telegraph yielded to the telephone, and printed encyclopedias succumbed to the internet – the taxi industry is now reeling from the “creative destruction” brought forth by ride-hailing.

But in the face of irreversible technological change, the best response is to embrace the new technology and assist those who lose their jobs in the process – not to shun or ban the new technology altogether.  

Of course, this transition will require moving displaced people to alternative occupations. But in the case of taxi drivers, this need not be too difficult: with minimal training, for example, they can easily apply and work as drivers of ride-hailing services.

Uber and Grab users, unite!

What the majority of Filipinos need and deserve is an efficient, reliable, and safe mass transport system of trains and buses.

But for a sizable segment of the riding public, Uber and Grab have provided a new, innovative, and viable option to move around the metro. Rather than just mere passing fads, ride-hailing services are here to stay.

That is why a policy that prohibits 80% of ride-hailing vehicles will needlessly take away the level of convenience and dependability that commuters have come to love – and regular taxis routinely fail to provide.

In a rare display of unity, commuters are protesting LTFRB’s impending crackdown in social media. An online petition to lift LTFRB’s suspension on new permit applications has already garnered 96,000 signatures, and counting.

The LTFRB says they will “not succumb to pressure.” But this raises the question: whose interests are they really protecting?

The advent of new technologies may catch regulators off guard. But this is hardly an excuse for them to add to the country’s roster of stupid and ridiculous policies – we already have enough of them to go around with. –

JC Punongbayan (@jcpunongbayan) is a PhD student at the UP School of Economics. Kevin Mandrilla (@kevmandrilla) is an MA student at the UP Asian Center. Their views are independent of the views of their affiliations.

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