May 21, 2015

Next Gen Event: The Uber Effects of Ridesharing

When it comes to ridesharing companies like Uber and Lyft, too often our policymakers and the media highlight conflict: fights with existing cab companies, battles over regulation and deregulation, disruption between ridesharing companies and drivers, and safety and privacy issues for consumers.

The immense opportunity that ridesharing, as a technology for transportation, provides for cities both in terms of added mobility and new employment, however, gets short shrift in these conversations. In cities that allow ridesharing, getting around town has become significantly easier (and in some cases cheaper). Plus, ridesharing has provided hundreds (if not thousands) of new jobs in these cities, all by making better use of the resource most Americans already own: a personal vehicle.

On June 18, I’ll detail the current impact of ridesharing companies on urban transportation, their future potential, and some of the roadblocks preventing Missourians, and Saint Louisans in particular, from taking advantage. Come for the talk, stay for the BBQ:

Next Gen Invite

May 19, 2015

CEO Says Lack of Ridesharing in Saint Louis Is Embarrassing

Recently, Gabe Lozano, the CEO of a local tech company, called the lack of ridesharing (like Uber and Lyft) in Saint Louis “embarrassing.” In fact, he claimed that it cost his company a potential hire. While anecdotal, this story underlines what is increasingly clear: Saint Louis is forgoing significant advantages by regulating away ridesharing companies.

We’ve gone over many times how a local regulatory body, the Metropolitan Taxicab Commission (MTC), blocks companies like Uber and Lyft from freely operating in Saint Louis. To simplify a complicated regulatory story, the MTC only allows ridesharing companies to operate using licensed premium sedans, which the MTC has made scarce. This means that only expensive types of ridesharing, like Uber Black, can operate in Saint Louis, and even then not effectively.

uberSo while many cities across the United States, including Kansas City, have altered their regulations to allow cheap forms of ridesharing (like UberX) to operate, Saint Louis remains a closed market. In many of those cities, ridesharing has provided drastically improved mobility for urban dwellers (a ridesharing vehicle will purportedly show up faster than an ambulance in New York City). In midsized metropolitan areas like Saint Louis, ridesharing companies have created hundreds, if not thousands, of new jobs.

The MTC’s reaction to all this, along with Lozano’s latest critique, has been to claim there is no problem. According to one MTC member, Lozano’s claim that he lost a hire is “a lot of hoo-hah.” Instead of opening up the for-hire vehicle market to competition and letting residents vote over what kind and how many taxis they want with their wallets, the MTC is reviving their on-again, off-again efforts to study the supply and demand for taxis. Unfortunately for Saint Louisans, the commission (which has taxi company owners as commissioners) does not have the expertise or incentives to divine the number and kind of taxis Saint Louis needs.

It should come as no surprise that talented and mobile workers would want to live and work in a city where a cheap ride is available on demand. But more than that, what does it say about how a city is run, when, at the same time local officials want to spend hundreds of millions of public dollars on stadiums and light rail and bar districts to attract residents, they are willing to allow a regulatory body to block an innovative business model that makes urban life better at no public cost whatsoever. Saint Louis should be embarrassed that its leadership simultaneously adopts failed policies out of the 1990s and stamps out fresh ideas.

April 27, 2015

More Progress on Ridesharing in Kansas City

In the last year, Kansas City has been slowly but surely opening up to ridesharing companies. The city government’s initial response to the entry of Lyft last March was negative, with officials acting almost offended at the idea that: 1) existing taxi regulations were not up to date, and 2) a company would dare to start operating without their prior approval.

LyftSince that time, the city has made progress. Officials have given up the pretense that ridesharing companies like Uber and Lyft need only apply for a permit; the city has now overhauled their entire for-hire vehicle code. When Uber and others argued that some new regulations needlessly required city-managed background checks and yearly driver registration fees, the city recently amended the code once more.

This is not to say that the city would not be served by further reductions in regulation. While ridesharing regulations are much improved, existing taxi regulations have been left largely untouched. If Kansas City persists with a lightly regulated ridesharing market and heavily regulated taxi market, it risks the destruction of the traditional taxi business model. However, some taxi industry leaders are behind the most recent compromise, which could mean that taxi companies feel they can compete with Uber given the current regulatory setup. (Alternatively, it could mean that new ridesharing regulations will turn out more restrictive than they now appear.)

These caveats notwithstanding, Kansas City officials deserve credit for their progress on this issue. Their efforts certainly contrast favorably with policies in place at the other end of I-70, where regulators seem committed to keeping ridesharing expensive and unavailable in Saint Louis.

April 24, 2015

Missouri Bureaucracy Seeks to Tie Yoga in Regulatory Knots


The Missouri Department of Higher Education is seeking to regulate yoga teacher training programs (YTTs) as “vocational schools” under its Postsecondary School Certification Program. From the Yoga Alliance:

Regulation under this program means that YTTs must comply with extensive requirements and pay expensive fees. We share the concerns of Missouri yogis that regulation of YTTs in this manner is not only unnecessary, but harmful to the yoga community and small businesses in this state.

Other states, including New York and Minnesota, have attempted to license yoga teachers as well.

Yoga is an old practice, and it has done just fine without state occupational licensing. I don’t think we need the state to start tinkering with it now.

I hope Missouri government bodies have the common sense not to butt in here—like they have with African hair braiding and massage therapy.

April 17, 2015

Blame It On the MTC

Traveling can be stressful. I’m usually comforted when the airplane safely touches down at my final destination, especially when it’s at Lambert International Airport. Unfortunately, Saint Louis cabs can add to the stress and deplete the pocketbook.

This past week, when my flight into Saint Louis was over an hour and a half delayed, I realized I would have to catch a cab home. I usually can persuade my friends to pick me up by offering them Starbucks, but since my flight landed at 1:00 a.m. no one was able to pick me up. With MetroLink stopping service at 12:57 p.m., I was left with no other choice than to get a cab ride back to my apartment in Midtown. After collecting my bags, I went to the taxi stand to find only one company offering cab services. After a 15-mile ride to my apartment, I was stuck with a $44.14 cab fare.

Ride_RequestRidesharing companies like Uber and Lyft operate out of cities like San Francisco and Chicago at much more competitive rates. San Francisco even offers UberPool, which matches you with other riders heading in the same direction with the fare split among several riders.

However, since I live in Saint Louis, a city that is inhospitable to innovative and competitive ridesharing companies, I was unable to seek an affordable option.

The Metropolitan Taxicab Commission (MTC) is a regulatory body meant to protect the consumer. Instead, they protect the cab companies who profit from anti-competitive regulations, while consumers are left without options that are prevalent in a competitive market.

Looking through the ridiculous regulations of the MTC’s code, cab companies picking up customers from the airport must obtain a permit and give one dollar for every fare to the MTC. At this time, the MTC has only granted permits to seven cab companies. With limits on the number of permits made available, cab companies are shielded from meaningful competition and can set prices that would be too high in a market with free entry.

I hope the next time I fly into Saint Louis, UberX or Lyft will be an option because I cannot afford many more $45 cab rides.

March 30, 2015

How Dangerous Is an Unlicensed Music Therapist?


Legislators will ask themselves this question tomorrow when they consider House Bill 189. Music therapy is a type of treatment that involves creating, singing, moving, or listening to music. It is often used to treat children with developmental disabilities such as Autism. While groups like the American Music Therapy Association seek to elevate the status of music therapists, it is unclear whether or not obtaining a license would actually help a music therapist become more effective.

The Southeast Missourian reported that supporters of music therapy say that untrained music therapists are harming clients. The article did not discuss what kind of harm was being inflicted. It’s difficult to imagine that the creation of music could ever be harmful. Still, Missouri legislators are considering a bill that will make people obtain a special certification to practice music therapy.

As Show-Me Institute analysts have pointed out, certifications create unnecessary barriers to entry, ultimately limiting access for consumers to important services. Studies on occupational licensing have shown that when the government institutes a program like the one House Bill 189 is proposing, the cost of services increases.

March 27, 2015

New Kansas City Rideshare Rules Need a Rethink

Kansas City has proposed new for-hire vehicle regulations that are designed to allow ridesharing companies like Uber and Lyft (also known as Transportation Network Companies [TNCs]) to operate. Uber has cried foul over the new rules and threatened to pull out of the Kansas City area altogether. Lyft has expressed guarded optimism. The city holds that revised regulations are fair and designed to protect the public.

The draft ordinance allows TNCs to apply to operate, free of charge, in Kansas City. Drivers for the TNCs must have insurance, pay a $250 annual permit fee, a $44 inspection fee, and get the medical permission to drive. If the TNC agrees to pay $10,000 to the city, individual drivers need only pay $150 annually, and they do not have to pay an inspection fee if they can provide proof of a state inspection.

Paying $294 to drive for Uber or Lyft may not sound like a lot, but the majority of ridesharing partners drive less than 15 hours a week. The higher the permit costs and ancillary requirements, the fewer drivers will be available. One might ask why, if Kansas City permits the overarching ridesharing company (who is required to perform background checks and carry insurance), the individual drivers need city permits at all? At a hearing on possible state regulation of TNCs, a representative from Kansas City’s Regulated Industries Division gave an answer to that question. The representative stated that even though the city could enforce existing safety laws it could take considerable time and effort. It is more effective for the city to be able to pull a driver permit at will. The representative worried that without the permits, the city “won’t have anything to regulate.”

TNCs aside, the proposed taxi regulatory changes are completely disappointing. Taxi permits are still capped at 500 (applicants must have at least 10 cabs to apply). Prices are still regulated, private bus routes are still illegal, and apparently Kansas City is still protecting customers from drivers wearing jogging suits. How long do Kansas City officials think that highly regulated segment of the market will last in competition with (even hampered) TNCs?

The horror!

The horror!

While Kansas City may be changing the name of its taxi code to “for hire vehicle code,” they are a long way from a holistic, safety-driven approach to transportation regulation. Control is still paramount for city officials, and balkanized market controls pervade the code. If officials go forward with changes as they are, they will likely cause instability and a need for further changes in the future.

March 26, 2015

Low Alcohol Regulations Benefit Missouri Business

photo by Caitlin Hartsell

photo by Caitlin Hartsell

Over the weekend, I visited a whiskey distillery, StilL 630, in downtown Saint Louis. The owner and operator of the company talked about why he chose to set up in the city. Missouri’s reasonable alcohol regulations were one factor that made his business possible. In Missouri, unlike many other states, a brewer or distiller of any size can produce, sell, and distribute their own product.

The ability of a company to sell and distribute its own product seems like common sense, but that right is under attack in neighboring states. For example, just last Friday, Kentucky enacted a law that bans breweries from distributing their own products. This law, which legally protects three-tiered beer sales, was a blatant attempt to protect independent alcohol distributors and may force companies like Anheuser-Busch to sell its Kentucky distributors. Missouri has flirted with these types of regulations in the last couple years. As Director of Development (and former Policy Analyst) David Stokes wrote in 2013 regarding SB 412:

I recognize that the rules for alcohol distribution have been in place for a long time, but that is not a justification in 2013 for new rules that prevent a maker of alcohol from simply having an ownership interest in a distributor of alcohol. . . . I can imagine no market failure or public good problem that this proposed law would address. The point here seems to be the preservation of existing distributorships and the limiting of competition. . . . Simply put, the government should not mandate the use of a middleman.

Missouri’s reasonable alcohol regulations promote small-business creation, helps large companies operate efficiently, and can ultimately benefit the consumer. Missouri should hold onto that advantage and resist any temptation to move in the direction of Kentucky’s legally enforced three-tiered system.

March 3, 2015

Uber, Education, and Barriers to Entry


What do taxicab cartels and traditional education groups have in common? This is a question I contemplated on a car ride from my hotel to the Association for Education Finance and Policy’s annual conference in Washington, D.C., last week. Instead of taking the Metro, I decided to use Uber. Joe Miller has written a bunch on Show-Me Daily about Uber and Saint Louis’ and Kansas City’s taxicab commissions’ fight against the ridesharing service. On my short ride, I realized that many education groups are a lot like the taxicab cartels—they have attempted to place incredible barriers to entering the profession/industry.

My driver, Majid, was an English teacher in his home country. Majid moved to the United States for a better life and would like to begin teaching here. To do so, he has to obtain certification, which means he has to pass a licensure exam. Of course, to take the exam he has to pay for the exam. Majid recently took the necessary tests and passed the math exam but failed the language arts exam. He now has to pick up more Uber fares to pay for another test, which he may or may not pass.

Like the regulations that have blocked Uber from entering the market in many cities, licensure exams are a barrier to entry. Barriers to entry are not a problem if they perfectly block the people/problems that we don’t want in a profession. That is, if a barrier screened out every potentially bad teacher, it would be a good barrier. Unfortunately, licensure exams are very loosely related to teacher quality. This means many bad teachers pass the exam and become teachers, while individuals who may be great teachers fail the exam and do not enter the profession.

When we look at the success that Uber is having and how it is revolutionizing the industry, it is easy to see why we need to be wary of unnecessary regulations that have nothing to do with quality. Education would be wise to follow suit and remove unnecessary barriers to entry.

February 19, 2015

Change On the Way for Rideshare Regulation in Missouri?

The Mardi Gras celebrations that took place last week in Soulard were met with extremely cold weather, with temperatures dropping into the teens after nightfall. I was driving through the area later that night, directly behind an empty cab. As we neared an intersection, a woman came forward to hail the cab. It drove right by and left her in the cold.

Maybe that cab driver had someplace to go or was simply done driving that day. I do not know. But what I do know is that woman could have used a convenient, inexpensive ride home. The same is true of the 60 drivers who were cited with DWIs before 8 p.m. Unfortunately, the supply of taxis in Saint Louis is strictly controlled by a regulatory body that thinks it knows how many cabs Saint Louis should have and how those cabs should serve customers.
That body is known as the St. Louis Metropolitan Taxicab Commission (MTC), and they have decided that new ridesharing services like Uber and Lyft should not be able to provide needed transportation to Saint Louisans on nights like February 14. Instead, they tightly control the supply and business practices of for-hire vehicles, as we have detailed in previous blog posts. That includes UberBlack (Uber’s expensive black car service), which can only partner with a limited supply of MTC-licensed premium sedans.

But change may be in the air for Missouri cities, including Saint Louis. Other cities, like Kansas City and Columbia, have or are in the process of changing their taxi codes to allow ridesharing. However, Columbia’s changes ask for insurance that is reportedly 20 times the dollar amount they require for cabs, perhaps to make Uber too expensive to operate.

At the state level, two bills in the Missouri Legislature, SB 351 and HR 792, would set a statewide standard for the regulation of Uber, Lyft, and other ridesharing companies (officially transportation network companies) given certain license payments and insurance coverage. If these state standards pass, it would be a dagger to the heart of the MTC, as it would preclude that body from regulating ridesharing companies in any way. The MTC’s significant barriers to entry and management of ridesharing company driver supply would be eliminated. That would open the door for cheaper, more plentiful transportation in Saint Louis.

In the many states where ridesharing companies are allowed to operate, thousands, and sometimes tens of thousands, of for-hire vehicle drivers have entered the market. Even during peak hours, they pick up passengers quickly and offer the ease of app-based payment, all for prices competitive with regular cabs.

Just think, next time it might be you on the street corner in the freezing cold after a big event. Would you want to rely on a few passing cabs to decide whether your fare was worth the trouble? Or would you rather rely on a competitive market that includes cheap, responsive ridesharing services at the touch of a button? Not a hard choice, unless of course you’re a taxi regulator.

February 17, 2015

Don’t Ban Tesla to Protect Middlemen

Missouri auto dealers, through the Missouri Automobile Dealers Association (MADA), is on the offensive. Their target is Tesla, the luxury electric car manufacturer, and their goal is to prevent the company from selling cars in Missouri. They backed a bill in 2014 which would have banned Tesla, and now that that effort has failed, they have filed a lawsuit against the state of Missouri.

The essence of the dispute is that Tesla, uniquely among U.S. car companies, does not use middlemen (dealerships) to sell its cars. MADA, which represents those middlemen, wants it to be illegal for a car company to directly sell its vehicles to consumers. They claim it already is illegal, under the Missouri Motor Vehicle Franchise laws. But the Missouri Department of Revenue disagrees, claiming the laws are only applicable to manufacturers that have dealerships in the state and are not designed to enshrine dealerships as the only method of selling cars.

Along with their legal and legislature maneuvering, MADA is publicizing why Missouri should create more regulations to enshrine the dealership model as the only way to sell cars. They argue that without car dealerships the state’s economy would suffer and that consumers need the type of long-term car care that only they, and not the manufacturer, can provide.

Without a doubt, using car dealerships as a sales and maintenance unit has many advantages for manufacturers and consumers. After all, it became the dominant mode of selling cars for a reason. However, it is not an intrinsically superior way to buy and sell a car and certainly should not be afforded new legal protection.

For example, according to a report from the Department of Justice, dealerships can raise the costs of selling cars. Experiences from General Motors sales internationally have shown that manufacturer-direct sales can lower the cost of a car by 8.6 percent. Furthermore, consumers may prefer manufacturer-direct sales over the uncertainty of haggling with car dealers, if they are given the choice. One poll conducted in the United States found that half of respondents would prefer to buy from the manufacturer even if they were not offered a lower price.

MADA’s efforts would take that choice away. They claim that buying a car is an important financial decision and that dealers provide the long-term care customers need. But there is no shortage of ways consumers could choose to service their vehicles if they buy directly from Tesla, including agreements with auto-repair shops. Car buyers are no less capable of looking after their assets than homebuyers, who somehow manage to purchase and maintain houses without house dealerships.

As for the economy as a whole, protecting a certain way of selling cars is no way to increase jobs or increase competitiveness. Business models change constantly and create new opportunities and products even as they replace older ones. That sentiment underlined the Federal Trade Commission’s (FTC) criticism of Missouri’s legally entrenched franchise system. They stated, “[C]onsumers are the ones best situated to choose for themselves both the cars they want to buy and how they want to buy them.” That may not always be to the benefit of car dealers, but it’s good economics and good for the state.


February 2, 2015

Don’t Ban Tesla, Let It Compete

We wrote last year about the attempt of Missouri Car Dealers and their lobbyists to prohibit Tesla from directly selling its vehicles to consumers. The Missouri Department of Revenue granted Tesla a dealership license in 2013, and the company now has stores in University City and Kansas City. But according to the Missouri Auto Dealers Association (MADA), Tesla is breaking Missouri’s Motor Vehicle Franchise Law and creating unfair competition through its manufacturer-direct sales. Legislative action to shut down Tesla failed last year, so MADA has sued the Department of Revenue.

However, MADA’s claims hold little merit. The Motor Vehicle Franchise Law bans manufacturer-direct sales for franchisors (meaning those with franchises in the state). Tesla does not use the franchise model to sell its cars, and hence is not banned from direct sales. And this is not a loophole. The Franchise Law was designed as a series of protections to prevent large car companies from undercutting their own franchisees. It was not written to enshrine the independent car dealerships as the only method to sell cars in the state.

That is an important distinction, because whether or not Missourians believe car companies need to be legally prohibited from cannibalizing their own marketing and sales outlets, there is no economic justification banning a manufacturer-direct car sales model. As I wrote in a recent op-ed:

. . . vehicle distribution through dealerships can be costly to the consumer. The 2009 Department of Justice paper “Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers” reported that as much as 30 percent of the cost of a new car is due to auto distribution. Enshrining the car dealership model in law has limited the ability of car manufacturers to both reduce inventory costs and increase customization, practices common in other markets. In Brazil, where GM can engage in direct sales, cost savings from order to delivery averaged 8.6 percent through direct sales.

Car buyers . . . might prefer directly buying from manufacturers for lower prices, customization, or simply to avoid bargaining at a dealership. A J.D. Power and Associates poll found that half of Americans profess a desire to buy manufacturer-direct, even if the prices are equivalent.

While that does not mean the dealership model would or should disappear, the government should not stop Tesla or any other car company from trying something different. That freedom to innovate is essential for a competitive market.

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