The recent statement by B.C. Transportation Minister Todd Stone, that it’s only a matter of time before ride-sharing company Uber launches in British Columbia, will bring out critics by the score. Uber’s arrival will disrupt the existing Vancouver taxi industry by challenging current regulations that restrict entry by new taxis. To see this challenge we need to see how Uber’s business differs from traditional taxis.

First, look at the taxi industry. The supply of cabs in Vancouver is at any time strictly limited.  Not a single full license has been granted since 2007 and new licenses, when doled out, go to just four companies. Taxi fares are fixed by regulation. Taxi companies treat their drivers as contractors rather than as employees. Drivers pay as much as $150 to lease a license for a 12-hour shift regardless of how long they’re on the road and how many fares they collect.

Uber differs in a number of ways. Its customers use a smartphone app to arrange a ride and can choose drivers according to their closeness and their past customer ratings. Passengers set up payments with Uber at time of booking. Unlike taxi fares, Uber’s rates can adjust through “surge pricing” at times of peak demand with passengers notified in advance when the higher surge rates apply.

Uber drivers, like cab drivers, operate as contractors. They are, in contrast, free to choose when and how much they will work. Uber charges them only according to the fares they generate.
Unfortunately, the debate about Uber has been marred by red herrings.

Uber’s pricing brings out the first red herring. Critics fear that surge pricing will open the door to price gouging—despite the fact that the list of things with flexible prices is seemingly endless. Even TransLink, the supplier of public transportation, charges higher rates in peak times. Further, Uber notifies customers of surge pricing in advance. If the price is too high, customers can choose an alternative such as a fixed-price taxi. It’s puzzling that people accept that so many prices go up and down while critics object to Uber’s variable pricing.

The second red herring arises from Uber’s treatment of drivers as contact workers. Drivers are not assured of earnings, don’t receive pensions and health insurance, are ineligible for unemployment insurance and workers’ compensation, and must pay for their own fuel. But it’s surprising that this practice is now being questioned. Taxi companies have treated their drivers the same way for many decades.

What has been the experience in the markets where Uber currently operates? Passengers, many of whom are disabled, elderly or poor, appear to have benefitted. Uber’s lower fares have already forced Toronto to reduce its base fare for taxis from $4.25 to $3.25. In addition, Uber passengers there have shorter wait times (two to four minutes compared to nine minutes for taxis).

Uber’s pricing and contracting policies should not exclude it from our market. As the Competition Bureau observes “[r]egulators need to make sure their rules get the overhaul they need, before the whole taxi industry seizes up.”

Rules will still be needed for such things as liability insurance, driver qualifications and service standards, but should be the same for Uber and taxis. Some rules should be eased to allow taxis to compete more fully with Uber. This will be the easy part.

The hard part will be dealing with vested interests.

This licensing system has created sizeable windfalls for license holders. At as much as $800,000 each, the $470 million total value for Vancouver cab licenses tempts political patronage and cronyism. Reform may be stymied by political pressures from license owners protecting against devaluation of their assets. Reforms that can benefit the public at large will be stymied unless regulators take action.