By Killing Off Ride-Sharing, Austin Puts It In Reverse

“Keep Austin Weird” is a slogan dreamed up by the Texas city’s independent business alliance to promote local businesses and to keep national corporations out of the city. By recently regulating ride-sharing companies out of business, Austin became more than just weird — it’s now perfectly unique.

The supposed tech capital of the Southwest sticks out like a Luddite thumb as the largest metropolitan area not served by these companies, to the detriment of workers, residents, tourists and its own reputation as a forward-looking business hub. Only the taxi cab cartel and the busybody City Council can be celebrating the outcome.

H.L. Mencken defined Puritanism as “the haunting fear that someone, somewhere, may be happy.” The Austin City Council apparently suffered from their own sense of puritanical worry, fretting that Uber and Lyft, the two major ride-sharing companies serving the city, were enjoying success without the benevolent, guiding wisdom of Council regulations.

In a staggeringly backward-looking, unnecessary decision, it saddled the ride-sharing companies with a 12-page list of petty, useless regulations, including mandatory trade-dress provisions, onerous data-reporting requirements, “surge pricing” restrictions, and deal-breaking changes to the ride-sharing companies’ background check regimens. The ride-sharing companies recently tried to overturn the ordinance.

With what is being reported as confusing ballot language, fewer than 20% of Austin’s voters showed up to the polls and ratified the Council’s ill-advised regulatory scheme. Two days later, Uber and Lyft closed up shop and ceased doing business in Austin.

Ride-sharing companies are simple to understand. They match people who want rides with people who are willing to give them rides. Their software shows how far away a potential driver is, how much the fare will be, and the ride fare is automatically withdrawn from a passenger’s payment source, which is linked to the ride-sharing app. They partner with independent contractors as drivers, who use their own vehicles to shuttle around their passengers. The companies perform their own background checks on potential drivers.

All of this was working in Austin without Council interference. In fact, Uber and Lyft partnered with roughly 10,000 drivers in the city, likely giving millions of rides in the companies’ brief history there. Prior to the ride-sharing companies, Austin had to get by with a government-capped supply of roughly 900 taxis! The dramatic transportation supply expansion created an enormous demand, something that could have never happened with the city stifling the number of cabs on the streets.

This explosion of transportation options has been a boon for Austin, but the Council couldn’t leave great enough alone, and joined a growing backlash against ride-sharing and other “sharing economy” businesses, which is little more than a backlash against economic freedom itself.

The Austin City Council no more needs to regulate ride-share background checks than it does tire size or car color. If consumers didn’t feel safe with the precautions that Uber takes with its drivers, they could choose a competitor. Another company could make extraordinarily thorough background checks a differentiating factor in the market, and use it as a competitive advantage. And if only government-sanctioned safety measures would satisfy, someone looking for a ride in Austin would still be free to take a taxi.

Under the Austin City Council’s logic, what profession serving the public shouldn’t be required to have background checks? I mean seriously, even vagrants have meaningful contact with the public and therefore should have their backgrounds checked under the Council’s logic.

Austin also banned controversial “surge pricing”, which again shows hostility toward and a misunderstanding of supply-and-demand and market incentives. Surge pricing is simply a way to encourage more drivers and cars when they are most needed. Charging different prices for fares should be based on demand, and remember, no one has to pay “surge prices.” They can wait for a taxi or walk.

By charging higher prices when demand is higher, ride-sharing companies give a greater incentive for more drivers to activate their apps and pick up riders. It’s economics 101, but critics view it as unfair and as “price gouging.”

What’s really unfair, and unwise, is to strangle the supply of transportation options when they are needed most, especially in emergencies. It’s in times of crisis when we want all hands on deck, and Austin’s misguided regulation strips out the incentive that would lead the market to deliver the best response.

Uber also uses contractors instead of employees, which puts it in the cross hairs of politicians who resent jobs that don’t fit their unionized, donor-base template. Ride-share drivers control when and where they work, and many value the flexibility and control that their contractor status gives them.

Silicon Valley breeds “disrupter” companies, shaking up traditional industries by providing different, superior and lower-priced goods and services than the entrenched businesses provide. But Austin is an example of government as disrupter, shackling innovation and limiting economic liberty, and leaving consumers with fewer, more-expensive and inferior options than the free market provided.

An easily predicted ride-share black market is now springing up on Facebook and Craigslist, where there is zero requirement for background checks or any other supposed safeguard mandated by the Council. It should recognize that its policy backfired and the damage it’s done to the 10,000 drivers and countless riders who freely came together with the ride-sharing apps.

Next time Austin’s 900,000 residents are cursing the long wait for a taxi cab, at least they’ll know whom to thank.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Scroll to Top