Cronyism: A Primer

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When discussing politics, people often make the assumption that I think businesses are pretty much always right and that we should do whatever businesses ask. That’s not the case. In fact, businesses – like unions – are out to get the best possible deal for themselves, so we should be wary of most things they ask of government. It’s rare that a company will ask for regulators to make it easier for their competitors to join the field, which is what you – the consumer – should want. More often, they ask government to help them construct barriers to entry so they can rest on their laurels, stop innovating and keep prices where they are. This happens all the time, and, just like with unions, the blame should fall on the elected officials who would rather play favorites than allow you to decide who’s doing the best job.

Have you ever used Uber? It’s pretty great. It’s essentially on-demand car service in a very user-friendly mobile app. They’ve also started partnering with taxi drivers here in Chicago. You instantly see how close you are to available drivers (and if you’re not, one will head your way) and all the money (including tip) is handled via your account, so no more worrying about cash. And you get to rate the drivers and the cars. It’s a little more expensive, but in many cases, it’s worth it. Either way – isn’t your reaction that this is the natural progression of how we’d hail a cab in an era where we can have food delivered without actually making a phone call or exchanging money? They don’t think so in Washington, DC, where the Taxi Commission launched something akin to a Mafia-style intimidation campaign against Uber drivers:

An Uber car was impounded and its driver was ticketed this morning as part of a sting operation, said the commission chairman, Ron Linton. The action comes two days after Linton said in a commission meeting that he considered the service to be operating illegally.

Linton played a key role in the morning sting, hailing a car using Uber’s smartphone app then directing it to the Mayflower Hotel, where city hack inspectors were waiting. The driver, identified as Virginia resident Ridha Ben-Amara, was ticketed for four violations — not holding a chauffeur license, driving an unlicensed vehicle, not having proof of insurance and charging an improper fare. The violations carry combined fines of $1,650.

“It kind of serves as a message to the others that are doing this, they’re not going to be immune,” Linton said. Ben-Amara, 48, could not be reached for comment Friday.

I’m surprised he didn’t add “boy, it’d be a shame if something happened to those cars you’re driving.” It’s easy to see why taxi drivers would hate Uber. But in a real marketplace, this would spur them to make improvements, like having credit/debit readers that work reliably. But in DC, they can wield regulations and fines as a weapon against competitors. Why? Give you one guess

DC had a hard-fought mayor’s election in 2010 in which the city’s taxi drivers mobilized heavily in support of the challenger, Vince Gray. Gray won, Gray’s administration owes favors to the taxi drivers, and the Gray administration has been moving on behalf of cabbies’ economic interests by approving a substantial fare increase. Uber’s game is to hack the regulatory system and introduce more competition with the taxis. A city government determined to increase the incomes of its cab drivers naturally isn’t going to like that and will counter-mobilize with regulatory decisions. It’s not really any one interpretation of any one rule so much as it is the underlying correlation of political forces. Does the DC government want more competition in the industry or does it want higher incomes for incumbent cab drivers? At the moment, the answer is higher incomes for incumbent cab drivers so this is what you get.

The City Council went so far as to introduce an amendment decreeing that “The minimum fare for sedan-class vehicles shall be five times the drop rate for taxicabs,” and “The time and distance rates for sedan-class vehicles shall be greater than the time and distance rates for taxicabs.” This was even called “the Uber Amendment” just to make no bones about who the Council was going to make pay for their crime of providing a service that people want in a way they’d prefer to use it. Thankfully, it didn’t pass (for now). You can watch the proceedings in their entirety, provided your gag reflex is strong (“We already have a dispatch system!” Oh.).

But this is just one, relatively innocent, example of how cronyism hurts you. Imagine practices like this were expanded beyond the DC City Council and were making an impact on a national scale. Oh, wait! You don’t have to imagine that. That iceberg image above is courtesy of the heroes at George Mason’s Mercatus Center, who have built this wonderful page as a one-stop shop detailing the harm resulting from public officials playing favorites. Bailouts are the most brazen example, but all those other practices are entrenched in American politics, and unless you are directly on the receiving end of those tax credits or loan guarantees, they hurt you, just as being forced to sit in a smelly cab, pay cash and get a blank paper receipt (WTF are those things? What good do they do?) hurts you.

But if that’s too much reading/clicking, you don’t even need to do that – check out this recent podcast from Planet Money, featuring Luigi Zingales, author of A Capitalism for the People. He shares how Italy’s economy and government were both neutered by rampant cronyism. Now he’s seeing signs of the same afflictions here, and if you’re an economy or a government, you don’t want to be compared to Italy:

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One thought on “Cronyism: A Primer

  1. Pingback: I Have a Distillery Around the Corner, And You Don’t | pro se

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