Innovation and productive entrepreneurship are crucial for economic growth, which increases the standard of living for people around the world. Unfortunately, regulators at all levels of government often stifle innovative new companies with burdensome rules and regulations that serve the interests of already established companies by keeping competition out. An example of this is happening right now in South Carolina with uberX.
UberX is a ride sharing service that uses a mobile app to connect drivers to passengers. It recently began operating in South Carolina cities Charleston, Greenville, Columbia, and Myrtle Beach. People who want to be drivers have to pass a background check, a driver history check, and ongoing quality controls in order to be associated with the uberX app. Consumers who want to use the service simply download the app to their smartphone and then when they want a ride somewhere they can pull up the app, designate their pick up spot, and a car will arrive to take them where they want to go. Often uberX is a cheaper alternative to cabs. For example, some sample fares in South Carolina are: $29 from GSP airport to downtown Greenville, $15 from King Street to North Charleston, and $7 from USC to Williams-Brice Stadium.
Of course like any business uberX has its supporters and detractors. In South Carolina the biggest detractors so far are state and city officials. In July 2014 the Office of Regulatory Staff (ORS) filed a petition with the state’s Public Service Commission stating that uber cannot legally operate in South Carolina. Uber drivers in Greenville have reported being stopped by ORS officials who have told them that what they are doing is illegal and that they are subject to fines or even jail time. Myrtle Beach officials have said that uber is not licensed to work in the city and that they plan to cite uber drivers for operating without a business license. The common theme throughout the government crackdown is that uber drivers need the same licenses and certificates as taxi drivers.
An often stated reason for why uber should follow the same rules as taxi companies is customer safety. According to Yellow Cab of Charleston Vice President Jerry Crosby “We still don’t know what type of report Uber does on drivers. We’re only told they do background checks, but there’s no transparency about exactly what those are.” Eastside Transportation Service President Louie Chemell adds “If you’re operating illegally and you don’t pay those fees, sure it’s going to be a whole lot cheaper”, but “there’s a lot of protection for the customer that is going to be lost.” Messrs. Crosby and Chemell may be genuinely concerned about customer safety, but that is probably not their only motive for wanting uber drivers to be forced to obtain the same licenses as taxi companies. Greenville City Attorney Bob Coler has said that if uber was to be considered a taxi company by the state they would be required to secure a certificate of necessity. This means that the Greenville city manager, not the market, would get to determine whether Greenville needed an additional transportation company. Certificates of necessity preempt the market from deciding whether a good or service is needed by preventing competition. Established companies can tell city officials that an additional company would harm their business and thus is unnecessary. If this sounds like a process that can be abused, it’s because it is just that. In 2009 Otman Benouis was denied a certificate of necessity for his taxi company after John Bacot of Yellow Cab wrote a letter to city manager James Bourey that implied that “expanding service in the area would flood the street with unsafe drivers”.
If living standards are going to continue to increase in this country innovation and the competition it creates are necessary. Competition is what sorts out the good ideas from the bad and helps society decide where to allocate scarce resources. Regulations that stifle productive entrepreneurship and market competition do not help society at large. Instead these regulations enable already established companies to maintain a government created advantage over their competition. Governor Nikki Haley, a Clemson alumna, often promotes her record on job creation. If she truly cares about jobs and expanding opportunities for South Carolinians she will use her position to bring attention to the onerous regulations in South Carolina and call for reform at the local level.