The local media have reported that conversations have restarted between the Birmingham City Council and Uber, the ride sharing service that is the prime exemplar of the “sharing economy.” A deal with Uber involving a revised city transportation ordinance would be a good thing, evidence that Birmingham is open to the benefits of free market competition unconstrained by excessive regulation.
What is so great about Uber? Here are some talking points.
Uber has created a large network that uses economies of scale to seamlessly match the demand for transportation with the supply of underutilized labor (individuals wanting to work more) and capital (idle cars to which the individuals have access). The Uber system creates substantial economic value at small cost (the additional wear and tear on the car and the value, which might be nothing, of what the driver would be doing if he or she were not driving for Uber). Uber has uncovered a manifestation of that rare thing, the elusive free (or nearly free) lunch, a lunch that is shared by riders (who receive improved service), drivers who earn income not previously available to them, and Uber (who gets a slice of the pie for organizing it all).
Uber has an app that permits a prospective rider to use a smart phone to locate Uber cars nearby and call one to the rider’s location to take the rider to a specified destination. Uber provides transparency to the prospective rider in several ways. By giving the rider the Uber car’s make, model, license plate number and a picture of the Uber driver in a shirt and tie, the rider is provided assurance about the identity of the driver and the car. The rider can also assess the competence of the driver and the quality of the car by viewing ratings provided by previous riders. Potential riders are free to reject drivers and cars (which may be up to 15 years old). Drivers are subjected to criminal and driving history background checks.
Pricing is determined primarily on the basis of time and may be variable depending upon driving conditions. Uber software calculates the fare which is billed to the rider’s credit card and is determined on the basis of an algorithm structured to calculate a payment fair to all parties. Generally, the payment is split 20% to Uber and 80% to the driver.
Aside from permitting its citizens a superior transportation service, why does Birmingham need Uber?
A few months ago we had a conversation about Uber with a successful executive who lamented the fact that his children could not use Uber in Birmingham to travel independently to after school activities. This executive valued the fact that Uber drivers were screened and monitored, and attached to an electronic system that pinpointed their locations at all times. The executive said he thought the Uber system was safer than having a driver in New York transport his children in a private car.
The Uber admiring executive is in Birmingham a lot but runs a business with offices in major cities in other parts of the world. As veteran participants in site location decisions by such companies as Honda, British Steel, and Sumitomo Metal Industries, Porter, White & Company knows that it is executives like this who make the final decision on where to locate an office or a plant that will employ a lot of people. Having Uber in Birmingham could well be a necessary condition for a location decision bringing a major job expansion to our area. Rightly or wrongly, not having Uber available is fast becoming a signal that a locale is backward and unresponsive to the needs of modern business and may soon be associated with lagging economic performance.
Over the last year, Porter White & Company’s “Birmingham Area Economic Report” has documented the decline in employment in the Birmingham-Hoover MSA resulting from the Great Recession and the fact that, unlike the United States as a whole, employment has not recovered to pre-recession levels. Perhaps as a result, collections from sales and occupational taxes in Birmingham are below 2006 levels when measured in real terms. The Birmingham area is badly in need of more good jobs. It does not help to raise the minimum wage, as Birmingham is trying to do, when a person does not have a wage to raise because of a lack of jobs.
What might be the public policy concerns of the Birmingham City Council concerning Uber and what might be responses to these concerns?
- Drivers need background checks. Uber does background checks and these could be forwarded to the City.
- Drivers need insurance. Uber insures drivers while they are on Uber business and a certificate of insurance could be given the City.
- Automobiles should be inspected. Automobiles are in effect inspected by riders every time they take a ride and report their experience to Uber and other potential riders, and this rider feedback will be more effective in taking unsatisfactory cars off the street than periodic official inspections.
Alas, Birmingham will not be the first city, or even the hundredth, to have Uber service. This means that we do not have the luxury of cutting a special deal. Birmingham should adopt an ordinance that permits Uber to operate much the same way it does elsewhere and rely upon the “wisdom of crowds”(1) as assurance that Uber will not cause a lot of bad things to happen. If Birmingham and other jurisdictions should subsequently have bad experiences with Uber (which could happen as there is no getting around the fact that “stuff happens”) then Birmingham should work through associations such as the National League of Cities to prepare a model ordinance that Birmingham can get behind along with other cities.
Porter White & Company is not now, and has never been, retained by Uber or any similar business. This commentary was prepared by us on the basis of publicly available information.