New Jersey lawmakers recently reached a compromise on how to regulate ride-for-hire companies like Uber and Lyft. Politicians may laud the 26-page bill, but consumers should not. And Gov. Chris Christie should not sign the bill into law. It is a step down a familiar road of regulatory protectionism that will make it harder for future innovators to repeat the success of Uber and Lyft.
Most of the debate surrounding the bill (A3695) has focused on a single provision: requiring ride-for-hire companies to submit their background check policies to the state’s Attorney General for review. If he does not approve of them, the bill would require ride-for-hire drivers to submit to the same fingerprint background checks the state requires of would-be taxi drivers.
The push for fingerprinting has little to do with public safety. Uber and Lyft already subject drivers to intense scrutiny through third-party, records-based background checks that cross-reference federal and state records for evidence of a criminal history. There is scant evidence to suggest that fingerprinting will be more effective than the methods these companies already use. Uber also contends that fingerprinting is racially discriminatory and more likely to trip up applicants who have been arrested but not convicted of any crime.
Certainly consumers don’t seem to be concerned by the lack of fingerprinting. They have turned away from taxis, which require fingerprinting, in favor of app-based ride-for-hire services. Riders seem to place greater value on the ability to rate drivers, and see a driver’s photo, name, and average rating before they get into his car. Ride-for-hire companies also have established a reputation for responsiveness to consumer complaints and for terminating drivers with poor customer ratings.
The taxi industry can boast of none of these things.
Yet it is the taxi industry pushing for rideshare drivers to undergo fingerprinting. Why? It is cumbersome, slow, costly — the proposed state law would require drivers to foot the bill themselves — and will surely deter potential rideshare drivers. Taxi groups argue that since their drivers are fingerprinted, ride-for-hire drivers should be as well. But this call for fairness rings hollow. Taxi interests are doing what they always do: responding to competition by calling on the power of the state to regulate their competitors out of business.
Taxi groups have enjoyed a favored status in New Jersey and elsewhere for decades. In the name of public health and safety, governments turned taxi markets into fiefdoms. They codified the taxi business model, developed costly and complex licensing regimes, and employed medallion and other systems to permanently limit the supply of taxis, allowing companies to charge above-market prices.
Established taxi owners became entrenched, politically connected cartels so powerful that, even as prices climbed and service quality deteriorated, they were able to turn to politicians to defend their monopolies against competition for 80 years. The public, meanwhile, paid the price — literally.
Now, New Jersey lawmakers propose to repeat past mistakes. Beyond the question of fingerprinting, A3695 contains numerous provisions mandating how ride-for-hire companies must run their business. For example, it specifies how and when riders should receive receipts, mandates that drivers’ pictures and license plate numbers be provided digitally to potential riders, and codifies the independent contractor arrangement Uber and Lyft maintain with their drivers.
None of these provisions are necessary. Uber and Lyft already do all of these things. Absent this law, if they choose to change one or all of these policies in the future, the market will reward or penalize them according to the preferences of consumers. But if adopted, future innovators — the proverbial “next Uber” — will be boxed in by legal requirements that rigidly spell out what a ride-for-hire company must look like.
That’s exactly what lawmakers did decades ago with taxis, and it has taken a monumental effort on the part of Uber and other companies to break into and disrupt that calcified industry.
Christie should not allow Garden State lawmakers to repeat history. It’s time to let free markets work for consumers and entrepreneurs in the for-hire sector
This piece first appeared in Asbury Park Press