What Uber and another John Kay teach us about innovation and competition

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Imagine,” said the London cabbie, “that Uber had been operating for 20 years. And I came along with my black cab. My product was less comfortable, you had to go out into the street to hail it and it cost twice as much. I don’t think I’d get many takers. My business is finished, guv,” he said. “I’m thinking about what job I do next.”

This is a true story but an unusual one. Black cab drivers, industry incumbents, are more often to be found insulting the ethnic origins of Uber drivers and the US corporations that have invested in the service. And Transport for London, which oversees the capital’s transport system, responded to the cabbies’ concern with the customer-friendly suggestion that Uber users should have to wait at least five minutes for their car to arrive. Riot police confronted licensed taxi drivers protesting against Uber in Paris on Tuesday.

None of this is new. A series of murals in Manchester Town Hall celebrates the triumph of economic progress in the 19th century: the substitution of machinery for the skilled artisan. One mural depicts my 18th century namesake, John Kay, creator of the flying shuttle. He is wrapped in a bale of cloth to escape detection as angry weavers demolish his invention. The events it depicts are apocryphal; the truth is, if anything, worse. Kay fled not from workers fearing the end of their livelihoods but from his creditors; his savings had been exhausted in lawsuits over patents. Then as now, patents rewarded attorneys rather than inventors.

The mural probably confuses Kay’s tormentors with the Luddites, who decades later did attempt to destroy the machinery that put them out of work. But they were sternly repressed: parliament allowed the use of military force and capital punishment to suppress the revolt of the handloom weavers.

The rise of democracy gave latter-day Luddites opportunities to use legitimate political means to achieve their ends. The once powerful black cab lobby was behind TfL’s proposals to make citizens wait for Uber. Following pressure from the ride-hailing service, the plan was thwarted this month. Bill de Blasio, New York mayor, won office with substantial financial support from the established taxi industry. Meanwhile, publishers resist digitisation, hotels protest at competition from Airbnb. Protests by Uber drivers last year forced Mr de Blasio to withdraw his proposed restrictions on the service. But perhaps it will not be long before these drivers are in turn protesting against apps connecting customers with cars that need no driver.

These technological changes, even if inevitable, create hardship for individuals. Lord Byron, the poet, made an eloquent speech in parliament in support of the Luddites, motivated by concern for men thrown out of skilled work with no other means of employment. Three centuries later, the cost of a medallion required to drive a New York taxi has fallen from more than $1m in 2014 to $650,000. My cabbie’s investment in the Knowledge, the indepth familiarity with London streets required of all black cab drivers, has been outdated by satnav. One might have less sympathy for investors in media companies who find the value of their properties depreciated. Nor need we shed tears for Gene Freid­man, the largest owner of New York taxi medallions, or the banks who financed his investment. They chose a speculation, not a career.

The French government granted Kay a life pension and made his flying shuttle freely available. A similar French plan resulted in daguerreotype photography sweeping the world; the alternative by Englishman Henry Fox Talbot, though probably superior, gained only slow acceptance.

Stimulating innovation may require public intervention to make new products freely available and to compensate individual losers. But to restrict competition is to damage both the process of innovation and the public interest.

 

This article was first published in the Financial Times on January 27th, 2016.

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