Why the ‘Uber Legislation’ Is a Missed Opportunity

LAWMAKERS HAD A CHANCE TO ADVANCE ECONOMIC FREEDOM IN SOUTH CAROLINA. THEY MISSED IT.

Lawmakers have introduced a number of bills this session designed to clear up the legality of ride-sharing services in South Carolina, and all of them have accepted the premise that the industry needs state regulation rather than freedom from it. Rather than getting rid of existing and demonstrably counterproductive regulations, lawmakers have created new ones. For those who don’t know, ride-sharing services are somewhat similar to a taxi service, except ride-sharing drivers are summoned via a smartphone app instead of a street hail (waving down a cab) or call to a central dispatcher. Some of the largest ride-sharing companies include: Uber, Lyft, and Sidecar.

The ride-sharing company Uber has proven popular with consumers in South Carolina owing to its ease of use (summoning and paying drivers via a smartphone app) and quality of service. That drivers and riders can rate each other using the smartphone app has also contributed to the company’s popularity.

But while consumers may love it, state regulators and existing taxi companies don’t. Both take issue with the fact that Uber began operating in South Carolina without receiving or even applying for the state certification required for all taxi companies to legally operate.

Under current law “motor vehicle carriers” who wish to transport passengers for profit must comply with both basic safety standards and apply for and receive a state certificate of either “public convenience or necessity” or a certificate of “fit willing and able.” Taxi companies – and as critics contend ride-sharing companies – must receive a class C certificate of public convenience and necessity in order to legally operate.

Application for a class C certificate must be made to the Public Service Commission (PSC) and entails submitting the proposed area of service for the motor vehicle carrier, as well as the proposed rates the carrier will charge. Individuals or business likely to be affected by the issuance of the certificate (existing cab companies) are free to make objections to the PSC concerning the application. The PSC can reject the application on the basis of either failure to meet legal requirements, or simply by determining that the public is already being served in the new company’s proposed area of service. In the event that an application is approved, the certificate will be issued by the Office of Regulatory Staff (ORS).

Once certified, a motor vehicle carrier must pay regular assessments to support the regulatory activities of the PSC and ORS. The carrier must also get rates/fares approved by the PSC.

Certification laws serve no useful purpose. Why? Because it’s impossible for a government agency to determine the appropriate level of production/service in a private industry. The free market – that is, a marketplace of paying consumers – is alone capable of determining how many competitors an industry can bear, and what price levels are feasible. In fact, as the Policy Council has highlighted elsewhere, economic research finding that occupational licensing laws do little to improve quality of service, and they often result in increased prices (see page 17 of the PDF) in licensed industries.

Certification laws do, however, serve one interest group: already certified businesses. Certified companies enjoy state protection from competition, which allows them to behave like monopolists by charging higher prices while providing services at lower levels of quality.

The solution to the ride-sharing issue in South Carolina is therefore obvious. Legislators simply need to cut the Gordian Knot of regulation and end certification requirements for passenger transporting motor vehicle carriers. Removing certification requirements would benefit both consumers, by increasing levels of service and lowering prices, and entrepreneurs, by making it easier for them to compete. Doing away with class C certificates of public convenience and necessity would also create a level playing field for competition between taxis and ride-sharing services.

Instead, lawmakers have attempted to address the ride-sharing issue by creating an entirely new class of regulation for ride-sharing companies, which they now term “transportation network companies,” or TNCs. These proposed regulations would force ride-sharing companies to receive from the ORS a certificate specific to them. The proposed regulations also impose a number of other costly mandates on ride-sharing companies: requiring them to maintain trip records for years (for the benefit of regulators), requiring them to offer fare estimates and electronic receipts, and so on. The most recent version of the legislation would also require TNCs to pay annual fees to finance their regulators, and to pay local assessment fees to counties and municipalities based on where all of their ride-sharing trips originated.

And, of course, lawmakers have not considered reforming the convoluted and unaccountable system – the PSC and ORS – that imposes onerous and counterproductive regulations on the industry. Like virtually every other public body that has any significant power in South Carolina, these bodies are controlled by a few legislative leaders. While the Director of the ORS is appointed by the governor, members of the PSC are elected by the legislature; and before any individual is eligible to serve as a PSC member or ORS Director, that person must first be nominated by an entity known as the Public Utilities Review Committee (PURC). Of the ten PURC members, nine owe their positions to either the House Speaker or Senate Judiciary Chairman. Allowing this degree of control by the legislature in general, and to two lawmakers in particular, prevents accountability while fostering favoritism, cronyism, and outright corruption.

The solutions lawmakers have proposed to the ride-sharing dilemma amount to the worst of both worlds. Rather than removing unhelpful restrictions from taxi companies and reforming the bodies that produce harmful regulatory policies in the first place, the legislature would impose these same restrictions on ride-sharing firms and subject them to the same regulatory bodies. The only notable regulatory differences between the two industries would be an easier certification application process for ride-sharing firms and more freedom to determine their fares. In short, legislators wish to impose most of the same regulations that stifle the taxi industry on the ride-sharing industry, too, while excluding just enough of those regulations to give a slight advantage to ride-sharing companies over traditional taxi companies.

The only benefit to the bills proposed by the legislature so far, then, is that they legalize ride-sharing in South Carolina. That’s hardly a triumph for economic freedom. But they accomplish even that lowly goal by forcing ride-sharing companies to comply with outdated and detrimental regulations.

A legislative conference committee is expected to meet shortly to iron out the differences between the House and Senate versions of ride-sharing legislation, but the opportunity has been missed already. State policymakers will only unleash the beneficial forces of competition for consumers and entrepreneurs – while still providing for basic safety standards in the taxi and ride-sharing industries – when they undertake to deregulate the market. Until then, politicians and bureaucrats will continue to decide who merits government-backed advantages and who doesn’t.

For a more detailed analysis of the ride-sharing issue, including the benefits of competition and specific laws that need to be reformed, click here.

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