9 August 2016 — Violent attacks by irresponsible cabbies against defenseless Uber drivers have become commonplace in Malaysia. As a frequent Uber user, I have always noticed that its drivers become very anxious when they have to pick up or drop off passengers in areas like Bukit Bintang or KLCC, where there is often a significant presence of cab drivers. Oftentimes, they would text their passengers to wait a safe distance away from the taxi queuing lines to avoid being a victim of verbal or physical abuse.
Many taxi drivers are angry and their willingness to convert it into action is palpable. Their main complaint is that their incomes have fallen because they face ‘unfair competition’ from private companies like Uber.
The great economist Milton Friedman often warned against those who talked about ‘unfair competition’; saying that “it is really a call for special privilege by interest groups, at the expense of the consumer”.
Calling for special privileges by the government at the expense of the consumer, is exactly what the Association for the Transformation of Malaysian Taxi Drivers (PERS1M) does when it lobbies the government to ban Uber, or impose unnecessary regulations on it. It wants the government to step in to correct the weaknesses and failures inherent within the taxi industry
PERS1M needs to realise that Uber and other private ride sharing applications are increasingly preferred over conventional taxis because it provides greater consumer satisfaction and value for money. It is as simple as that.
Uber provides passengers and drivers with a real-time feedback mechanism. It allows passengers to choose their driver, and lodge immediate reports using the application on their phones if their ride goes awry. Uber also allows its users to see the driver’s photo, car type, and licence plate number. These options are not available for hailed taxis, hence, the perception that Uber is safer.
Moreover, Uber drivers face a strong incentive to please their customers. The 1-5 star rating system rewards drivers based on how comfortable they make their passengers feel. High ratings are actively sought out by drivers, because it signals to other passengers that the driver is trustworthy, hence, increasing the likelihood of being picked by more passengers. It is not by accident or coincidence that Uber drivers are typically warm, polite and obliging. It is by market design.
Conversely, Uber drivers who have poor ratings are avoided by passengers and their accounts can be disabled if multiple complaints are lodged against them. Uber, motivated solely by its own profit, is guided by the invisible hand of the market to ensure that over time, only the best and safest drivers remain on the road. It does not take a PERS1M or SPAD (the Land Public Transport Commission) to ensure good and safe service.
Conventional taxi drivers do not face the same incentive to serve its passengers well. If you have a problem with a taxi driver — if he was rude or drove dangerously for example — your only recourse as a passenger is to lodge a complaint with SPAD. However, it will likely take a few months for your complaint to be acted upon, since SPAD allegedly had 18,000 outstanding complaint cases that it had not processed (as of 28th April 2016). Uber would no longer exist if it had half as many outstanding complaints.
This isn’t surprising. SPAD is a government agency and does not bear the monetary losses that bad taxi drivers inflict on taxi companies or the industry as a whole. As such, it does not have the same incentive as a profit making company like Uber to act as quickly or effectively; even if its individual employees and intentions are good.
Instead of lobbying the government to ban Uber, or subject it to suffocating regulations, the taxi industry should look within. It should improve the service it provides and focus on issues that prevent it from competing in the marketplace unperturbed, especially the burdensome regulations currently imposed on the industry by the government.
As an example, taxi drivers have to apply for a Public Service License (PSV) from the Road Transport Department (JPJ) before they can ferry passengers legally. While the cost of the PSV license itself is only RM20, the classes that taxi drivers have to enroll in to obtain the license can cost up to RM700. In addition, the prospective taxi driver has to apply for a separate vehicle license from SPAD. The vehicle has to pass several stages of approval from JPJ and PUSPAKOM: an undoubtedly lengthy and tedious process.
Uber drivers, on the other hand, do not have to go through these additional checks.
SPAD also arbitrarily determines the meter rates that taxis have to use, which is set higher than its competitors. In comparison, Uber has a flexible pricing mechanism, where prices change according to market demand at any given time. These constant changes in price allow individual Uber drivers to earn higher incomes if they want to, by working during peak hours or on weekends, when the fares are higher. Constrained by the fixed rates set by SPAD, taxi drivers lack this flexibility.
Furthermore, SPAD limits the areas in which taxis can operate legally. For example, budget taxi drivers are only allowed to pick up passengers in the Klang Valley, Johor Bahru, Melaka and a few other cities.
Taxi drivers need to seek the permission of the local authority to pick up passengers outside these designated areas.
They are thus forced to limit their fares due to the arbitrary geographical barriers set by the government, even if they have willing passengers. Uber drivers face no such restrictions.
Therefore, it is not surprising why taxi drivers are upset, given that they are forced to comply with these arbitrary and costly regulations, while Uber drivers are exempt.
The playing field is indeed tilted against the taxi industry; not by Uber, but by the regulations imposed upon it by the government.
Uber demonstrates clearly how market forces can self-regulate to produce cheaper, and safer outcomes for consumers; and that government intervention is not always necessary in the marketplace.
SPAD should take note of this fact. It should not be wasting precious tax payer dollars to impose similar, suffocating regulations on Uber and Grab car in its attempt to transform the industry to ‘level the playing field’ with conventional taxis.
To alleviate the burden faced by taxi drivers, the government should liberalise the taxi industry instead. It should remove expensive licensing fees and it should stop micromanaging the industry by setting arbitrary constraints on it.
Freeing the industry from its regulatory shackles would eliminate the justification for the taxi industry to complain or get angry any longer; and I would no longer have to worry about getting physically assaulted each time I use a ride sharing application to get around in the city
Yohannan Nair is a researcher at The Institute for Democracy and Economic Affairs (IDEAS)