Taxi rivals looming.

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Uber Serves the Poor by Going Where Taxis Don't

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Who is Uber good for?

People talk about the ride-sharing service as if it's mostly a boon for rich people, who have conspired with the titans of Silicon Valley to take food out of the mouths of hardworking taxi drivers. And sure, what's good for Uber is bad for taxi drivers -- or at least, bad for the owners of taxi medallions. But the assumption that the beneficiaries are rich is a little strange.

As I noted in the very first article I ever wrote about the company, the primary appeal of Uber for me has never been avoiding taxis, or even getting a cheaper fare. If I'm in an area where it's easy to catch a street hail, I'll usually just stick my arm out like the old-fashioned girl I am. No, the biggest benefit I've always seen is that Uber allowed you to catch a ride from places where taxis are scarce.

Five years ago, when we moved in, my neighborhood in Washington was one of those places. I almost never saw available taxis near us. For taxi drivers, time is money -- any time they're not driving someone around, they are burning gas looking for a fare. So no wonder drivers would rather head downtown, where there were lots of people looking for taxis, than cruise a larger area for the few fares that might need a ride. Street hailing simply isn't efficient without a dense population of taxi riders. And while you could theoretically call a taxi to your house, this was a highly unreliable means of transportation. More than once, I have had to press my retired mother into emergency service for a ride to the airport, because my car simply never showed up.

I've always thought that in terms of letting you do something you couldn't do before, Uber provides the biggest benefit to people who live in lower-income neighborhoods, not in rich ones. That's where dispatch is often unreliable, where street hails are rare, and where many residents don't have a car. A new study suggests that in low-income areas, this benefit of Uber is potentially very large. (Uber paid for the study, which was executed independently by respected researchers.)

Researchers hired people from a temporary staffing agency to stand on the street in pairs, one of them calling for a taxi, the other one calling for an UberX. They each proceeded to an agreed-upon destination and recorded how long it took them to get there from the time they picked up their phone to the time they stepped out of the vehicle. The results were striking: Ubers arrived substantially faster, and were significantly cheaper, than the taxis.

Well, of course, you might say -- Uber is cheaper because it avoids regulations, and cheaper things are better for the poor, but that's not necessarily a good reason to gut good and necessary regulations. We don't let companies dump all their toxic waste into rivers, even though that might well reduce the price of things poor people buy. (This being about the reaction of commenters on the blog of Mark Kleiman, who was involved with the study.)

I actually think this really misunderstands the issue in multiple ways. First of all, most of the regulations that Uber is free of fall into three basic categories:

1. Regulations that overcome the coordination problems between passengers and drivers. Set fares are an example of this.

2. Regulations that artificially limit the number of taxis, thereby enriching the lucky holders of licenses to operate taxis. Taxi medallions are an example of this.

3. Regulations that pleased some bureaucrat for no obvious practical reason. The insistence that all taxis follow the same color scheme is the obvious example here.

A lot of things fall into Category 1. For example, anonymity is a huge problem for both passengers and drivers. Getting into a car with a stranger you can't identify makes you a pretty attractive target for criminals. So it may make sense to fingerprint taxi drivers for background checks to make sure that they aren't, say, serial rapists. But Uber drivers don't have anonymity. If your Uber driver attacks you, the company has a very good record of who it was. That's also true on the passenger side, by the way, which is one of the reasons it's attractive to drivers.

(Have a few Uber drivers been accused of assaulting passengers? Yes. So have cabbies. No system is perfect; the question is whether Ubers are actually less safe than taxis, and I haven't seen anyone offer any evidence that they are.)

Or take the problem of getting drivers to go to outlying or poor neighborhoods. Cab drivers aren't jerks who hate taking people home; they're not-particularly-well-paid working stiffs who can't afford to deadhead back a long way, because that can kill their profit margin pretty quick. Uber makes this much less of a problem, because it's a lot easier to find a return fare when you get there. In both cases, Uber isn't skating by unregulated; it has obviated the need for the regulation.

It's absolutely true that Uber avoids regulations restricting supply. But that's pretty much tautological; if Uber didn't increase the supply of rides available over the existing stock of taxis, there would be no Uber. But supply restrictions are also the single biggest reason that people in low-income communities have trouble getting rides. If there are only so many taxis, those taxis are going to gravitate toward the areas with the highest returns, which is to say airports, train stations, wealthier communities, and business and entertainment districts, where they'll find the highest densities of fares. To advocate for strict limits on the supply of taxis is to advocate for lower-income communities to be underserved.

Similarly tautological is the claim that Uber benefits the poor only because it avoids the set fares that keep prices high; of course a lower price is good for the poor. And the third complaint is simply pointless; I mean, yes, Uber saves some money by not forcing drivers to paint their cars a funny color. This seems money well saved.

Moreover, some of the benefits Uber offers are clearly not dependent on skirting regulations. Using a smartphone app is simply more efficient than calling someone who then dispatches a driver to your location. For riders in communities with few transportation alternatives, that efficiency matters.

On his blog, Kleiman points out that this research is still preliminary; more should be done to see if these results hold. But for now, the best piece of research we have suggests that Uber can really help riders in low-income communities. That's great news -- at least, as long as the government doesn't try to run them off the road.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Philip Gray at philipgray@bloomberg.net