
To Protect Legitimate Interests, Seattle Should Cap All Forms of Innovation - dkasper
http://starkravingvc.com/2014/03/18/to-protect-legitimate-interests-seattle-should-cap-all-forms-of-innovation-immediately/
======
timr
I personally think the Seattle uberlyft rules are stupid, but it's worth
remembering something that gets lost in the noise of "futurism" that clonks
around the silicon valley echo chamber: it's not _inherently wrong_ to have
laws that protect established businesses. I don't like cab companies, but I do
want to know that my hired driver is insured. I'm indifferent to hotels, but I
don't want my neighbor running an SRO out of his apartment. I don't enjoy high
medical bills, but I like the ability to know that my prescription medications
aren't radium-based elixirs. And so on.

To the extent that stability of certain kinds of businesses is essential to
the stability of our society, it's actually a very good thing that governments
are somewhat conservative about protecting the establishment. Moreover,
there's no law of the universe that says that "disruption" is a good thing,
and there _certainly_ isn't any clean way to weigh the interests of one big
established industry with those of a large, successful, wealthy competitor
industry.

Anyway, I have a hard time getting worked up over the regulatory disputes of
corporations -- we have bigger problems, not the least of which is the
question of why those big, successful companies get so much influence over the
laws in the first place.

~~~
michaelkeenan
> there's no law of the universe that says that "disruption" is a good thing,
> and there certainly isn't any clean way to weigh the interests of one big
> established industry with those of a large, successful, wealthy competitor
> industry.

There's something fairly close to a law which says that disruption is a good
thing. Industries can only be disrupted by entrants that provide products that
consumers prefer, so we have almost-a-law: disruption is a _preferable-to-
consumers_ thing. There a few cases where that's not socially desirable (I
suppose crack replacing cocaine would be an example) but those are exceptional
enough that I think we ought to regard disruption as presumed good unless
shown otherwise.

Similarly, a decent heuristic for choosing whose interests to consider out of
an established industry and a competitor is to let consumers choose which one
is better. Of course this can be difficult for those in the established
industry, but we're in a society-wide Prisoner's Dilemma over this, and a
useful function of government would be making sure we all cooperate. Letting
consumers choose the best companies is cooperation; protecting your own
industry is defection. I'd be better off if my job and income were guaranteed,
but I'd be worse off if everyone else got the same deal.

~~~
x0x0
That's hardly the only example, and I think it's better to say so-called
disruptors provide a service preferable to some consumers.

Many industries create negative externalities and government regulations force
them to internalize some of those costs. Hotels are full of loud, annoying
people; we stick them in certain parts of town only.

Or many industries are a form of cost pooling. The US decided that we want to
have reliable mail delivery. The post office (which does an amazing job as
compared to the vast majority of countries) uses the profits from short routes
and urban centers to subsidize expensive and/or remote routes. Of course a
business would love to come in a cherry pick the profitable routes. We --
rightly -- don't permit that, because we wish to have universal mail delivery
and this is how we've chosen to pay for it. Reliable city-wide taxi service is
probably similar; I don't know if uber et al are just cherry picking the best
/ most profitable routes, but I wouldn't be surprised. (And don't get me
wrong, I love uber -- at least in sf, it's a taxi _that actually comes_.
Amazing! But still, service guarantees are important, as are flat fares
to/from airports, in part to avoid screwing tourists.)

And this doesn't even mention tax revenues; I know HN tends towards the
glibertarian but the simple fact is if we, as a society, want nice things
someone has to pay for them. A (big?) piece of many of these controversial
startups' innovation seems to be thinly disguised tax avoidance (amazon,
airbnb).

I actually think disruption tends to be neutral at best. Cities, especially
dense urban living, are a large set of compromises amongst many people, and
valley companies often have little respect for that.

~~~
rayiner
This is a really wonderful post that captures a lot of what people overlook
about Uber, AirBnB, etc. To some extent, these companies are built to
arbitrage on government regulations intended to limit negative externalities,
or achieve cost pooling or achieve universal coverage. Particularly Uber,
because its not exactly some great innovation to be able to call a cab with
your phone. The business model relies heavily on being free of taxi regulated
rates and cherry picking the premium customers.

~~~
Fomite
This. I have no sympathy for "Laws are for other people" as a business model.

~~~
rayiner
I'm fine with the business model. Maybe these regulations need to be
challenged. I'm not sympathetic to denying that regulatory arbitrage is what
you're doing, and calling attempts at enforcement to be corruption.

------
yajoe
For those who don't know, Greg is one of the common faces of the Seattle VC
scene. He is a staple at nearly every startup event -- Startup Weekend,
Geekwire events, TechStars, VC panels, etc.

I don't have a dog in the fight, but I did spend some time reading the actual
bill since these blog articles felt like more political campaigns than
informative pieces. The last time this came up I posted
[https://news.ycombinator.com/item?id=7303232](https://news.ycombinator.com/item?id=7303232)

The Seattle city council passed a law that made so-called "ride sharing"
services legal after intentionally withholding prosecution for over a year.
The law isn't perfect, but it does feel like it strives to balance protecting
existing investments with new services. The most salient changes about the
bill:

1\. Seattle defines uberX, Lyft, etc as Transportation Network Companies (TNC)
and declares all drivers as "for-hire" drivers, which is a legal distinction
that means Seattle can regulate them.

2\. TNCs are taxed at $50k for first year. Second year is the greater of $50k
or .35% of gross revenue.

3\. No more than 150 drivers may be associated with each TNC at a time, and
each driver can work only 12 hours per 24 hour period. Previously the law
would have limited 300 drivers per TNC per quarter regardless of who was
active, and this was "the cap." For comparison, there are 1100 taxicabs in the
city.

4\. Drivers can't double dip: They can't both drive for-hire cars and also do
uberX on the side. They also can't work for both uberX and Lyft.

5\. Rates may either be flat-rate between preset zones OR subject to RCW
Chapter 19.94. RCW Chapter 19.94 defines appropriate measurement devices that
may be used with commerce, which I think precludes most cell phones... uberX
would need to install meters it seems and precludes surge pricing.

6\. The insurance requirements are stricter than what uberX or Lyft provide
today and are mostly in line with existing taxicabs.

7\. There was a 30% increase in the cap on cabs at the same time.

8\. TNCs have to report their activities to the city, which will be available
to the public for inspection.

~~~
HelloMcFly
Regarding #3, isn't 150 active drivers at one time, rather than 150 per TNC?

~~~
benatkin
No, it's 150 per TNC. Were it 150 total, they'd effectively have a medallion
program.

------
jrochkind1
I don't understand what's supposed to make internet-based reservation/dispatch
such a game-changer that it should make your taxi service immune from existing
taxi regulations.

Here in Baltimore, there are tons of illegal 'hack' cabs operated by 'private
citizens,' mostly not white people, sometimes in their spare time, sometimes
on the regular. They are illegal. But they do it anyway. And probably seldom
get caught (they do not put weird devices advertising their existence on their
front grill). Okay, such is the black/grey market, it happens.

But we're going to legalize some _other_ kind of illegal taxi service because
it's run by white venture-funded capitalists instead? (Apparently we have,
because I see the Uber cars here, I don't know the situation). Do the illegal
hack cabs just have to accept internet-baed reservations, and they're suddenly
legal too?

------
Locke1689
Opinion follows:

This article is bullshit. It's quite obvious to me that Seattle roads are a
classic tragedy of the commons. There is a point where Seattle streets are
saturated such that adding cars increases traffic and congestion without
reducing cab time from point A to B. There is also a point where the supply of
taxis meets the demand exactly.

Currently, we have little data to say where these points lie on the number
line of "taxis" in Seattle. If the first point is less than the second, the
city should place a limit at that point. If the second point is equal to or
less than the first point, then the city can set the limit at an arbitrary
value equal to or greater than the second point and let the market sort it
out.

Either way, by regulating the quantity of taxis, the city can slowly increase
the limit to find the optimal solution.

~~~
icebraining
Even if we take street congestion to be a tragedy of the commons, it's not
obvious that more cabs imply more congestion, since as part of a network of
public transportation, they may help reduce personal car usage.

But even if we take it for granted, I still think your approach is pernicious.
The issue with your - and the city's - method is that while the claimed
problem is congestion, the solution is to limit the number of registered cars
per service. But the error in that reasoning is that it presumes that they are
perfectly correlated, and so it prevents market players from coming up with
better solutions that reduce congestion without reducing the number of cars.

For example, services like Uber which rely completely on calls via the
Internet have the potential to cause much lower congestion compared to a
service that relies on having idle drivers drive around looking for people
waving their arms.

If one wants to reduce congestion, then the only good solution is to tax cars
driving in congested areas.

------
wpietri
Reading what the city councilmembers say, this sounds pretty reasonable to me:

 _" But the six other councilmembers voted that idea down. Bruce Harrell, who
voted last month in favor of the 150-cap, said that the city’s vision in the
coming years is to remove caps and let consumer choice “dictate what’s out
there.” But for now, the approved legislation lets TNCs operate legally in
Seattle with oversight."_

That's hardly the "stop all innovation" position that this VC is lampooning
them as having.

~~~
dmix
Did you read the article? The vote that you're referring to, found farther
down in the article, was the one to _remove_ all caps from taxis. They council
voted against it.

If you read the beginning of the article, the one placing the caps on
alternative taxis passed: "the Seattle City Council voted 9-0 Monday afternoon
to enforce new legislation that will regulate app-based transportation
companies like UberX, Lyft and Sidecar."

~~~
Tobu
You misunderstand; one of the councilmembers who voted for the caps was
considering dropping the caps later. The council let Uber &co operate for one
year before updating the law and are prepared to wait, see and update it
again.

------
S_A_P
Maybe I don't get it, and maybe that is why I'm not in the valley at a start
up, but I don't really inherently trust that people are good. I don't believe
that renting my house to strangers is a smart idea. I don't believe that
someone who feels like driving people around should take me 35 miles to the
airport. There are bad people out there folks. The formality around hotel and
cab businesses and the barriers to entry serve to "protect" the consumer
somewhat. Since it's hard to start a profitable hotel, you want to provide
good service to customers and keep things bed bug free. If you paid good money
for your cab token you probably wouldn't want to rape one of your fares and
destroy that investment. Now these are kind of a straw man arguments, but the
point I'm making is just because you can do things doesn't mean that you
should. I also just think that business models like uber and airbnb can let
people into the market that really should not or have no business being there.
Of course the odds of something bad happening in a hotel vs airbnb or someone
trashing your airbnb are likely very slim. Same goes with über vs cabs.
However I would venture to say it's a safe bet that in most cases you are more
likely to have a bad experience with the "disrupt" businesses than an
established and bureaucratic one.

I think that it should probably be decided by the market, and I would love to
be wrong about this. I just don't think that I am. Maybe if I were 10 years
younger and didn't have kids, but at my current place in life, I'm calling a
cab to take me to a hotel, and I don't have house guests that aren't really or
like family to me.

------
johnrob
I understand why everyone gets upset at this - there are rarely enough cabs,
especially when _I need one now_. But the law is and has been very clear about
paid transportation. Why don't we focus more on updating the law instead of
asking politicians to break it?

~~~
aetherson
The Seattle city council was updating the law. It was entirely within their
power to update the law in such a way that it removed restrictions on cab and
for-hire companies and kept TNCs lightly or not-at-all regulated.

This may go to a deeper level than you intended, but law -- especially
business regulation law like this -- is SO detailed and complex that I think
that most citizens despair of being able to easily comment on changing it in
any way that is not entirely generalities (such as: "I don't think that we
should cap Uber's car-count").

I was listening to the Seattle city council meeting, and one of the
councillors asked -- someone, staff or maybe the bill author -- "Why did we
strike the section that lists the innumerable things that we don't want
professional drivers to do (like, 'transport a prostitute' and such)?" The
bill author responded, "Oh, well, we're reclassifying the TNCs as for-hire
companies, so we already have law explaining all the things they can't do."
(I'm paraphrasing, of course).

This struck me as both ridiculous -- I'm fairly sure that we don't need
separate business regulation making it... more?... illegal for cab drivers to
aid and abet separate crimes -- and also a cause for despair. The city
councillors who have been focusing considerable attention on this particular
subject for weeks now are unable to keep the bill straight in their heads. How
impenetrable will it be to everyone else?

~~~
saalweachter
Sidebar: a lot of anti-prostitute laws are actually anti-pimping laws. I
almost guarantee the reason that 'no transporting prostitutes' law is on the
books is that at some point someone had the wise idea to front his pimping
operation as a car service. John pays a prostitute, she pays her 'driver', and
if the police get involved he don't know nothing.

So they make up something to charge the pimp with.

------
mscarborough
Great blog! No content, no menu, but Disqus comments. This dude is the perfect
person to be evaluating growth/scale of companies as a Stark Raving VC, but
who for all his money can't hire an intern to make a static blog work.

If it was something that wasn't important to the author, like the last episode
of some TV show, OK, but this whole taxi thing seems like a big deal. Treat
the medium with respect if you care that much.

------
Zigurd
There is an interesting lesson here writ small: How do old-line rent seekers,
even where their industries are tiny compared to the technology industry and
the investors behind it, continue to give the nerds wedgies?

Why didn't we tell the DRM people where to stick it? The business of selling
recorded performances is teeny tiny compared to the 1.5 billion programmable
devices per year, the routers, the fiber, the software, etc. of the tech
industry. And yet we are led by the nose.

If we figure out what makes taxi companies powerful, maybe we can rip the DRM
out of our devices.

~~~
aetherson
Well, apples-to-apples, I don't think that people selling fiber generally care
very much about DRM or taxi companies. Neither does most of the rest of the
tech industry. It's not like the tech industry is some monolithic cabal -- nor
should it be.

The rest of the seeming conundrum is, I think, evolved institutional
codependence, bureaucratic inertia, and people's fundamental conservatism.
That is:

1\. Taxi companies and taxi regulators have grown up together. It's not that
taxi companies are exactly lean, mean lobbying machines, and it's not that
taxi regulators are exactly corrupt. It's that they know each other and are
comfortable with each other and even when they're quarreling, they understand
the limits of their relationship.

2\. Hand-in-hand with that, people just don't like to make radical changes to
regulatory systems. Even if the existing regulatory system is kind of crazy.
There is a fairly large class of people who will assume that any system that's
present must have some virtue, by mere testament of its presence.

3\. Finally, regulatory commissions will tend to solve any problem by thinking
they should regulate it. Some of it may be cold-blooded, "Well, I want to
increase or at least preserve my influence, my power, heck, my job," but
honestly I suspect that most of it isn't nearly that calculated. It's just,
you've been spending years regulating taxis, when you see something new and
taxi-like on the horizon, your response is much more likely to be, "Well, I
should regulate that, too," than, "Maybe I should just pack it in and get out
of everyone's way."

~~~
Zigurd
You say "monolithic cabal" like it is a bad thing. How about a coalition of
technology companies willing to see the recorded performances business shrink
a bit in return for better, less expensive, more secure, and more open
devices.

------
zaroth
Did anyone else have to reload multiple times before the text actually showed
up? (Using Chrome v33)

~~~
buro9
He's using SVG fonts without WOFF or EOT versions.

For whatever reason they aren't rendered immediately. Double hitting the F12
dev bar usually sorts it.

------
jsnk
A French economist and statesman, Frédéric Bastiat ridiculed government
protected industries in the same manner as OP in 1800s.

source:
[http://en.wikipedia.org/wiki/Fr%C3%A9d%C3%A9ric_Bastiat#Econ...](http://en.wikipedia.org/wiki/Fr%C3%A9d%C3%A9ric_Bastiat#Economic_Sophisms_and_the_.22Candlemakers.27_Petition.22)

~~~
MartinCron
I doubt anyone would mistake the OP for being original or even clever. Anyone
can stretch something until it sounds preposterous.

------
runn1ng
I hate to be _that guy_ , but.... the website doesn't work on Chrome on
Android. I see just empty page and some pictures.

~~~
stefan_kendall3
I had my browser window docked to 50% and saw nothing. It's a responsive
design that hides content beyond some threshold.

------
tolmasky
Although obviously hyperbole, the sad thing is that this is actually not
completely outside the realm of possibility:

With regard to the first point, before there was email, Lysander Spooner
attempted to compete with the (at the time notoriously high priced) US Postal
Service. He was profitable, but the US government sued him out of existence.

You could argue the second point already happens "indirectly" through our less
than transparent foreign policy.

The third point also kind of already takes place thanks to patents: the US
government has given Microsoft a way to profit off of Android despite clearly
demonstrating failure in this market.

------
Guvante
Doesn't this metaphor break down when you consider that taxi drivers are
capped already?

Also AirBNB and Uber and similar things are in a weird spot since they are in
heavily regulated industries.

~~~
Tobu
Uber is innovating in bookkeeping and creative interpretation of regulations,
which is not the kind of innovation that benefits the world at large; they're
employing marketers and lawyers, not drivers. They just built cute ways to
work around the employment, road tax and health insurance costs their
competitors pay, turning those costs into their margin. Good point, their
competitors had to obey a cap and they didn't, raising the taxi cap by 30% to
address demand made a lot of sense.

Some of the excuses are right out of the pimp playbook and deserve ridicule:
our drivers are freelancers! no one is paying for a ride, these are voluntary
donations! we don't encourage anyone to operate unlicensed taxis, we merely
collect a referral fee!

------
ulysses
Alternately, to protect the public and support innovation, Seattle passed
legislation to license and legalize taxi alternatives such as Uber.

Also, Microsoft is not a Seattle-based company.

~~~
adventured
I think you're being disingenuous. The author never said Microsoft was a
Seattle based company. He said they're a "local employer" \- which they are.
He referred to Microsoft having seattle-based employees. Microsoft is
obviously a Seattle area employer. When you have 42,940 employees in Puget
Sound, you're a Seattle employer. It's a perfectly valid reference.

------
eplanit
Cities also limit the number of "regular" taxis, too.

------
glesica
Instead of whining about it, why don't these companies negotiate with cities
to find ways that they can raise revenue for the cities and generally help the
communities they operate in? They _do_ drive on public roads, etc. Why not
propose some kind of fee to offset this? Cities might be slightly less hostile
if they weren't staring a big fat hole in their budgets in the face.

------
ilaksh
I get the impression that three things are going on which are all bullshit: 1)
people who are invested in some way in existing taxi companies are using
politics to suppress competition from high tech startups and 2) somehow the
new internet based taxi startups have been exempt from existing taxi laws and
3) the people who are invested in some way in existing taxi companies are
using politics to suppress competition from low-tech startups (i.e. Joe with a
car who needs money), like they always did.

You should not need to be wealthy to run or start a taxi service, or have to
go through a or complex lengthy paperwork process. Whatever regulation there
is, is definitely unfair to lower-income individuals who are otherwise
perfectly capable of running a safe taxi service and meeting requirements that
don't involve large fees or delays.

You should also not need to be associated with a high-tech startup company in
order to start a taxi service. If Uber and the rest are able to somehow bypass
or ignore the existing taxi regulation, or have been given a pass, that is
incredibly unfair to the numerous individuals and small companies who have
been prevented from starting taxis services, or prevented from having
_legitimate_ taxi services, by outdated and protection-racket style taxi
regulations. And also unfair to the people who went through the whole process
and have regular taxi companies.

From what I can tell, most governments operate on a level similar to my high
school student government, in terms of fairness and decision making. Basically
like racist kids with barely-above average intelligence who give preference to
the popular people, are completely inconsistent, manually collect forms and
type them into barely-functional spreadsheets, take advantage of their
positions, and, the one time they were given the opportunity to set fees, use
their "government" as a vehicle to advance their personal wealth.

Within 5-15 years the human race will be completely irrelevant, as super-
intelligent artificial general intelligence arrives on the planet and is
forced to create zoo-like safety environments surrounding populations in order
to prevent humans from destroying eachother and large areas of the planet with
ordinary bombs, guns or even nuclear weapons.

------
arikrak
He picked examples of industries that are protected heavily, and just
exaggerated them a bit. So the laws about Uber fit into existing protectionist
laws. E.g:

\- The US postal office has a legal monopoly on mail, and loses money every
year.

\- Airbnb has faced many legal battles over laws that protect hotels.

\- Hospitals often charge arbitrarily high amounts for even small things like
a pill or bandage.

\- Public schools have an almost complete monopoly on education.

------
trhway
couldn't they just tax the Uber, Lyft, etc... drivers' revenue? The same with
AirBnb - whenever someone charges the money for their condo/apt/house, be it
aunt/uncle, friends or unrelated tourists - pay the share of revenue thus
leveling playing field with established players.

~~~
fennecfoxen
Why do Seattle's residents need the playing field levelled in the direction of
services that they wouldn't choose in the absence of legislation?

~~~
trhway
>services that they wouldn't choose in the absence of legislation

1.are you saying that taxicabs can be abolished as nobody would use them?

2\. any business activity (ie. activity generating revenue stream) would rely
on some government services, like, for example, road maintenance in this case.
You drive more and thus cause more wear and tear on the roads, and this
increase in your driving brings you additional revenue - seems to fair to tax
such a revenue. Driving more you increase congestion which government [suppose
to] spend money to solve. Being involved in frequent business transactions
you'd probably have higher probability for the need for other government
services - police, courts.

~~~
fennecfoxen
1\. No, I'm not claiming no one would use taxicabs or would ever choose
taxicabs over Uber; I refer to a series of hypothetical transactions in which
an individual would choose Uber over taxicabs in the absence of the government
pressuring the system one way or another.

2\. The business activity's externalities (e.g. contributing to congestion)
could hypothetically be involved in an answer to my question!! While
rhetorical, the question does have good answers from time to time. However, in
this case, I don't believe the proposed cap is going to be very effective at
mitigating those externalities, and the general concept of a "level playing
field" is orthogonal to externality mitigation.

~~~
trhway
>the general concept of a "level playing field" is orthogonal to externality
mitigation.

no. If one operator is paying for externality mitigation, it is only natural
to level playing field by making other operators in the same business space to
pay for the same externality mitigation.

------
jdonaldson
We need to regulate the negative outcomes of a service, not the service
itself.

------
alexeisadeski3
Bastiat rides again.

------
jroseattle
Greg makes great arguments here, and he's not the only one who has been making
these comments. Indeed, the level of rhetoric in our burgeoning class warfare
is escalating rapidly; "technocrats" is my new favorite label.

But I question the TNCs strategy of approaching this long-term. It appears the
strategy was simply to try and go the popular-opinion route. Of course the
market has spoken, and it prefers Uber & Lyft by a huge margin over the
traditional taxi market. However, in dealing with regulatory matters,
political dealings are a necessary cost of doing business.

Instead, the TNCs did a few things wrong: 1) they jumped into the process a
bit too late, 2) they took an antagonistic, condescending tone with the
powers-that-be, and 2) they under-estimated the power of old-fashioned
lobbying by the taxi industry.

Principles of market openness, disgust with the political climate, etc. don't
really matter in light of moving ahead. Now, the Seattle market is likely
stalled for a lengthy amount of time. And, future markets know they'll be able
to extract a pound of flesh as the TNCs look to expand.

I hate the outcome and think the City Council deserves to be revoked, but the
TNCs needed to do a much better job in handling this situation.

