Note: This post originally appeared in spanish in El Mercurio, one of Chile’s largest newspapers with the title Uber contra los taxistas. This battle has played out in major cities around the world and is currently coming to a head in Chile, with the same mass taxi protests and government intervention to ban Uber and similar services.
The national debate has been focused on the battle between Uber, Cabify and “yellow cabs” during the past few weeks. Most people have focused on this battle as if it were the only battle between technology and the status quo happing right now and have only focused on one part of the battle.
As a tech investor and also a foreigner, I’ve seen this battle many times from afar in the US and from close up with companies that we’ve invested in.
At the end of the day, it’s absolutely clear that Uber and Cabify provide a much better service than traditional taxis. As a foreigner, my taxi experience has been (hopefully) much worse than what I’d imagine the average Chilean’s is. Taxis have tried to take me for a ride, rigged their taxi meters, tried to do quick change scams and I’ve even gotten hit by a wooden stick when a driver got mad I’d figured out his airport scam.
I’m sure that the vast majority of taxi drivers are honest workers, and I don’t like that Uber is putting them out of a job. But, following the rest of the world’s example, it’s going to happen. At the end of the day, consumers are going to choose the best combination of value for money.
This battle has first, second and third order effects and most people are only talking about the first order effects.
The first order effect is that transport service in Chile will be much better. And nobody gets smacked with a wooden stick.
But the second order effects are that between 10-30% of the money spent in the Chilean taxi sector will leave Chile and will never come back. Uber charges its rides in dollars and the commission they take goes directly to Uber, a foreign company. If Uber works in Chile as it does in other countries, it will not pay Chilean taxes on its commissions and will send the money to a tax haven via multiple countries.
The second order effects are that riders have better and cheaper transport, Uber makes more money, but drivers have it worse off.
Uber’s modus operandi in the rest of the world is to subsidize prices so that Uber can grow quickly and drivers can make money. But as Uber get a critical mass of riders and drivers and people are used to using the service, Uber begin to raise driver commission from 0% to 10%, 20% and even in parts of the US 30%. At the same time, they start to lower service prices, creating massive downward pressure on drivers’ take-home pay.
The third order effects are that there are fewer taxi drivers, who each earn less money, which eliminates one of the only Chilean jobs where people can earn $1000-$2500 a month without having a university degree. (Note: To put this into perspective for non Chileans, $1000/month puts you in the top ~30% of Chilean earners, $2500 a month, the top ~3%)
And in the not too distant future, maybe in the next 10 years, Uber will replace its drivers with self driving cars. According to Uber’s CEO and founder, Travis Kalanick when asked about self driving cars, “are we going to resist the future, like that taxi industry before us? For us, we’re a tech company, so we’ve said, let’s be part of that. It’s a super exciting place to be.” And with that, nearly all of Chilean transport dollars will leave Chile, like capital flight, and never come back.
So far, no country has created a real plan to deal with all of these effects. They’ve barely even thought about the first order effects. At the end of the day, consumers are going to choose the best service, but governments should be proposing new solutions for these future effects, like a tax on Uber’s commission before it leaves Chile. Or a national app where 100% of the money stays in Chile. Or regulations that force Uber and similar companies to give their drivers the power to use multiple apps at the same time, so that they can use the one that gives them the best commission.
Chile has the potential to be a world leader in this area, but we’re never going to get anywhere if Uber, traditional taxis and the government are only focused on the first order effect, or just protecting taxi drivers.
And it’s a story that’s going to keep on repeating itself. Foreign ecommerce is already competing with local Chilean retail. What will be the next industry and when will it start?