Uber vs. Taxis: The Chilean Version

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?


  • I think of taxis as utilities, regulated by the government so that everybody has equal access to the service. Almost all of my taxi experience has been in Washington DC. I do not own a smartphone (poor reception in my semi-rural area–not worth it.) I cannot use Uber. Ok, maybe there are not many of us. Taxis (in DC) must take everybody where they want to go. Everybody pays the same. Taxis are made available everywhere. You can’t just pick the cream of the crop and get all the airport rides. Yes, these protections require a vigorous enforcement agency and it doesn’t always work. But I am concerned about Uber and similar services not including everybody. ” Hey, it works for me. What’s the big deal?” (Related argument on why one needs a government ID to vote in Wisconsin. “I got one. Doesn’t everybody?” Most, yes. All, no.”

  • Here in Ottawa, the taxi’s population is about 2,500 cabs with a population of 1.2 millions people.

    In Santiago is about 23,000 cabs with a pop. Of 5 millions. For any stats, these numbers bring a deep concern about an society where a large % of this population is employed by being a cap driver.

    This thought is an bit out of the topic, but where is the human capital investment that would help chilean people toward the future. The Chilean HR needs investment in their own people to be able to absorb these tech steps of technology into their stablishment..

  • “Uber is so obviously a good thing that you can measure how corrupt cities are by how hard they try to suppress it.” – Paul Graham

    It can´t be argued, Uber solves a lot of the social inefficiencies created by complex systems now days. Having that said, I’m amazed with the insight you have on the subject, let me try and expand it.

    The “first order effects” are the public image of Uber`s new way of making business, a marketing success.
    Lets take a system that doesn’t work, create a p2p interface that makes it better, and the old bureaucracy that made such system inefficient will fall by itself. The ultimate form of Neo-Liberalism.

    Until that point, i would say, there is not much to disagree, but what happens with a solution of this sort?.
    It does not take in consideration other aspects of the social problem in the table. Aspects that have to be considered by common ways of bureaucracy due to their intrinsic responsibilities.

    That, in my opinion, is the core of the Status Quo / Technology dilema, but sadly, the issue nobody gets its head around. It is easier to see whats on plain sight.

    Now I have to agree to disagree.

    Uber is a great tool to break down status quo, because it exposes the fallacies of a broken system. What you observed are more dimensions of the complexity problem, and your argument is that “Chile has the potential to be a world leader in this area”, by, giving myself the liberty of assuming, working in conjunction with the parts involved, instead of leaving it to the “invisible hand”, in order to improve the system in its whole.

    I have to disagree with that premise because it enters in arrogance. Not by seeing a few more dimensions of a complex system, you can assume there exists an optimal solution. Being able to analyze more dimensions of a problem, will just give you indications of its Wickedness (1).

    I think that the way to solve this issue is by assuming that the solutions present now days started with a simpler problem, but inefficiencies became inherent to the system due to its intrinsic ramifications. (extrapolating Thomas Khun structure of scientific revolution (2) into the “wickedness” of social problems).

    The point I want to make with this.
    You are trying to solve a problem with obsolete language due to its complexity, (there can be hundreds of more hidden dimension) which; if not taken in consideration, give no relevant aggregated value to the solution. Being able to see more, doesn’t necessarily means you are seeing all.

    Here is where I cant add any more to the subject, and the reason of my post, in order for a discussion to ocurre under that new premise.

    Thanks for a great insight on a relevant social issue, my humble advice would be to stay out of the cubicle not only in how to view the problems, but also in how you arrive to solutions.

    Alejandro Opazo

    (1) (http://www.uctc.net/mwebber/Rittel+Webber+Dilemmas+General_Theory_of_Planning.pdf)
    (2) (http://plato.stanford.edu/entries/thomas-kuhn)

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