Hail Uber. Don’t bury it

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Toronto's mayor-elect, John Tory, was right on when he said this week that the controversial Uber smartphone app isn't going anywhere, and that the city should work with this disruptive ride-sharing technology, rather than stubbornly oppose it. We agree. Every city in Canada should do the same.

But this isn't about Uber or Lyft or any similar services that will surely follow Uber into the Toronto market. This is about anti-competitive municipal taxi regulations that were out-of-date well before Uber came along. The rules in most major Canadian cities make it too expensive and complicated to get into a cab, whether you're the driver or a passenger. The only stakeholders that benefit from taxi regulation are the taxicab owners, a group that has always had a peculiar amount of clout in city politics. The Uber invasion is an opportunity to finally change that.

Uber is an American company that uses the Internet to connect people who want a ride with people who have a car. It has blithely inserted itself into taxi marketplaces around the world, angering cab companies, drivers and city hall regulators on every continent.

Uber users can order privately operated cabs (called UberX), regular licensed cabs (UberTaxi) or fancy limos with licensed drivers (UberBlack) via an app on their smartphones. As a technology company based in San Francisco, Uber and its drivers pay no municipal permit fees in the cities where it operates, so their costs are lower than those of regulated competitors.

And as a method of hooking up riders and drivers, it has advantages for both. Its technology locates the nearest car for the user and tracks its approach in real time; rides are paid automatically by credit card, so drivers don't have to carry cash; riders can rate drivers, and drivers can rate riders, eliminating bad seeds; and the UberX cabs – which are basically black-market cabs in Canadian cities – can be less expensive than regular cabs.

As well, Uber uses surge pricing, where prices go up in bad weather or on holidays. Some view this as gouging, but what it does is make it financially worthwhile for drivers to be on the road in bad conditions or when they could be at home with their families, which means riders are more likely to find a cab when they need one.

Uber makes money by taking 20 per cent of every fare, and by charging a $1 "safe rides fee" on every trip. Everything else is governed entirely by the market.

So what's the problem? The problem is that Uber violates ancient rules. Cities have regulated the taxi industry for decades, mostly by limiting the number of cabs allowed to operate. They're quite comfortable with that. So too are the cab owners, who make a fortune on the backs of protected markets and surfeits of available drivers.

Under Toronto's rules, which are fairly typical, anyone can become a licensed taxi driver by going down to City Hall, paying a fee ($634 in Toronto), undergoing a police background check, proving your work status and taking a 17-day training course.

But after that, of course, you need a car. Which means getting the new Toronto Taxicab Licence, which costs $4,742 and requires the owner to do most of the driving. It replaces the older standard licences that don't require the owners to drive, as well as the city's newer owner/operator Ambassador licences. But the waiting list to get the new licence? There are 1,095 people currently on it. City Hall hoards taxicab permits like Scrooge McDuck holds onto a penny. The only viable option for a freshly minted driver is to buy an existing standard or Ambassador licence from another owner – for as much as $300,000 – or lease a car from an owner or a company.

What this means is that there is a limited number of licensed cabs and an unlimited number of licensed cab drivers. The owners are laughing. Competition among drivers for scarce jobs means owners can raise rents and dispatch fees as they wish. There will always be someone willing to drive a little longer for a little less.

Uber's relentless expansion is presenting city regulators with a serious conundrum: How can Toronto, for instance, operate and enforce a costly regulatory framework and then tell would-be licensees, Oh, by the way, you can also become a black-market driver for Uber, which costs nothing, and all you need is a police background check, driver's licence, personal auto insurance and a decent mid-size car? Cities have no choice but to take measures to protect the rights of duly licensed drivers and car owners. Calgary has banned Uber, the mayor of Montreal has called the company "illegal," Ottawa is blitz-fining its drivers, and cabbies in Vancouver, where there is a severe shortage of cabs and prices are the highest in Canada, have filed for an injunction against it. The City of Toronto went to court for a similar injunction this week.

But again, the problem is not Uber. Uber is merely pointing out the obvious – that there is new technology out there that can connect riders and drivers and, like so many new technologies today, it is changing the rules whether the rule-makers like it or not. With app-based services, people can get taxis without going through City Hall, an efficiency that saves them money. And drivers can make money quickly and without bureaucratic hassle, while also providing good service.

Uber is also demonstrating that evolution is possible. Washington, D.C., was a city hidebound by its taxi regulations when Uber arrived there in 2011. Cabbies protested, but users loved Uber and fought for its survival. Three years later, Washington adopted a law clearing the way for app-based services.

Canadian cities can do the same, and they should do it now. Everyone will be better off when municipally regulated taxi cartels disappear for good – a day that can't come soon enough.