What do creation, destruction, sharing, and profit have in common?

What do creation, destruction, sharing, and profit have in common? When it comes to the sharing economy, the answer is everything. In slightly over a decade, Uber and Lyft have […]

What do creation, destruction, sharing, and profit have in common?

When it comes to the sharing economy, the answer is everything. In slightly over a decade, Uber and Lyft have gone from San Francisco start-ups to worldwide juggernauts. Their march to becoming international multi-billion dollar companies has sometimes met fierce resistance from taxi companies and community groups led by hospitality unions. Governments that feel caught between competing commercial interests (not to mention groups of consumers) should let the marketplace sort out winners and losers.

“Creative destruction” was defined by economist Joseph Schumpeter in 1942. In Captitalism, Socialism, and Democracy, he noted that new markets and organizational development revolutionize “the economic structure from within, incessantly destroying the old one, incessantly creating a new one. The process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.”

Will taxi drivers feel the pinch in the 633 communities Uber operates in? Yes. A company worth $50 billion must have a substantial market share of the taxi business. Will neighbourhoods and hospitality unions be affected when Airbnb claims 4 million listings in 65,000 cities? Yes. How could they not?

But in a world where the one constant is change, all of us must change with it. Had we not done so in the past, we would still be heating our homes using nothing but wood fires and travelling on horses and donkeys. For those who can accept it, the oil industry saved a lot of trees; yet that also put wood cutter jobs on the chopping block! Charioteers climbed off their seat and into vehicles. Maybe some became cab drivers. Fast-forward to today and those so employed are wary of Uber drivers with their GPS guidance, surge pricing algorithms, and flexible work hours.

The good news, even for them, is that such an impact is more minimal than it seemed initially. A 2017 study conducted by Carl Frey of Oxford Martin School showed that in the United States, Uber led to a 10 per cent drop in income for salaried taxi drivers, a 10 per cent increase in the earnings of self-employed cabbies, the number of which grew by 50 per cent. This means that Uber increased the market for ride-sharing instead of taking jobs or income from taxi drivers.

Thanks to its famous ride-sharing companies, San Francisco has 1,500 taxis yet boasts 45,000 ride-sharing drivers, most of whom are part-time working less than 10 hours per week. New York City has eight times the population, but has only 55,000 Uber drivers and 13,000 cabbies. The ratio of cabbies per capita is very similar in the two cities, but ride-sharing services that had a head-start in San Francisco, has probably not reached its true demand in New York.

Inadequate parking and increased congestion in many large cities has created challenges for policy makers. But saving the taxi industry for the taxi industry’s sake is not, and should not be the priority of a government.

Let no one forget that Uber and Airbnb could yet go the way of MySpace and Netscape. Being a dominant player early in a new medium does not guarantee a permanent place. New technology, such as driverless cars, will bring more innovation to the marketplace and challenges to the current ride-sharing companies. If that means the downfall of Uber, should policymakers struggle to save it?

Not a chance.

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