Budget & Tax

Free Market Friday: Upsetting the status quo

September 5, 2014

Michael Carnuccio

Invention and innovation are disruptive. Just ask the makers of typewriters, rotary-dial telephones, or –increasingly – desktop computers. Economist Joseph Schumpeter called this process creative destruction.

Of course, technological advances tend to benefit everybody in the long run. Laptop computers are more affordable now than typewriters a century ago; the cheapest smartphone has many times more computing power than Apollo 11; and a poor child in Oklahoma today has access to better medical care than Calvin Coolidge Jr. had 90 years ago when the president’s son died of a simple infection from a blister.

Long-term benefits, however, do not ease the discomfort for businesses and workers reliant on technology that suddenly seems to be yesterday’s news. Just ask taxi companies and their drivers.

The taxi and car-for-hire status quo is scrambling to meet the challenge posed by new so-called car-sharing services like Lyft and Uber.

While some people misunderstand these companies as just another sort of taxi, they are fundamentally new and different. That’s why, after all, they threaten to disrupt the status quo.

The short story of these upstarts is that they provide more than just transportation. They are part of a wave of new business models that use technology to collect and provide useful information to consumers. On both Lyft and Uber, passengers and drivers rate each other after each trip, and that information actually matters to their future ability to use that system. By giving people information, these services foster competition and create incentives for excellence.

These businesses also let people take advantage of what economists call slack. A lot of people have spare time. Many cars sit around in garages or parking lots most of the time. Economic slack wastes resources and actually makes society less well off. Lyft and Uber help people turn their time, energy, and cars into useful and productive work.

Smarter consumers and more efficient use of resources hardly seem like a crisis calling for government intervention. Yet beneficiaries of the status quo are demanding that government step in and impose regulations to rein in their new competition. That might be politically expedient, but regulation in search of a problem can only stifle competition, slow innovation and hurt consumers.

Let’s hope the Oklahoma City Council gets this one right.