Originally published at Rare
Consumers like Uber. It’s cheaper, cleaner, and more convenient than traditional government-controlled taxis – which is precisely why cab companies, dependent upon being granted legal monopolies, want it banned. While the ridesharing company has faced intense opposition from many city governments across the country, nothing has been quite like the all-out-warfare defining Uber’s entry into the intensely regimented Las Vegas transportation market.
Given the fact that Vegas’s economy is highly dependent on tourism (41.1 million people visit annually), the taxi industry has done everything in its power to protect its lucrative slice of the pie. As Johana Bhuiyan, who reports on transportation and the sharing economy for Buzzfeed News explained in a lengthy expose entitled “Sex, Drugs, and Transportation,” the Las Vegas taxi industry has long operated like a government-sanctioned gang.
“What made Vegas unique — what made it Uber’s biggest challenge yet — was the extent to which local governments were willing to protect the incumbents,” wrote Bhuiyan. “In Las Vegas, Uber and its pugnacious CEO Travis Kalanick really did run into the corrupt taxi cartel bogeymen that they had long claimed to be saving us from. And this cartel would prove to be their most formidable opponent.”
So formidable an opponent in fact, that when the ridesharing company engaged in a bit of permissionless innovation and entered the Vegas market last year, two unmarked vehicles rushed to Caesar’s Palace and cut-off the first Uber attempting to make a pickup in the city. The driver and passengers were then ordered out of the car by two masked officers donning bulletproof vests.
As Bhuiyan explained, these over-the-top government agents were from the Taxicab Authority and the Nevada Transportation Authority. So incensed were they by the prospect of a free market alternative to their government monopoly, they behaved as if an Uber ride ought to be dealt with like a counterterror operation. Yet when actual crimes – namely extortion, prostitution, fraud, and drug trafficking – were being facilitated by powerful members of the taxi cartel, authorities often looked the other way.
In fact, even after Charles Horkey, CEO of limousine company CLS Nevada, was charged with and eventually plead guilty to the aforementioned crimes in 2012, the Nevada Transportation Authority allowed him to keep his job – so long as he was monitored by a court-appointed lawyer. CLS did eventually have its operating license revoked, but that didn’t occur until last year.
Essentially, Horky was caught managing a massive criminal enterprise – a human and drug trafficking operation with a limo company as a front to facilitate the activity – yet an Uber picking passengers up at Caesar’s Palace is what warrants an armed raid? The corrupt double standard was glaringly obvious. Uber carried on however, undeterred by the taxi cartel’s government-sanctioned gangsterism. Thus begun the hard fought legislative battle. And Uber was up against a lot of big money that had been used by taxi companies to buy off the political support they had long used to keep competitors out of their highly regulated market.
In Vegas, there are only 16 cab fleets, and just three companies, Frias, Whittlesea-Bell, and Yellow Checker, own 11 of them. Worse, each operator with a state-sanctioned license is afforded a “competitor veto,” with which they’re allowed to challenge applications submitted for new medallions by smaller companies. Talk about corporatism! This is a classic example of big companies joining with big government to shield themselves from market forces. It’s corrupt, and consumers – who are all too familiar with Vegas’s snaking cab lines – are the ones that suffer.
This regime is what Uber was up against when Nevada’s state assembly – a part time legislature that only meets for 120 days every other year – convened in February of 2015. Lobbyists for the big taxi companies initially went into the session confident that Senate Majority Leader Mike Roberson, a Republican, was on their side. As bills meant to regulate “transportation network companies,” the designation Uber and Lyft are classified under, gained steam during session however, taxi advocates got worried.
According to Bhuiyan, the taxi industry attempted to come to what they considered a compromise: Let the ridesharing companies operate in outlying parts of the city, where cabs had notoriously underserved residents, but give taxis a monopoly on the touristy Vegas strip. This turning point marked the beginning of the end for the cabs, as interest in allowing the “TNCs” full and legal access to the Vegas market increased.
Sources explained to Bhuiyan that State Senate Majority Leader Roberson changing his mind on TNCs was a big part of why Uber and Lyft emerged from Nevada’s legislative session victorious. According to reports, the “thuggish” behavior of the taxi cartels, which had been on full display in Vegas for decades, backfired. These companies and their lobbyists were accustomed to a longstanding quid pro quo where, if they provided enough in donations, they’d get the kickbacks they were used to. When that regime was threatened, the fangs came out.
A good example of the amount of money that’s regularly thrown around in the industry comes from Mark James, the CEO of Integrity Vehicle Solutions Company, who was formerly with one of the Big Three, Frias Transportation. According to data dug up by Bhuiyan, James personally donated a total of $64,750 to candidates between 2010 and 2015 – including Roberson and Nevada’s Governor Brian Sandoval. And during his time at Frias, the company gave $152,741.66 between 2006 and 2013 to influential county and state officials.
This speaks to why transportation lobbyists were incensed when the politicians they thought they’d bought – namely Roberson and Sandoval – “betrayed” them. Instead of working toward a peaceful solution, industry lobbyists and leaders turned to the gangsterism they’d long lived by. One alleged exchange between Roberson and an industry big-wig devolved into a company owner getting in the Senator’s face, demanding to know why he had betrayed him. It was ultimately this sort of behavior from the cab companies that helped pave the way for the competitors they’d long held at bay. By October of this year, Uber and Lyft were on the road.
While the ridesharing companies have improved the overall transportation enterprise in a relatively short period of time, the industry remains far from operating in a free market. After losing in the legislative session, the taxi companies turned to local government to ensure some degrees of protectionism, such as banning rides to and from the airport since Uber doesn’t have the additional licensing the county requires for such activity. Uber drivers of course, still do airport rides, and they’re cited and fined every once in awhile by the authorities still doing what they can to protect taxis.
The reason Uber has been so successful at beating these well-heeled taxi cartels and their political advocates is because they’ve amassed enough consumer demand to, for the most part, overcome the chains of corporatism. This is no small feat, and it requires power most small would-be competitors simply don’t have. The efficacy of Uber’s brand, and the service it offers compared to what’s provided by the government-taxi monopoly, is unparalleled. Uber is a small but persuasive testament to the power of markets over politics.
As Clint Townsend, the marketing and outreach manager at the Cato Institute recently wrote, “Markets compel us to help others in order to help ourselves. That’s why we get up everyday to provide the service of our labor in exchange for wages. The political system turns these incentives on its head, where we enter into a dog-eat-dog, win-lose game where we can pursue our own interest only at the expense of others. In politics, when one policy prescription wins, we must all accept it, without recourse to other options.”
When the only option for consumers in Vegas was the politically protected taxi cartel, everyone lost but the people getting rich off of the monopolistic arrangement. With even the slightest bit of competition, the industry has improved for all consumers. If only this kind of freedom were allowed by default, without having to petition politicians for permission, innovation in transportation could grow to heights even Uber’s most creative thinkers have yet to envision.