It’s silo-busting week on the Frontier Group blog. Yesterday we set the stage by discussing what issue silos are why they’re problematic. The rest of this week, we’ll discuss opportunities for a post-silo look at societal problems.
Recently, Boston joined the cities across the country and around the world that have seen dramatic protests by taxi drivers over the growth of on-demand transportation services (sometimes inaccurately called “ridesharing”) such as Uber and Lyft.
Uber poses a dilemma. On one hand, as we discussed in our 2013 report, A New Way to Go, on-demand transportation services can play an important role in expanding the number of people with the ability to live without a privately owned vehicle – perhaps the biggest step we can take to reduce vehicle travel and move toward a sustainable transportation system. On-demand transportation isn’t the full answer to our transportation problems – biking, walking, transit, carsharing, smart land use and “real” ridesharing are all more powerful solutions – but it does fill an important niche.
On the other hand, the “just try and stop us” attitude with which these companies have tended to operate is troubling. It is debatable whether taxi regulations do or should apply to the new on-demand services, but the government has a legitimate role in ensuring that the new services are well-regulated in relation to safety and insurance, and it’s not too much to ask that those issues be resolved before a service is rolled out on a broad scale.
Then, there is the fate of the taxi owners, many of which have staked financial resources on the purchase or lease of medallions enabling them to provide a highly regulated service with competition limited by law. Taxi owners and drivers call foul on Uber, Lyft and similar services by noting that they do not have to meet the same regulations as they do. The existence of these new services devalues the investments made by taxi owners and makes it harder for them make a living.
The fight over Uber is an example of an emerging type of social issue – the clash between rapid innovation and the interests of “incumbent” regulated industries.
A similar example is emerging with another innovative, societally beneficial technology: solar power. Again, an incumbent industry, this time electric utilities, faces new and disruptive competition from a technology that threatens to undercut its monopoly position. Utilities are concerned that as solar power spreads, they will have to get more of the revenue needed to maintain the system and pay for past investments from a shrinking pool of customers. Those customers, in turn, would face higher costs, leading more of them to abandon the grid, further raising costs on those that remain and triggering a “utility death spiral.”
To paraphrase the Mark Twain quote in yesterday’s post, public policy issues don’t repeat themselves, but they do rhyme. In evaluating how to balance the benefits of rapid innovation with the interests of incumbent regulated industries, there are a few common questions that arise.
First, when is a “promise” a promise? Electric utilities often claim the existence of a “regulatory compact” that guarantees them recovery of prudent investments they’ve made over time– even when the assets at play are no longer useful. Utility complaints about solar energy are rooted in the assumption that ratepayers will need to pay the costs of all the existing infrastructure in which the utility has invested, regardless of whether that infrastructure will be needed in a new world of renewable and distributed energy.
Echoes of this arise in the taxi/Uber debate as well. Taxi owners made investments based on an implicit understanding that the supply of the service they provide would be limited by government, and now a new competitor has come into the game and messed everything up. How is that fair?
The debate over what the government owes those who provide regulated services was hotly contested in during the electricity deregulation/restructuring craze of the late 1990s. Esteemed former utility and nuclear industry regulator Peter A. Bradford’s testimony on the issue in 1997 (PDF), which claims that the so-called “regulatory compact” does not exist, is worth reading in its entirety, but one statement from within it stands out: “courts have held for many years that regulation is not required to compensate investors for prudent investment undermined by competition and technological advance” (emphasis added.) In other words, owners of a fossil fuel-fired power plant or a taxicab have little claim to being “owed” financial returns simply because a new technology or business model has come along that has made their investment in a regulated industry less valuable.
Second, is there anything in the “old” industry worth saving? It may very well be, however, that we need a taxi industry and electric utilities in some form for the foreseeable future. But if the business model that has heretofore kept those enterprises afloat is no longer viable, we risk losing the whole thing – baby as well as bathwater. A similar thing happened between World War II and the early 1970s to the nation’s urban and intercity passenger rail transportation industry, and under a roughly analogous set of circumstances: rapid changes in technology, coupled with the failure of the pre-existing regulatory model to adapt and the loss of network efficiencies as more and more lines closed. The result, mitigated only by public sector rescue efforts such as Amtrak, was the near abandonment of a century’s worth of capital investment and the near total loss of an industry that many of us now really wish we had around (and which, in some cases, we’re now spending significant amounts of money to recreate.)
We need to ask ourselves, even as rapid change takes place, what we need a taxi industry or an electric utility for in the 21st century. What parts of those industries might we wish in 10, 20 or 30 years that we’d kept in place? And how do we establish a viable economic model for providing those services that is fair, serves the needs of today rather than the distant past, and does not stifle the very innovation we are trying to accommodate.
Third, how fast is too fast? How slow is too slow? Technology is creating and bringing to scale new services much faster than they can be effectively governed. Given that reality, when is it OK to just slow things down a bit to take a minute to think, and what might be lost in the process? The answer to that question depends on the context: personally, I believe that the need to address global warming demands that we move ahead with renewable energy as quickly as possible. If we’re going to err as a society, I’d rather err on the side of protecting my kids’ future welfare than protecting the bottom line of utility stockholders. But the answer to the “too fast/too slow” question might be very different when it comes to Uber/Lyft or other innovative services.
Finally, are there win-win solutions? Policy debates often devolve into binary “yes/no” battles, but the most effective solutions to the challenges of rapid innovation might exist outside the boundaries of black-and-white policy debates.
Perhaps, for example, if our cities made a full-on commitment to encouraging residents to go car-light or car-free there would be ample demand to satisfy both Uber and traditional taxis. Perhaps electric utilities will be more likely to build a sustainable business model faster if we speed the transition to renewable energy and energy efficiency – creating new opportunities for utility investments in smart grids and the like – rather than slowing it down and waiting for the death spiral to take hold.
Rapid changes such as the emergence of new models for urban transportation and the clean energy revolution are exciting, world-changing developments with big benefits for society, but they come with broad-ranging policy ramifications. Breaking down issue silos can help us see commonalities and focus our energy on what might be the most important question of all: how do we give policy-makers and the public the tools for information sharing, engagement and decision-making that would enable us to make in days or weeks decisions that might once have taken years? We’ll talk about the need for the growing need for those tools later this week.
Associate Director and Senior Policy Analyst, Frontier Group
Tony Dutzik is associate director and senior policy analyst with Frontier Group. His research and ideas on climate, energy and transportation policy have helped shape public policy debates across the U.S., and have earned coverage in media outlets from the New York Times to National Public Radio. A former journalist, Tony lives and works in Boston.