Why Ubernomics is bold and beautiful

In a country used to high octane politics, it is humbling when ordinary citizens like taxi drivers grab headlines. For most of this week, taxi drivers have replaced politicians as key actors in the big theatre our country has become.

They are up in arms against Uber, a net based taxi system that allows customers to locate the nearest taxi which they can pay one way, more cheaply and more conveniently using their credit cards. Recall the project to have us pay matatu fares through cards? Uber is way ahead of that.

The established taxi drivers are bitter that the new operators are undercutting them, and as the argument goes, they will soon drive them out of business, and then hike the fares. That scaremongering sounds familiar.

The government has been sucked into this dispute, perhaps because it has security implications. Economic disputes in a country with such high levels of unemployment can easily become violent. The established taxi drivers have even given the government a seven day ultimatum to drive off Uber.

To economic observers like us, this dispute is music to our ears. It is an experiment being conducted for us free. It is not the first time old established industries or services are being disrupted or killed by innovations; Joseph Schumpeter observed that such innovations lead to ‘creative destruction’. What happened to the gramophone, the pager, the steam engine, the photo film, and may be soon ATM and the bicycle?

Uber, the firm that is making Kenyan taxi drivers sleepless was founded in San Francisco, near Silicon Valley, where Google, Yahoo, Xerox, Linkedin, Apple, and many other modern firms have their origin or headquarters.

The co-founder of Uber, Travis Kalanick is listed by Forbes as America’s number 4 richest entrepreneurs under 40 in 2015. He is a University dropout just like Bill Gates and other well known entrepreneurs. The other co-founder is Garrett Camp, a Canadian with a Master of Science from University of Calgary. What makes Uber so successful is its simplicity.

Who wants to keep calling for taxis which might be far away from your location that you could miss your appointment? All Uber did was come up with an internet based application that runs on phones that helps you locate the next ‘idle taxi’ which has registered with it.

The new taxi, which could be your car that you park all day long, just charges for the distance covered, not two-way as taxis usually do. The Uber charges do not depend on the number of passengers, as their website indicate. That brings down the charges significantly and customers like. The complaints by established tax drivers are genuine; their profit margins are being eroded. But that is what competition ought to do. Who does not want to save money on transport? Their complaint is also clear sign that taxi business is very profitable, and possibly inefficient. If there was no profit, no one would have bothered to innovate around it.

The Kenya taxi association’s other concern is that the Uber contractors, a fancy name for individuals contracted to ferry customers around, do not pay licences or even parking to city authorities. That reduces their costs hence undercutting them. They also argue that since the new contractors are not regulated, they are risky.

They have a point; Uber’s growth is driven by gray areas in the regulation. Benjamin G. Edelman, an Associate Professor of Business Administration at Harvard Business School, noted recently while writing on Uber, “suddenly entrepreneurship is not about who can build a better mousetrap, but who can better ignore the law and develop a corporate advantage for ignoring the law.”

Focusing on areas where no laws exist or are not explicit, or where regulation are lax or not enforced can be very lucrative. We have been there before. The growth of internet was driven by the fact that no one really owns it and regulating it across borders is hard. M-Pesa, while dealing with more money than most banks, is not regulated by CBK and its prudential guidelines. In whispers that gives it a huge advantage over banks –and in profitability.

Every so often, new thinking innovations are spawned disrupting old order with losers and gainers. The railways came to displace the horses and caravans, the car ensured the horses place shifted to race courses. Computers created more jobs than they killed. Can anyone stop Schumpeter’s perennial gale of creative destruction?

How do we resolve the Uber versus established taxi drivers stand off? Established taxi drivers can learn from Kenyan banks. They realised the futility of fighting M-Pesa despite threat to their business. They quickly embraced M-Pesa. Today you find M-Pesa in banks and the war ended peacefully.

Disrupt transport

Our taxi drivers can embrace Uber. They would probably need a computer science student at Chiromo campus to write an application (app) for them or use existing apps. By adopting better technology which is freely available, they can compete with Uber instead of fighting it.

I am told that bus owners in Kenya went to see President Jomo Kenyatta over the introduction of matatus in 1970s which they feared would eat into their business. Jomo told them to sell buses and buy matatus. Just a thought, what about established taxi drivers joining Uber?

Uber entry into the Nairobi taxi market will disrupt transport systems not just for tax operators but also for car owners. Let us think loudly. It makes a lot of economic sense to leave my car at home and use an Uber taxi? Really? If you live about 15 km from the city, you cover about 30 kilometres per day. If you drive an efficient car that consumes 15km per litre, you pay about Sh180 per day. Add Sh300 for parking and Uber makes a lot of sense.

If taxi drivers can see clearly, Uber model will create more jobs for them despite low fares. We thought a computer would do jobs done by many people, but looking at the bigger picture, lots of jobs were created. There is no need of resisting an idea whose time has come.

The government can come in to ensure the two groups do not fight. But the final arbiter in this dispute is the consumer, who will always go for the better option in terms of convenience and price. Why should we enjoy political freedom and no economic freedom? It is only in Kenya where some service providers think it is their right to make money from hapless citizens. The fact that Uber drivers are charging less could be an indicator that taxi business has little competition and lower prices for taxi services are possible. How come no one is complaining about other similar firms that are doing what Uber is doing?

Customers did not know that charges could go that far until Uber came. Competition is good for customers whose only main weapon is their numbers. Who thought that one day we could surf in a cyber café for 50 cents? It needed competition with internet available on our phones for charges to fall that drastically. I recall paying Sh60 a minute to surf in a cyber café. Should I now sympathize with the owner of that café if it is closed?

Ubernomics represents the new bold and beautiful economics built on the intersection of law and innovation. More industries will suffer the fate of taxis in Kenya. We already have Airbnb, where you can list accommodation on the net. Why can’t I list my spare bedroom on the net for visitors to Nairobi and undercut hotels?

Governments both central and county might mourn the loss in revenues from taxis because of Ubernomics. But are lots of jobs not created through these innovations? Where would we be without all the companies that uberise old industries and services? Was Kanu not uberised by DP, FORD etc? Most likely you got your wife or husband by uberising someone...

Innovative

Uber and related firms presents new bold thinking, doing more with what we have. And sharing what we have. Is that not beautiful? In fact, if more Kenyans (including governments, both national and county) thought more like Uber, ensuring no idle capacity and reducing inefficiencies, we could achieve Vision 2030 before 2030.

It is also time we made competition our friend. We even created the Competition Authority of Kenya (CAK) whose mandate is ‘to promote and safeguard competition in the national economy and to protect consumers from unfair and misleading market conduct’.

I found it perplexing that CAK is just noticing that schools channel parents to specific shops to buy uniforms. Such shops should be uberised. Even Kenya national examination Council needs to be uberised, given competition. To the consumers, Ubernomics is bold and beautiful and from the look of things, here to stay. To the entrepreneurs, you need to be more creative and innovative than in the past-rest you be uberised.

—XN Iraki is a senior lecturer at University of Nairobi’s School of Business