I’ve Seen This Movie Before

Déjà vu: the strange feeling that in some way you have already experienced what is happening now [Cambridge Dictionary]. It’s the feeling I had when I read that London’s transport authority would not renew Uber’s license to operate in the city. Transport for London (TfL) gave reasonable justification for the decision, but I couldn’t help thinking that there was more behind it than this. And that’s why I had the déjà vu feeling. Because when situations like this arise, when a new business is stopped from changing an industry, there are always reasonable explanations…and then there are the conspiracy theories. Personally, I love a good conspiracy theory, so let’s explore this one…in the name of business and finance, of course.

When the decision was handed down, it was after Uber’s request for discussions with TfL had been turned down. It was in spite of the hundreds of thousands of signatures on petitions. It was in spite of the many cities that had not crumbled under the weight of irresponsible drivers once the firm settled in. So it would “appear” (here’s that conspiracy stuff starting…) that the TfL was not necessarily concerned with solving the problems, for in the eyes of the city government, Uber itself is the problem, not the specifics pointed to publicly.

There is of course reason for concern. The traditional taxi business will suffer with the addition of Uber to any city. And when we say ‘traditional’ we mean decades of relationships between owners, drivers, and government. And then the new kid comes to town, supposedly acting as a bully until there’s nothing left of the old guard. A bit dramatic? Probably. Entirely off base? I’m not so sure.

I’m from New York. We have a lot of taxis. And those taxis have always had to have a ‘medallion’ to operate within the city limits. The medallion is something like a liquor license. You need a liquor license to serve alcohol at a restaurant. Otherwise, it’s BYO – Bring Your Own. And the liquor license value is determined by demand. Demand that is fueled by people that enjoy being served a drink in a restaurant from the bar, not their own brown bag. So when times are good, liquor licenses go up in value.

A taxi medallion was similar in many ways. There is a limited amount. You had to have one to transport the general public. And New York city kept getting more crowded, and except for an occasional set back, has been doing steadily better financially since Jimmy Carter’s tour of the burned out South Bronx 4 decades ago. And the medallion prices went up, and up.

medallion prices 2004 to 2014

Over a million dollars in 2014. Currently, a New York City Taxi Medallion trades around $250,000. 75% discount; like a going out of business sale…hmmmmm. And with the price cratering, there is as always a reverberation. Like other businesses or investments in hard assets, an entire segment of the loan industry in New York centers around medallion loans. And as with the mortgage banks when real estate values tanked, the banks in the business of making loans for medallion purchases are feeling the pain too.

medallion defaults

When Uber hit New York, there were cries about the safety of riders and the safety of pedestrians. These cries were mostly from the taxi industry, for as any New Yorker will tell you, there wasn’t a great deal of confidence in passenger and pedestrian safety the way yellow taxis are driven in New York. And as for killing an industry, the newest incarnation has its own competition, Lyft. Lyft is growing, partially due to Uber’s own missteps, but also because that is capitalism. New ways are found to do things, an industry changes, and competition helps these changes create the newest mature version of that industry. Few politicians in New York are currently arguing that Uber and Lyft have ruined our quality of life and endangered our safety. But they’re saying things like this in London…

I do understand this fight. I have definitely seen this movie before. I was a commodity futures trader screaming and yelling in trading pits in what we believed to be the most efficient path to true price discovery. And then the machines came in to take over. Many claimed that there was no way a market could effectively trade only on computer. The computer didn’t ‘understand’ the markets the way a broker did. And there would be lots of technological problems that would doom investor confidence. But the only ones truly yelling that the future was bleak if trading was computer based were the people whose livelihood was in jeopardy. I took the opportunity to learn to develop trading systems. Pro-active is I’ve found, much more effective…or in more common terms, “the best defense is a good offense.”

Exchange members looked for ways to fight it. But this was evolution. This was progress. And in the end, progress always wins. And those who fight it the hardest rather than accept it and find a way to work within the new order are the ones that will indeed suffer the most. And their backers are often called out for standing in the way of actually improving our daily lives. The little things. An easier way to get a ride when you need it. From where you want to where you want. Get in the way of those advances as a politician or exchange governor, and you may find yourself the one paying the price.

Uber will drive again in London. And Lyft is now looking at London as a future destination as the firm seeks expansion outside the United States. Technology has streamlined the way we hire a ride. It didn’t end up hurting more people in New York and I don’t anticipate it will in London. Or in the next city that gets a service like Uber. It’s a better mousetrap. Better mousetraps should be encouraged. It’s been said that every act of creation is at the same time an act of destruction on some level. But like trading, as long as that risk/reward balance is favorable, progress will win every time. That’s why it’s called Progress.

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