Regulating Uber the Singaporean Way

Challenges and Recommendations


I am currently on a partial local exchange to NUS. After synchronising both school schedules and optimising my timetable, the worst day of my week is Friday: a mad rush from Criminal Law seminar in SMU that ends at 11.30am to a Money & Banking lecture in NUS that starts at 12 noon. (The cab fare is worth it. Nobody should miss Dr Seet Min Kok’s really good lectures. NUS students, please bid for him.)

To think that at a prime location and street junction at SMU, at the intersection between School of Law, LKCSB and Li Ka Shing Library, one would be able to find lots of cabs. But my encounters in the first two weeks have left me to rely on calling for these cabs. Naturally, I gravitated towards using Uber or GrabTaxi, using their services.

Then, all these problems stopped. I knew when the cab was coming, when it will reach NUS, and when I will step foot into the lecture theatre. The experience has been nothing short of amazing. I have enjoyed my experiences with the drivers that represent both companies, and they have taken me to my destination in the swiftest and most optimal way possible.

So much good has befallen Singaporeans, who were once always at the beck and call of taxi drivers. These new apps have thrown the bargaining power back into consumers’ hands once more, or has it?


Recently, Assoc. Prof Donald Low, Associate Dean of the LKYSPP, wrote in to the Straits Times, detailing his arguments against calls for regulation of ride-hailing apps in Singapore.

The facts are as such:

In debate, real life examples carry the most weight. Low employs this to his arsenal, propelling his argument forward by demonstrating how the Ministry of Communication’s correct decision not to protect Singapore Airlines from low cost budget carriers, enhanced Changi’s international standing as an aviation hub which benefitted us economically and socially. He parallels this to the current dilemma faced by the Ministry of Transport on whether to protect existing taxi operators or enhancing the taxi industry in Singapore.

Comment: To which whether these 3rd party apps enhance the taxi industry in Singapore, is definitely a ‘yes’ on the economic scale. Whether it causes a collective social blaming of the Government and worse, political upheavals, remains an open question.

He then introduces the source of this dilemma: 3rd party ride-hailing/car-sharing apps such as Uber. He goes on to state that, firstly, regulations are already in place, and secondly, the significance of policy implications in the Government’s response to this saga on whether to regulate or not.

With that, he states the economist’s highly rational standpoint and takes ‘surgical incisions through the lifeblood’ of three main arguments by those who call for regulation.

To construe them in line with his arguments, they are:

1. Uber is pretty safe. If not, nothing is really safe. You’re just taking the anomalies in Uber and making it the norm. In the end, you make your own choices.
2. Taxi drivers benefit from Uber; only taxi companies suffer. Why level the playing field for taxi companies to let them siphon more money off while being uncompetitive?
3. Wake up your idea about regulation. Regulate to protect the incumbent firms? It has benefitted both consumers and taxi drivers. Why regulate when the market is working better than before?

He ends it with this quote:

“Just as we do not expect the state to regulate freelance tutors, domestic helpers, physical trainers, personal chefs and a whole host of people who provide personal services, all of which involve some risks to our personal safety, neither should we expect the state to impose more regulations on people offering car-sharing services.”

I certainly respect his comments and opinions, as someone who is more learned, more educated and has lived more years to see more than me. However, I think that discourse is one of the best ways ideas are honed and eventually adopted for the betterment of society. I see it folly to mince well-intentioned arguments. In my opinion, protecting Taxi companies is a clear no-no, and a reductio ad absurdum, as it leads to uncompetitive climates that will take consumer surplus away from consumers.

1. Accountability, not safety; is the issue.

Firstly, Prof Low fails to deal with the main issues that are wrapping around the heads of policy-makers and worried consumers. Safety is not the main issue that most are concerned about.

It is accountability.

This is not to say that safety is not important. But, when there is accountability, safety will naturally follow.

The lack of accountability of Uber and GrabCar (or any other ride hailing private car owner for that matter) drivers are the sole reason why “Uber Horror Stories” started trending on Google search. The fear of many Singaporeans is not unfounded. We being a socially connected people are not oblivious to the global incidents around us. This is further buttressed by our innate ‘kiasi’ mentality and overprotection of our children. One scroll of all the various events only point back to one source behind this lack of accountability: Uber’s business model.

Why can’t Uber self-regulate? Doesn’t it have the sense to do so? Yes definitely, Uber definitely can self-regulate. But to what extent? Uber will not self-regulate if they are not incentivised to do so. Upon analysis of Uber’s business model, it is quite akin to Airbnb is it not, where this quote illuminates us all:

“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.”

Just like all these other services, Uber is a mash of a marketplace platform, as well as a transport company, but it leans more towards just being that platform. Why? Because how can Uber that owns no vehicles be called a transport company? It has limits to what it can order those on its platform to do, because these drivers are “partners”! This is explained further in the class-action lawsuit against Uber last month in the US, where Uber stated that it doesn’t “employ” drivers, but merely facilitates connections between independent entrepreneurs and prospective customers.

Prof Low, who wrote on Behavioural Economics for the Civil Service College, can empathise with this point. Common sense, embedded in game theory, reveals that these partners have no incentive to be safe or curb their bad actions (if any). This is because their rice bowl is not on the line, as compared to the taxi drivers before, where their full time job was being a taxi driver. Hence, for Uber drivers who do this as a part time job, or are part of a motley crew of people bumming around, there is greater incentive for them to be lax in how they drive and handle customers, leading to higher risk of bad incidents that happen with Uber drivers.

Moreover, this is exacerbated by the fact that Uber does not discipline its drivers. It does, but minimally, because of the basis that it does not own these drivers. They are merely independent contractors who use their technological platform to find potential customers! Uber is also reluctant to look into every incident because it could well be the customer’s fault, and arbitrating such disputes will lead to more time spent on issues that are not revenue-generating, hindering Uber’s growth. The most it can do is to dismiss the driver, which will lead to losses for Uber, and lead to these consumers being scarred. These unsolved problems with scarred customers are liabilities for Uber, and there is certainly no incentive for Uber to take notice and remedy these mistakes. Though they are serious, they are few and far between, and Uber would rather focus their resources on getting new people onboard instead of retaining an insignificant outliers who do not make a huge impact on their revenue streams.

Furthermore, the sharing economy, with all its social networks has failed to regulate itself with the invisible hand. For marketplace apps such as Carousel, one can certainly use ratings as a gauge, but what happens when you are looking for the nearest driver? How can you ensure that the driver you get has the ratings that you think is sufficient? You could cancel and get another one, but that poor rating driver will still be the driver of some poor soul during a peak hour.

This lack of accountability, therefore, arises due to moral hazard, where bad drivers abuse this system. Instead of Uber not knowing what is going on, they do know. But they decide not to act upon it, because of the costs of doing so. Drivers, knowing that Uber won’t do much to them, and without the threat of legal actions in borderline cases, will be more incentivised to carry on with their bad habits.

When will Uber start becoming more accountable? Can the free market solve this without regulation?

The excuses Uber has concocted are all towards the reason of profits. Remember that the reason why it is not accountable is because of its business model that is sustained on time and profits, which means that they are less likely to poke their noses into drivers’ misconduct.

Most people can argue that Uber can prevent such moral hazard from happening in the first place, by preventing adverse selection of such bad drivers. But, their argument is that background checks are not foolproof and inefficient. Despite investing time and effort, incidences can still happen.

However, such an argument is an inane and puerile one. In light of Singapore becoming a Smart Nation, and with our integration of data services between the private and public sector, how difficult is it for Singapore to expedite such a simple process? For a country such as ours that has an efficient policing system that maintains order without even being present all the time, an efficient judiciary that does not have a backlog of cases, Uber can present all these excuses to lobby at the Government in US and UK. But, not in Singapore. Not in Singapore.

The free market can definitely solve this, but to a long-drawn process whose consequences cannot be predicted. Just as how the Government represented by MAS uses monetary policy to hasten the money creation process to ensure stable inflation targeting, likewise, the Government can expedite the process by regulating certain portions of it. I will expound more on this in my second point.


Secondly, the need for a level-playing field, as mentioned earlier, is a reductio ad absurdum. I completely agree with Prof Low, and the only tweak I can see is the need for the Government to intervene in order to prevent structural unemployment and to ensure that those who are sacked will not fall into social ills such as depression and family problems, but are able to find jobs quickly.

In the same way as how the Government, prior to liberalisation of industries in the post-AFC years of 1997, consolidated the local banks and telecom companies before opening the market, this is one way that they can ensure that jobs are not lost so easily, and to ensure that companies are competitive enough to fight against foreign entrants.

2. Social upheaval arises, if not regulated

Thirdly, left alone, this industry will cause social upheaval in our island state, detrimental to investors confidence.

Referring back to my earlier point on accountability, the free market approach may lead to a point where Uber weighs the costs and benefits and decides that the costs of screening for background is outweighed by the benefit of not being sued by various parties or clamped down by authorities, and either decides to self-regulate by changing its business model, or by submitting to regulations by authorities. Either way, it does not bode well for the social climate in Singapore.

When complaints against Uber start to mount, bad passengers and bad drivers will be allowed to roam free without regulation and punishment. This is because for borderline cases or cases which are not especially serious, lawsuits may not arise. However, even in small cases, where the driver came late, or wilfully took a long route, people might take an adversarial approach to attacking others online, instigating greater social unrest.

It will also come to a tipping point where economists like Prof Low will calculate the costs of these mounting lawsuits, increase in commission of property offences, and bad blood for Uber in Singapore, and find it necessary to regulate, as our social costs increases and our overall societal welfare dips.

It must also be noted that we live in a country where the Government is fully aware of its pervasive presence in our lives. This also means a trade-off, because then people tend to blame the Government for more things than you would expect to see in other countries. Hence, the Government must be discerning to decide and estimate the social disruption that will come if a Uber saga happens in Singapore. Can it consolidate its political base or risk being voted out if something happens?


Recommendations

It is extremely smart for the Government to anticipate all these, and to reveal calls to regulate. However, how it regulates matters.

The Government should regulate Uber the Singaporean way, as how it did in regulating everything in the past — pragmatically. It regulated and ensured stability and efficiency in the workforce, took out inefficient and time-wasting strikes, but ensured that workers’ cries would not be left unheard, by forming tripartite collaboration between the unions, employers and the Government.

Likewise, Uber and the Government must get on the table and talk shop. There are benefits for both sides of the table when both get together. The Government in its pursuit of being a Smart Nation, combined with the Ministry of Transport’s team of data analysts that decipher the optimisation of transport networks in Singapore, will be able to collaborate with the private sector and operator to tap on greater knowledge and share more information to create better solutions for Singapore’s transport infrastructure. Uber can also find out what the Government needs from them, and can better tailor a regulation that best ensures Uber’s profits, and yet work on its accountability to the public.

Is this system not already in place, as illustrated in the National Delegates’ Conference hosted by the NTUC just two days ago? Singapore has a radically different approach to industries and industrial relations. As PM Lee mentioned the ubiquity and effectiveness of our tripartite system, where the unions don’t wreck havoc, but still get the “best deal for his workers”. To aptly sum up:

“We work through cooperation, not through strife; through tripartism, not industrial warfare.”

It is, and can be, a win-win situation for both parties. Singapore is different, and Uber can be different here. Consumers readily accept Uber as a part of our lives. The only thing now is that we need to make sure that Uber does not cause uncertainty and perpetuate a lack of accountability within the transport sharing economy. I believe that the Government will readily accept Uber then. The only obstacle, is that both parties should come to the table, if they have not done so, and to come to a negotiable conclusion.