THE BLOG

Black Cabs Cannot Stand in the Way of Innovation

11/06/2014 16:00 BST | Updated 11/08/2014 10:59 BST

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Rupert Murdoch knows all about leading an old industry facing great challenges from the spread of digital technology, so he was speaking with authority when he summed up our information age by saying "the world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow". I will not surprise anyone reading an online-only news outlet like the Huffington Post, which only launched in the UK in 2011, by saying that digital technology has fundamentally changed the way we communicate, shop, bank and much else besides. Unfortunately, the way governments try to regulate the economy is often focussed on old technology, and adapts only slowly to the disruptive force of innovation.

This week the black cab drivers of London are protesting against the rise of Uber and other smartphone apps which connect passengers with drivers in a slight twist on the traditional minicab model. Uber and its rivals are taking an increasing chunk of the market because they have created a service which is easy to use and, above all, transparent - you can get a quote on your phone beforehand, see on a map the route your driver is taking, and then you are sent an email receipt as you step out of the car at your destination. The technical grounds for the dispute is that the cab drivers' association says that Uber drivers are breaking the law by running a meter (on your phone, rather than the dashboard), which only licensed black cabs are allowed to do. And the Cabbies may be right. Transport for London, which regulates taxis, has asked the High Court to rule on whether the business model is illegal, a claim which Uber strongly rejects. But if anyone thinks that a court judgement will be the end of it, they are sorely mistaken.

Uber operates in 36 countries (although it's having similar regulatory problems in several of them) and has been valued at $18billion. It seems unlikely its challenge to other taxi models will disappear anytime soon. In any case, the individual company doesn't matter, if it's not Uber, then another app designer with a bright idea will come along with a way of offering people the cab service they find convenient, at the price they want. And the key thing is, in the conflict between the old model and the new, governments must be on the side of the consumer. They must enable innovation, rather than seeking to erect barriers. Innovation is disruptive, and often brings concerns about jobs, but in the long run allowing new business models to develop is the only way to create a vibrant economy and new employment.

The battle over taxis is only one of the examples of new digital services which are running up against regulators across the world. Airbnb, the popular holiday service which allows people to rent their property to tourists, has come under attack from politicians in several cities, including Barcelona and Malibu, California, following complaints about competition from the hotel industry. In both cases (taxis and holiday rents) the technology provides a different approach to the traditional options, connecting consumers directly to drivers or property owners. Those in charge of the rules have produced a range of knee-jerk reactions, from an outright ban of Uber in Brussels, to strict restrictions on short-term rental services in Grand Rapids, Michigan, that seem to assume that you can protect old industries from change, even as technology reshapes the world around us at an ever-quickening pace.

Perhaps law-makers will be able to hold back the tide for a time. But they cannot do so forever. It's expected that there will be 1.75billion smartphone users by the end of this year, including rapid growth outside of the developed markets of North America and Europe. Consumers increasingly expect services developed in one country to spread wherever there is demand. It took Uber less than five years from founding to operation in over 30 countries, and we can only expect that the digital start-ups of the future will expand at an even faster rate. Do government's really expect to be able to squash every new service that competes with an existing provider? More importantly, why would they want to? Over the next few years politicians will be given many opportunities to favour the status quo, but if they do, they will be working against the interests of the very group they claim to represent: consumers.