Austin and Other Cities Drive Away Low-Cost Rideshares Uber and Lyft

P. Gardner Goldsmith | May 17, 2016
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On May 8, the ride-sharing companies Uber and Lyft lost a vote in Austin, Texas, that would have allowed them to continue using their own vetting system to check the backgrounds of their employees. Instead, the companies will be forced to pay the city for background checks, while, in all likelihood, still spending money on their own security.

As a result, Uber and Lyft are leaving Austin.

In a pattern repeated in other cities, both companies effectively have been driven out by politicians, an irony that seems to be lost on those politicians.

Uber and Lyft drivers and customers have noted numerous practical points in favor of allowing the ride-shares to operate free of politically-created expenses and red tape. They note that, burdened with higher costs, Uber and Lyft drivers cannot be as competitive with cabbies (something the cab unions and “livery” organizations know very well, and one of the main reasons they often lobby for the mandates). Many ride-share drivers and customers remind people of the strong correlation between the appearance of Uber and Lyft in cities and lower incidents of drunk-driving/DUI in the same areas. Ride-share participants also note that the competitive nature of the services lowers costs for consumers, allowing them to not only save money, but to spend that money in other areas, expanding economic opportunities across the board.

Licensing blocks lower-priced competition from entering the market, and is often used as a method by which vested interests get the government to stop low-level entrants. This harms the poorest people in the consumer market, and hinders opportunities for innovation.

But there is another issue at stake, an issue that often goes overlooked in this and many other so-called “regulatory” debates -- the issue of the U.S. Constitution.

Article 1, Sec. 10 of the Constitution is called the “Contract Clause.” In it, the Constitution forbids any state from passing laws “… impairing the Obligation of Contracts.” The prohibition was created to prevent state-level politicians from entering into contracts with employees or others whom they might owe money or services, and subsequently writing laws that allow them to change the parameters of the contract, say, to let them avoid paying what they owe.

As Timothy Sandefur noted in the Independent Review, the right to contract is a principle that was enshrined in the Magna Carta, and strongly embraced by the likes of Thomas Jefferson, George Mason and many jurists before, during, and after the writing of the US Constitution. A strict reading reveals that any law imposed on those who have already come to an agreement about work and payment for it is an infringement of the Contract Clause. It sets an arbitrary political mandate onto an already agreed private contract.

As a result, laws that impose “security requirements” on Uber, Lyft, and any of their current employees are unconstitutional, as are new attempts to impose mandates on people participating in the rental business who have signed up with AirBnB and Homeaway. They change the agreed-to contracts, which runs counter to the Contract Clause.

In fact, most state regulations and licenses are applied to existing businesses, thus imposing new stipulations on many of their already-existing business agreements. This is, of course, unconstitutional, and would have been recognized as such by many people of the Founding Era.

Perhaps the passage of time brings with it a distancing of the population from the original rules under which governments were supposed to operate. Perhaps it is just in the interest of politicians to aggregate power and gain greater political control over businesses, thus giving them leverage to gain campaign cash – a form of extortion. Or perhaps, the problem arises from both of those phenomena. But one thing is certain: if it is immoral to threaten violence in order to force a free person to do as we command, then it is unethical for politicians to do the same thing through legislation. The consumer can decide what he or she wants. No one is forcing anyone to share a ride via Uber or Lyft.

But the only way politicians “get things done” is through force and threats of force. They only way they can claim they are “protecting” potential riders is by threatening everyone – riders and drivers alike – telling them that they must enter into agreements according to what the politicians dictate. If these politicians want to provide what they think is a safer service, why not start their own companies and compete? That way, the consumer is free to choose.

Instead, contrary to the Constitution, they don’t want people to be free to choose. They want them to follow the commands of the state.

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