Parliament should not force Uber to raise prices. That would offend the public interest

Kenya’s constitution, with its separation of powers, rightly allows Parliament to shape economic policy.

There is no doubt that a dispassionate Parliament would contribute to more elevated, rational policymaking, through more transparent and dedicated expansion of economic rights.

For a long time, Kenya’s economic policy was made by stealth, where interested firms would confer with selected bureaucrats and write policy that favours, not an industry, but a specific firm that is allowed access to imports or protected from competition.

In the last few weeks, some taxi cab drivers have filled the streets, threatened other drivers and even committed criminal acts in the quest to force another private firm to reduce its commissions or make adjustments to its terms of contract.

While I hold no brief for any side, it is essential that a contractual fight between commercial parties be settled strictly between them.

Yet the fight against Uber has taken on a very unique trend that is altogether unjust and looking more like coercion.

In principle, Uber has the freedom to set rates and commissions for its drivers, just as those drivers have the option to accept those terms or seek alternatives.

There is no justice in drivers threatening to sabotage any firm’s business because its terms shrink their profits. Because everyone seems to be pussyfooting about this issue, the drivers ought to be told to design and develop their own digital application and charge the rates they would like.

If Uber, or a competitor, considers that the best option available to it is to reduce some commissions and rates in order to expand the business and serve its customers, then so be it.

POLICY CORRUPTION

Part of the risk of investment is to apply a business model that makes a firm as competitive as it can be. Thus the success of any model will depend on Uber’s clients, not on a cartel of taxi owners who are used to carving routes among themselves and taking a limited number of trips to reach their target collections.

The call for intervention by government suggests the aggrieved taxi drivers are asking government to forcefully ensure a revision of private contracts.

Consider first that the entry of a new form of business model for taxi cabs means that existing firms either have to adjust or cease operations. Based on the fact that resources are scarce and have multiple uses, aggressive competition would lead to ejection of some businesses from the market.

While that may be bad for the dozens of taxi drivers who have made a comfortable living for ages, it is a good thing overall, because resources like labour and machines are redirected to other uses.

So Parliament’s intervention in trying to force Uber to raise its prices to ensure everyone continues to get a good living in spite of their inefficiencies is harmful and unlikely to persist.

It is also a form of policy corruption because it coerces a firm to enter into an unfavourable contract.

The most worrying part about the arguments the drivers are making, which claim that Uber’s rates are too low to ensure their livelihoods, relate to consumer welfare and tacit xenophobia. Thus the directive by a parliamentary committee for firms to agree on a comfortable rate for all taxi services is plainly illegal.

DEFY ECONOMIC LOGIC

This suggestion violates Kenya’s competition law, which forbids firms from fixing common prices and thereby exploiting consumers.

It is still unbelievable that a parliamentary committee thinks that owing to aggressive lobbying by uncompetitive taxi drivers, they have power to order firms to collude in setting prices.

Secondly, part of the main reason why the entry of Uber and other taxi services has been energised is their focus on value to consumers.

It therefore offends the public interest for Parliament to specifically instruct firms to not only illegally collude but also to raise prices and transfer money from consumers to taxi drivers.

This behaviour is not without precedent in Kenya but the floor is littered with businesses that were similarly protected decades ago and are still being protected today.

Without doubt, the absence of economic dynamism in the cement, sugar and maize sectors is attributable to the attempts to defy economic logic of competition.

Working in the interest of inefficient cab drivers who have gone on strike and forcing a firm to adopt an expensive price model hurts the economy twice.

It means taxi services will become a luxury again, making the market smaller. That is not smart regulation but a sure way to kill jobs and let laggards and cartels thrive.  

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame