AusPol / Policy / Technology

Compensating for economic growth

New South Wales is about to set a terrible precedent if it compensates taxi license holders for their impending demise. Put simply, this is compensating failing industries for economic growth. And it is a terrible policy idea.

Several accounts suggest that Uber will be legalized in NSW from next month. And NSW Premier Mike Baird has supposedly signaled that legalizing ride-sharing may come with a potential compensation package for the taxi industry (I say supposedly because Baird is trying to keep this all quiet — down playing down any changes and saying that any speculation is premature).

This should be called out for what it really is — compensation for economic growth. The process of economic growth, as Joseph Schumpeter taught us, is a process of creative destruction. Companies and industries get destroyed by better companies and industries. It hurts. And those losing companies and industries yell and scream. But, no matter how heavy the resistance, in the long run, this destructive process of economic growth is where progress, development, and prosperity come from.

To compensate the taxi industry for their losses is to compensate for this natural market process. Only a few months ago some estimates of $2bn in compensation were flying around for taxis in NSW alone. Add this up for every territory. And then add this up for every failed industry that ever had government protection. It is uncontroversial to say that this number would be insurmountably large.

Businesses should never do business with the government. You might make some short-term rent-seeking gains (which, to be fair, the taxi industry has enjoyed for many decades in the form of super-normal profits), but in the end the barriers will be torn down and competition will destroy you. A further worry is creating a level playing field which the new industry can capture. Ride-sharing services potentially having to pay license fees is a case in point.


2 thoughts on “Compensating for economic growth

  1. Pingback: Cold Soup: Competition, crypto, and Doug North | Meso Soup

  2. Pingback: Regulatory capture Uber alles | Meso Soup

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