Virginia Regulators Should Let Lyft and Uber Roll

Technological innovation sometimes makes laws obsolete.


Bochumi / Wikimedia Commons

Technological innovation sometimes makes laws obsolete.

Consider the "Red Flag Laws" of the late 19th century, which required early automobiles traveling on roads to be preceded by a man on foot waving a red flag in order to warn others on horses of the vehicle's approach.

Today, most states require cars traveling on roads to have a human driver at the wheel—a regulation that to our descendants will sound just as preposterous as flag-waving does to us.

Yet how do we get from here to there? What is the government's proper response when a new technological innovation obsoletes the very purpose of a law?

One approach is to prohibit the new technology until it can be squared with the law. No outright ban is necessary; the government just mindlessly enforces an obsoleted law until it is changed. This is the approach the Commonwealth of Virginia is now taking against ride-sharing apps Uber and Lyft.

Last week, Richard D. Holcomb, Commissioner of the Department of Motor Vehicles, sent letters to the companies instructing them to cease and desist all operations in Virginia until they obtain "proper authority." Such proper authority doesn't really mean a taxicab permit from the state, since Uber and Lyft are not really taxicab companies. Instead, proper authority will come when the legislature changes the law to accommodate the new technology.

"As you know," Holcomb wrote to Uber, "DMV is actively studying Virginia's passenger carrier laws and business models such as Uber. DMV has invited Uber and other stakeholders to participate in this study and will produce a final report before the next legislative session. I strongly suggest that Uber focus its resources on participation in this study rather than continue illegal operations in the meantime."

Everything which is not permitted is forbidden, seems to be the message, even if the innovation is not only harmless, but actually improves on the rationale for the law.

As my colleague Matt Mitchell has pointed out, taxicab regulations exist to cure the "information asymmetry" between passenger and taxi driver. "A would-be passenger on a curb can't see (or smell) the cab's interior, can't assess the driver's record or confirm that the driver knows his way around," he writes. "Typically, no other cabs are immediately available, so customers can't feasibly walk away if they think it'll be a bad deal."

The way to address this market failure has been regulation: license drivers and regulate prices. In contrast, with Uber, Lyft, and other ride-sharing platforms, passengers rate drivers and vice versa, so you know what you're getting into before you get in the car. Everyone's incentive is to be on their best behavior because poorly rated players are kicked out. "Uber and its competitor, Lyft, solved the asymmetric information problem plaguing the traditional taxi model and obviated the need for state regulators," writes Mitchell.

Yet even though anyone who's ever used these services in Virginia can tell you that Uber and Lyft are quicker, safer, cleaner, and cheaper than taxis, the DMV wants to ban the services until they can develop a study and have the legislature give its consent.

Here's a radical idea: how about allowing the innovation to continue apace while the government studies it and gets its regulatory house in order? Public officials like Mr. Holcomb might say that their job is to enforce the law, and while that's true, public officials also have a responsibility to exercise discretion in the public interest. It's clear that the Virginia legislature did not anticipate the invention of platforms like Uber and Lyft when they designed their motor carrier laws, so it would be perfectly reasonable for the DMV to work with the legislature to clarify the law without first banning the services.

The DMV's alternative, telling Uber and Lyft that they must cease operating because their services don't fit into any of the regulatory buckets it manages, is pathetically robotic and a disservice to the people of Virginia.

Because officials often have little incentive to abstain from mindlessly enforcing regulations, we should require them to exercise discretion. For example, Section 10 of the Communications Act of 1996 requires the FCC to "forbear from applying any regulation or any provision of this chapter … if the Commission determines that enforcement of such regulation or provision is not necessary" to achieve the purpose of the law. This hasn't worked as well as one would hope, but it's a start.

From drone innovation outpacing FAA regulations, to genome sequencing and wearables leaving FDA medical device rules in the dust, we are only going to see more and more instances of new technologies making law obsolete. Rather than react defensively, regulators should allow for permission-less innovation while they determine if and how they will ultimately proceed.

Virginia still has an opportunity to show leadership in the face of technological change. It should let Uber and Lyft roll.