Austin Aims to Snuff Out the Ride-Sharing Economy

Last month, voters in Austin, Texas, rejected Proposition 1, which would have overturned a city ordinance passed back in December requiring fingerprint background checks for drivers employed by ride-sharing services. The campaign was contentious: Proposition 1 was backed by Uber, Lyft, and a band of free-marketers, but it earned scorn from local media who feared a corporate takeover of city law. More citizens were persuaded by the latter case. Afterward, Uber and Lyft, saying they were unable to abide by the new requirements, promptly ceased operations in Austin.

Uber, like most of the other ride-sharing companies founded in its wake, strikes a balance between decentralization and top-down control. Drivers set their own hours, can accept as many or as few fares as they like, and are given the opportunity to rate their passengers and be rated by them in turn. But in other ways, Uber maintains control over its own marketplace. Fares are determined according to an Uber-designed algorithm. The infamous system of “surge pricing” motivates drivers to meet spiking demand by jacking up prices. And the company has its own background-check protocol for drivers, slipshod though Austin might think it is.

The departure of Uber and Lyft naturally left a vacuum in Texas’s capitol that new services have begun to fill. None is more interesting than Arcade City, which uses the Ethereum blockchain in an effort to decentralize ride-sharing. It is simply a platform — for now just a Facebook group, an app on the way — on which mutually consenting adults can arrange a trade of money for services.

But Austin is trying to stamp it out.

The city launched a sting operation on June 17, citing Arcade City drivers and impounding their cars. In a statement, the city’s transportation department explained that the drivers were cited “for operating without a valid operating authority and operating without a valid city chauffeur permit.” Under city law, if a driver seeks reimbursement from a rider beyond the “mileage reimbursement rates established by the U.S. General Services Administration,” a modest 54 cents per mile, then they are officially in need of proper registration. Without it, they violate the law.

This means the city government is regulating economic activity at a remarkably granular level. Suppose someone in desperate throes late at night calls up a friend, asks for a ride to some place ten miles away, and, feeling guilty, hands his buddy a bill with Hamilton’s face on it. Upon receipt of the money, that friend will be in violation of city law, the Austin transportation department confirmed. So long as the reward exceeds the federal reimbursement rate, and regardless of whether the driver sought to obtain it, Austin retains regulatory authority — and is clearly not afraid to use it.

The city government is regulating economic activity at a remarkably granular level.

Christopher David, Arcade City’s CEO, is skeptical of Austin’s motives. “They want to force everything that walks and talks sort of like an Uber into the regulatory structure that they have created. They want to make their revenue.” Indeed, per city regulation, all Transportation Network Companies (TNCs) must pay the city 1 percent of their own revenue, or a comparable percentage of driver earnings. But David says that his company isn’t, hasn’t been, and never will be a standard TNC.

“We bill ourselves as a Craigslist-style open marketplace. So the punishments fall heavily on the individual drivers.” Thus, in its efforts to control Arcade City, Austin put itself in the odd position of claiming authority over all sorts of ride-sharing arrangements.

Austin challenged Uber and Lyft for not taking safety seriously enough, eventually forcing them out. David, however, envisions a world in which the city government doesn’t have to police peer-to-peer interactions for safety.

“Like most bureaucracies,” David says of Austin, “They’ll seize on some platitude like public safety to enter the marketplace. But we believe that we are going to provide a superior way of doing business.”

It might be hard to convince people of that. For one thing, the professed goal for Arcade City’s app is technical to the point of inscrutability. And even if Arcade City actually finds success, it could be forced to become involved in the interactions between its users. David envisions an interface where “drivers have a profile, and they can upload verifications like background checks, insurance documents, and fingerprinting.” It will be “a true marketplace,” he says, “where the information is transparent and people can filter by it.” It’s an admirable goal, but the regulatory state will surely accuse Arcade City of facilitating these market interactions. Consumers might not understand blockchains, but Austin regulators, motivated to exercise control over the market, won’t even want to. Centralizing an entire set of reputational data on its own app will seem to contradict Arcade City’s claim of decentralization. Without resorting to technical jargon, it will be hard for the company to draw a clear distinction between itself and standard TNCs.

Arcade City is in a precarious spot. Even as the company attempts to remain totally decentralized, the city has shown it will pounce. If it grows — if the plans of an app come to fruition and the company becomes a household name — the city will surely seek to subject it to the more stringent TNC laws. David, however, seems undeterred: “We will be proceeding full speed ahead, regardless of whether they give us a green, yellow, or red light.”

— Theodore Kupfer is an intern at National Review.