Magazine | August 24, 2015, Issue

David behind the Wheel

(Andrew Caballero-Reynolds/AFP/Getty Images)
Uber takes on the yellow-checkered Goliath

Las Vegas — ‘Vegas is a totally normal place to live,” the cabbie says as we take in the view of the giant black pyramid with the klieg light shooting out of the top and the miniature Manhattan skyline and the beardy guy who makes his living by dressing up like Zach Galifianakis’s character from The Hangover — complete with strap-on baby carrier and fake baby. The traffic in front of us is a bit snarled up because a couple of trucks are towing mobile billboards down the middle of Las Vegas Boulevard with almost completely naked blondes posing next to the slogan Hot Babes Direct to You 702-696-9696. The driver, inured to it all, gives the impression of comprehensive earnestness. “It’s just like anywhere else.”

Totally normal — about that I am skeptical.

But it is certainly predictable: Despite the exotic distractions, I am keenly aware that this super-friendly, kindly and gray-haired taxi driver is long-hauling me — taking me the long way from McCarran airport to the Mandarin Oriental, turning a four-mile trip into an eight-mile trip and a $20 fare into a $30-odd fare. State auditors estimate that about a quarter of airport-to-strip rides go the long way, fleecing visitors for about $15 million a year. But since I’m here in Sin City in part to investigate the venality of the Las Vegas taxi syndicate, I don’t much mind. This po-faced dishonest SOB doesn’t know it, but he’s doing me a favor. Between commuting in New Delhi and working in New York — where the maddening ritual of the 5 p.m. shift change suspends practically all taxi service during the 75 minutes when it is most needed — I’ve spent a great deal of my life getting hosed by taxi drivers, and I never liked Mike Bloomberg so much as when he told the city’s taxi operators what his plan was for their industry: “I will f***ing destroy you.”

You get used to it. In fact, I had been a little bit worried that I’d have to take a few trips before somebody tried to long-haul me — is that pessimistic optimism or optimistic pessimism? — but this friendly rip-off artist came through on the first ride like a champ. He is a font of wisdom on the complexities of the human condition, and explains why he switched from late-night shifts to early evenings: “When people are getting ready to go into the casino or out to the club, they’re in a good mood. They feel good about things. A guy coming out of a strip club alone at 4 a.m. doesn’t. I like happy customers. Better tips, fewer problems.” And what does he think about Uber and the other ride-sharing services that threaten to undermine the cozy little cartel that runs Lady Luck’s endless stream of suitors from the airport to the Strip and from the Strip to the airport — start-up technology companies that have been going round and round with the Nevada state legislature and the established taxi and limousine concerns like 20 badgers in a bag just for the chance to operate in Vegas and Reno? To my surprise, the cabbie approves.

“Somebody has to keep us honest.”

Uber operated in Las Vegas for about a month before it was shut down. On October 24, 2014, Brandon Flowers, lead singer of the Killers and a longtime Las Vegas resident, took the city’s first Uber ride, from his home in a quiet residential neighborhood to the clamorous pornographic Disneyland that is what most people think of when they think of Las Vegas. The casinos and the nearby legal brothels and the partly-but-not-all-the-way-legal marijuana have given Las Vegas a freewheeling, libertarian reputation, but don’t you believe it: This is a city in which a game of bridge can land you in prison if you violate one jot or tittle of the state gambling code, a city where you can shoot vodka and craps 24 hours a day with nothing but whorehouse breaks to clear your head but where the law regulating church raffles has 29 subchapters, one of which is titled “Forfeitures of Money and Certain Property.”

Uber launched its service with no modest amount of fanfare — and within weeks the state was threatening to imprison its drivers and impound their cars. More than 50 Uber drivers were brought in by police in Vegas and Reno, while the Nevada Taxicab Authority and the Nevada Transportation Authority went hunting for judicial injunctions, which came quickly enough: The district court covering Reno shut Uber down on November 26. Just as an estimated 350,000 visitors began arriving for the Thanksgiving weekend and checking into casino-hotels where the taxi line on a Friday night can run more than an hour, Uber suspended operations.

What followed was an exercise that will be familiar to even the most casual student of political economy: the timeless confrontation between concentrated benefits and dispersed costs, the lopsided contest between a few highly connected people with a lot to lose and a lot of unconnected people with a little to gain. Taxi companies in Las Vegas, like those in practically every American city, are organized into a cartel by the government; in this tourism-driven city, there were only about 2,200 medallions in use as recently as a few years ago, though the authorities have been strong-armed into issuing more. That new liberality does not much please incumbent medallion holders, who do not wish to see their economic privilege diluted. The news from the wider market is not promising for the cartel: In New York, taxi medallions have been crashing from a price of more than $1.2 million each to around $800,000 and are expected to keep heading south. Philadelphia had a medallion auction in which it set the opening bid at $475,000 per medallion and ended up with a grand total of zero nibbles on that six-figure bait; the medallions were later discounted to $80,000.

In Vegas, a single medallion is good for about $200,000 a year in revenue, and until 2014 taxi drivers were paid less than the state’s minimum wage under a 1965 exemption — and they still aren’t paid very much. That makes each medallion a pretty sweet proposition in terms of return on investment for the owners, sweetened further still by the fact that Vegas taxi companies are — you may want to sit down for this part — rife with criminality. Auditors have consistently found that there are more medallions in operation than there are medallions on the books, a result of the fact that some taxi companies report a medallion missing from time to time when it isn’t. They get a replacement and run two cars with a single medallion purchase. Even if they get caught and receive the maximum fine of $15,000, it’s still a high-return gambit, and, so far, the state has not gone so far as to send any of these miscreants to the Nevada state penitentiary, where prisoners spend their time stamping out taxi medallions, among other pursuits.

The politics are as obvious as the economics: The medallion owners lobbied, made donations, handed down threats and insults, cajoled, preached the poor-mouth, begged, and colluded with (of course) the taxicab unions to park taxis on the Strip and refuse to pick up customers in protest of Uber’s allegedly loose safety standards and its practice of “surge pricing,” i.e., charging more when and where demand is highest. (When governments do that, it’s called “congestion pricing” and is beloved of urbanist policy wonks left and right; when Uber does it, it’s naughty, naughty price gouging.) The cartel and its political dependents threw the whole big bucket of slop at Uber, everything they had.

They lost.

Nevada’s state legislature passed a bill permitting Uber and similar services to operate and ordering the relevant state agencies to draw up a body of procedures and regulations to make that happen. Uber executives are hesitant to talk politics on the record, but they were pleasantly surprised that the legislature gave the regulators relatively narrow scope for mischief. Draft regulations were expected to be forwarded in early August, and Uber insiders say that they are confident that the Nevada standards will have no surprises, just the familiar rules about background checks for drivers, insurance, vehicle inspections, etc.

That was one win in a series of victories for the ride-sharing industry: In New York City, the Sandinista regime of Mayor Bill de Blasio, arguably the leftwardmost elected official of any real consequence in the United States (apologies, Senator Sanders), had threatened to put a cap on the number of new drivers, which would have gutted Uber’s business model: The company estimates that 25,000 New Yorkers each week take their first Uber ride, and it aims to keep wait times under three minutes. It needs more workers, not fewer. In New York City, Uber effectively operates as a licensed limousine company, its drivers registered with the city taxi and limousine commission and required to comply with the many (many, many) mandates put on commercial drivers in the city. Uber can live with that, but it won’t roll over for the caps, and it made its case forcefully, sometimes pointedly. The unions howled, but Mayor de Blasio backed down; Uber agreed to a face-saving congestion study, but the cap is, for the moment, a no-go proposition, one that Uber is hoping will prove a never-go proposition. Roughly the same thing happened in Washington, and other cities are making peace with the fact that a taxi regime that was built in the 1930s has outlived its usefulness.

This isn’t David vs. Goliath, it’s David vs. Goliath and his whole ugly overgrown family.

Alex Maffeo is the sort of guy you’d expect to be a regular Uber passenger. He’s an Internet-minded 30-year-old vice president at a New York City venture-capital company, a Columbia graduate who describes his work as taking place in the “financial-technology space.” He’ll explain what he means by that if you ask.

Ivy League finance guy with the world by the short-and-curlies: What the hell is he doing prowling the mean streets of Jersey City (not nearly so mean as they used to be) working as an Uber driver?

“It’s more of a hobby, to be honest,” he explains. “My wife thinks I’m crazy.”

Growing up in suburban Morris County, N.J., Maffeo came to like the idea of being a cabbie, the romantic notion of “driving around the city in the taxi and meeting a lot of interesting people.” But he didn’t like it enough to, you know, go out and become a cabbie: Sometime after deciding he didn’t want to be a lawyer and happening into a career in finance, he took an interest in Uber. “I invest in financial-technology companies, and I was a big proponent of Uber and similar services. I decided I wanted to make sure I wasn’t defending anything that was exploitative. I wanted to do my hands-on due diligence.” So he signed up to be a driver and find out for himself, while simultaneously satisfying his cabbie jones. “The human element is very enjoyable,” he says.

Jersey City is a much less lucrative beat than New York, with typical fares running $7 or $8 as opposed to $12 or so. “One very common fare is going to the Newark airport, and that’s $15 to $25 — those are the money-makers,” he says. He estimates that he makes about $10 an hour and would make significantly more in New York. But one of Uber’s attractions for drivers is that it empowers them to work where they are, which is great for part-timers not looking to fight the traffic and pay the tolls to get into and out of New York or another major urban core. That works out well for passengers, too: It is notoriously difficult for New Yorkers residing outside of Manhattan and the nearby affluent parts of Brooklyn to hail a taxi; try it in the South Bronx and you are likely to spend a good lonely while looking for anything friendly and yellow. New York estimates that the outer boroughs account for about 6 percent of taxi service; Uber, on the other hand, estimates that about a third of its rides are to, from, or within the outer boroughs. In many cases it functions as a “last mile” service connecting residents of the city’s “transit deserts” — areas that are far from subway stations and bus stops — with the city’s mass-transit network.

Uber’s ability and willingness to serve underserved communities and to provide a technology end-around for some of New York City’s most charged social problems — unlike the situation when you’re hailing a cab at 96th and Lexington, on the Internet nobody knows you’re black — have made it more difficult for the so-called progressives to dress up their cartel-servicing as consumer protection. Even the nation’s oldest consumer-advocacy organization thinks Uber et al. serve the public better than the highly regulated cartels. “Government has a really important role in protecting consumers,” says Joe Colangelo of Consumers’ Research, “and that applies to Uber. But it applies to protecting the public’s safety and well-being, not to preventing new technology from entering the market. The landscape that these regulations were crafted for no longer exists.” New York, he points out, developed its taxi regulations in the inter-war era, and they were designed to address inconsistencies in service and costs. Uber solves those problems in a trans-regulatory way: Fares are advertised in advance, before the pick-up is even scheduled, and customer ratings mean that inspections effectively happen during every trip rather than once a year.

That’s not lost on the young people who are accustomed to having services such as Uber, Seamless, and Open Table acting as their own personal 24-hour concierge.

“In New York, they were trying to make it sound like it was a consumer-protection issue,” says Maffeo. “They went through every different angle — traffic, consumer protection, handicap access. They were grasping at straws. And nobody was buying it. If you provide a terrible service, you are going to be replaced eventually. That’s the way it is, and the way it should be. It took a while, but a smart, motivated group of people put together a company, and the exponential growth of that company shows that consumers were starved for something like this. De Blasio is fighting the same fight he’s always fought: protecting the lobbyists, including the medallion owners, and the unions. Nobody is fooled by the posturing.”

Maffeo believes that the difference between this fight and similar confrontations in the past is an expression of generational difference: Younger consumers connected via social media can compete with the lobbyists and public-relations firms hired by the rent-seekers and cartelists, and details about political developments and regulatory changes that used to take weeks to work their way through the media are now instantly available. “Now, you can’t get away with sneaking things past the consumers,” Maffeo says. “De Blasio was forced to listen — that’s true democracy.”

Like my Las Vegas cabbie, the evolution away from the old cartels and monopolies may not always take the most direct route, but it is moving in the right direction, toward the bright lights and endless possibilities.

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