San José, Costa Rica, since 1956
Doing Business

The preemptive strike against Uber and what it means for doing business in Costa Rica

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“What are all these taxi drivers doing outside of the Colombian Embassy?” you might have asked yourself if driving by last Thursday. The protest, apart from contributing to the already chaotic traffic of San José, was part of an organized effort by cab drivers in countries including Brazil, Colombia, Costa Rica, Mexico and Panama to declare war on Uber, the app that creates a marketplace for people looking for transportation and those willing to provide it.

Taxi drivers’ protests here don’t anyone. Licensed drivers often protest against informal ones (both “porteadores” and “piratas”) being able to provide services without complying with the permits and costs licensed drivers must face. Meanwhile, informal cabbies protest in defense of their right to earn an honest living and argue that if there’s demand, they should be allowed to work. Now, faced with the possibility of Uber making Costa Rica one of the more than 58 countries in which it operates, these opposing groups seem to have found a common enemy. But what is really at stake in these protests, anyway?

The argument for unfair competition

Even though the company has yet to start operations in Costa Rica, protestors in San José are (preemptively) complaining about unfair competition, calling Uber a “monster that is putting at risk the patrimony of thousands of families, devouring the legal taxi market”. Understandably, they resent the fact that Uber drivers in other countries are not subject to local regulation and don’t have to pay for permits and other expenses required by law, allowing them to undercut their prices. Protests here and in many other countries, however, have not been about subjecting Uber to the local rules but instead about urging local governments to ban the service. In places like France, the cabbies have gotten their way.

Who gets to choose?

Uber argues for consumers’ freedom of choice, saying that people should ultimately be the ones who decide how they want to move around their cities. Supporting that view, many of its users say that the app is a great alternative to what some deem mediocre service from local taxis. Given that Uber allows users to rate the service, misbehaving drivers can easily be spotted (and sometimes banned), creating incentives for good service, which rarely happens with regular cabs.

Under that logic, it would be hard to justify a government banning a service that ultimately benefits consumers. That could not only be perceived as restricting people’s choices, but could also create conditions where vocal groups like taxi drivers could get the government to shield them from any kind of competition.

The elephant in the room

Last Thursday’s precedent, with Costa Rican taxi drivers not only protesting about a mere possibility of Uber launching in San José, but also joining forces with their counterparts in Mexico and Colombia, offers valuable lessons about how businesses should handle their expansions into Latin America.

In the midst of protests, cries for unfair competition and arguments for freedom of choice, the elephant in the room seems to be regulation. Either governments are not quick enough to react to game-changing technologies or models like Uber’s, or the company wasn’t proactive enough in seeking compliance with local rules. Either way, taking sides isn’t going to solve the problem. Some cities, like Long Beach, California, have eased the tensions by implementing measures that allow both regular taxis and Uber drivers to compete on a more level playing field.

The power of civil society

Lots of companies can get away with operating on the limits of regulation or even outside of it for a while at the beginning, but not when competing in markets with a highly organized civil society, where social groups can wield enough power to make governments do things they wouldn’t have done otherwise.

Especially because their model is so disruptive, Uber might have done well to knock on governments’ doors before setting foot in these new markets. Perhaps they did and didn’t get a response, because governments might not move as quickly as Uber wants to expand. But by going all-out with a market-trumps-all mentality, the company has allowed civic groups to organize and build resistance. In this sense, the major risk is not that local government officials would oppose the company outright (which in a democratic country seems unlikely), but rather what the government might be forced to do under enough heat from organized groups.

What now?

After two years of operations, Mexico became the first Latin American city to regulate Uber. Cab drivers are already contesting the ruling, and protests keep escalating. In France, strikes and protests became so violent that the government prohibited the service and arrested two of the company’s executives. Around the world, the app is getting either fully or partially banned, and in some countries like Spain, it has suspended operations altogether. And of course back in Costa Rica, there’s enough discontent already that a war as been declared, even though the service is not even available here yet.

Costa Rica’s healthy democracy and active civic participation are something to be proud of. Many organized groups have ensured that economic interests do not overpower environmental or social aspirations. But this capacity of Costa Rican society to raise its voice and create pressure is merely a tool – a tool that can be used for both noble and selfish purposes. It can create the checks and balances to keep government officials (somewhat) honest, and it can also be exploited by groups looking to gain or preserve privileges. Businesses must take this quality into account when setting shop in Costa Rica, and in the many countries where civil society is strong.

Read more “Doing Business columns” here

Randall Trejos works as a business developer, helping startups and medium-sized companies grow. He’s the co-director of the Founder Institute in Costa Rica and a strategy consultant at Grupo Impulso. You can follow his blog La Catapulta or contact him through LinkedIn. Stay tuned for the next edition of “Doing Business,” published twice-monthly.

 

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Kamisedo

Excellent treatment of a tricky subject.

In the end, the Uber model is a great way to wrest power from the Administrative Class.

But the transition will be painful for those companies and individuals who have thrown their lot in with the bureaucrats.

Still, the mediocrity that results from companies hiding behind the skirts of the bureaucrats should never be rewarded (I’m talking to Big Pharma and the FDA here…)

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Bruce Hubert

Technology creates new jobs and destroys old jobs this has been happening forever. If Costa Rica bans UBER maybe the USA should stop buying Costa Ricas export products.

Fact is Costa Rica is going to be in the same boat as Puerto Rico a corrupt mismanaged government with a debt service that is impossible to pay down.

30 % of Costa Ricas government budget goes to pay the interest on the national debt. The government is selling its bonds to the government employees pension plan. What a corrupt joke. All the credit rating services will soon down grade Costa Ricas debt to super junk status and the country will default on its debt for the seventh time in its history.

The government has a lot bigger things to worry about than blocking UBER from CR

UBER is the least of Costa Ricas problems. But it is a good distraction from the big problems.

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Ken Morris

The controvery over Uber, I hope, will finally bring Ticos and expats alike to their senses regarding the already-existing mess of taxi service in Costa Rica.

The issue is REGULATION–and we want it!

The regulation of taxis is not a socialist plot, but a way of guaranteeing that when you and I pay to get into a car owned by someone else, it is properly insured and maintained, as well as that the driver has like, duh, a license.

Yes, in simplistic microeconomic theory, customers could verify that unregulated taxis are properly insured and maintained while the driver is licensed by asking to see verification of these matters from the driver before we enter, but in the real world not one in a hundred customers will do this. In that same real world, any driver asked to provide these verifications will likely just speed off and leave the prospective fare standing in the rain.

As a practical matter, we therefore want every vehicle providing passenger services to be regulated by, yes, the mean old government. No, we don’t want the regulations to be excessive or protectionist or anything like that, but we do want regulations for our own safety.

Ticos are already playing with fire by allowing the pirate taxis to operate and using them for transporation. Sure, 99.9% of the time nothing goes afoul, but when it does, the passenger can get hurt badly.

I am not a Luddite, and see no reason to protect taxistas simply because they don’t want competition from Uber. I say bring Uber on–but only after suitable regulations are put into place.

And once regulations are in place, I’m sure regular taxistas will be able to compete. Right now, what justifiably gripes the taxistas is that while they are regulated for the customers’ safety, they have to compete against any unregulated bozo who undercuts their price while compromising safety.

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Elise Frappier

Uber is a great example to many more future problems regarding government. Because govs everywhere like to regulate everything, they allow a few to rule over everything, limiting freedom of choice, forcing employees to pay high fees and make small money to keep their money machine rolling. When a company like Uber comes in to offer real choice, for BOTH the consumers and the taxi drivers, sets a system that promotes QUALITY over a race to the bottom (like so many other industries…), then they all get upset and want to fight what is but a natural evolution.

People have freedoms, and one of those is to vote with their wallets. If they want better service, who the hell has the right to tell them that they are NOT allowed? And the taxi driver that decides to drive for Uber because he wants to make more money by offering a better service; who the hell has the right to tell this guy it is not within his rights to make a choice how he makes a living?

This is where full on socialism brings us; bigger governments that tell us what to do with our so-called freedoms!

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