Creative destruction has added yet another casualty to its long list of industrial victims. After years of hosing passengers, failing to innovate, and receiving government protections, the New York City taxi cartel is finally getting its comeuppance thanks to the immense growth of ride-sharing apps like Uber and Lyft, according to new data.
In the city that never sleeps, there are 65% more ride-hailing trips than taxi pickups. At the end of 2017, the total number of ride-sharing trips through the likes of Uber and Lyft topped 15 million. Taxi fares totaled fewer than 10 million.
But there’s even more data to highlight the death of the city’s taxi industry:
- Ride-sharing apps have dominated outer borough fares.
- Ride-hailing orders will soon surpass taxis in Manhattan.
- Lyft posted massive gains in Brooklyn.
- Taxis are losing their influence at the airport.
- Most medallion sales are in foreclosure and only a few sell for $120,000.
The media will describe the trend as part of “The Uber Effect.” However, this is just a variant of creative destruction, an economic concept developed by 20th-century economist Joseph Schumpeter (it was also known as Schumpeter’s gale).
It has been prevalent in a diverse array of industries for centuries: quills to pencils to pens to speech-to-text applications (though, they are still in their infancy period). But the taxi industry is one of the best examples of this timeless economic idea, even with the shield of the state guarding it against competition.
The Creative Destruction of Taxis
For years, passengers with only a few transit options railed against the paucity of customer service, the primitive technology, the expensive fares, and even the industry being afforded special privileges from the municipal government. What did the industry care? They were free from having to be concerned about competition.
For a long time, the only option consumers had was to hail a cab. That changed. Now they’re fighting back, gaining revenge on an indifferent sector.
Today, consumers no longer need to rely on dirty yellow taxicabs. They can turn on their phone, request a Lyft, Uber, or Gett, and arrive at their destination for an affordable price. They can also post ratings of specific drivers, peruse reviews of motorists, and receive several perks during their trips, like bottles of water, classical music, and snacks. That’s unheard of in conventional taxis.
But these companies aren’t settling for the status quo. They’re experimenting with other features, too.
Lyft, for instance, announced last week that it was testing a monthly subscription plan: $199 to receive 30 rides worth up to $15 per trip. Uber, meanwhile, is running a trial project of Express Pool: you walk a block or two, get picked up, and save a buck or two.
Just because Lyft and Uber are flourishing now, it doesn’t mean they are immune to the forces of economics. Will the ride-sharing industry become victimized by creative destruction? It’s inevitable.
Industries Rise, Industries Fall
Taxis are not the only ones who can hang their heads in shame for falling prey to creative destruction.
The 1942 Orson Welles motion picture “The Magnificent Ambersons” highlighted what staying in the past can do to anyone. One family relied on their wealth of yesterday, espousing the dignified manner of riding horse carriages. Joseph Cotten’s character, Eugene, wasn’t satisfied with staying in the present, and instead invested his time and little resources into the development of the automobile. The character of Tim Holt, George, goes as far as calling the automobile a “nuisance” that “had no business to be invented.”
Suffice to say, Eugene became rich, while George went broke.
This was an important and underrated classic because it had a lot to say, even in the realm of economics.
Of course, people had the right to be wary of the rise of the car and the death of horse buggies. In 1900, the U.S. employed more than 100,000 carriage and harness makers. Within the next couple of decades, this part of the economy was pretty much evaporated, leaving thousands jobless.
Transportation has always innovated. There was the steam engine (railroads), the internal combustion engine (cars), and the jet engine (airplanes). Soon, the reusable rocket will pave the way for commercial space travel. After that, who knows what else man will invent or improve upon?
Ditto for computers, hospitality, apparel manufacturing, steel, newspapers, and the list goes on.
Is There a Price to Progress?
Objectively, 2018 is the best time to be alive. Every new year that arrives is the greatest point in human existence. The free market provides us with new goods and services that enhance our living standards at a great cost. Competition breeds prosperity for all.
That said, if your industry is the one being affected by capitalist progress, then you would be hesitant to embrace change. To quote another classic film, Spencer Tracy’s Henry Drummond in the 1960 movie “Inherit the Wind” tells the courtroom of progress:
“Mister, you can have a telephone, but you lose privacy and the charm of distance.
Madam, you may vote but at a price. You lose the right to retreat behind the powder puff or your petticoat.
Mister, you may conquer the air but the birds will lose their wonder.”
Creative destruction allows us to understand why society is always changing, as well as adapting. In the last 120 years, the American landscape has evolved: from shoeshine boys to shoeshine kits, from newspaper boys shouting “Extra! Extra!” to 140-character tweets delivering breaking news, from telegrams to texts. Industries have perished, while other industries have flourished. Iconic brands of yesteryear have become a footnote in history (just 12% of those on the Fortune 500 list in 1955 remain), and the Facebooks and the Twitters will follow the same pattern. It’s just economics.
What do you think of the taxi industry? Let us know in the comments section!