The Fight Against Creative Destruction

UberCapture of the Uber app in the Apple Store – an app that links private taxi drivers with customers – has encountered several roadblocks around the world: a Brussels court banned it, a Berlin court ruled that the taxis are rental cars and must therefore return to their place of business between each fair, Paris briefly instituted a rule that an Uber cab had to wait for 15 minutes before picking up a passenger regardless of how far apart the two initially were, and the company has run into similar bumps in the road in several American cities.

At the same time, New York City, Paris and Berlin, are all restricting the use of Airbnb, an app analogous to Uber, but for short-term rental of private apartments. In New Jersey the sale of Tesla electric cars might soon come to a halt because of an obscure ruling mandating that cars should be sold through independent car dealers and not directly from producer to consumer as Teslas are.

Detail of Airbnb homepage
Detail of Airbnb homepage
Why such zeal from local city halls and court rooms in regulating the conduct of business?  It seems that this is just the latest installment of the age-old wheel of “creative destruction”: whenever a new product or service is invented – whatever may be its benefits – there will be both winners and losers. One could argue that it is the job of politicians everywhere to balance the costs and benefits of new innovations and block those that do not benefit society as a whole. And that the consequences for those who have long been employed as taxi drivers, in the case of Uber, should be given extra weight.

It seems that in practice, however, the interests of the incumbent taxi companies, hotel owners and car dealerships have much greater weight than the potential gain to local consumers and new companies. As Mr. Leipold, the chairman of Berlin’s taxi association, put it, “This isn’t a student start-up against a big taxi cartel. Uber is backed by Google. If I’m wearing gym shorts, I don’t want to compete against someone wearing hobnailed boots.”

If incumbents indeed believe they have the right to only compete against student start-ups it seems we might have too little and not too much “creative destruction.”

E-commerce Meeting IESE


About Morten Olsen

Morten Graugaard Olsen is an assistant professor in the Department of Economics. He earned his Ph.D. and M.A. in economics at Harvard University and holds an undergraduate degree in economics from the University of Copenhagen. His areas of specialization include international economics, banking, contract theory, growth theory.