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Uber thanks Mexico City mayor Miguel Mancera’s decree last month providing a legal framework for ridesharing. (Image by Uber)
Wednesday, August 12, 2015

Uber: Profound Impact on Latin America

Uber will have a profound impact on urban transportation in Latin America.

Inter-American Dialogue

Mexico City last month announced regulations that would allow Uber and other smartphone-based ride-sharing applications to operate as long as drivers and cars register, among other conditions, the city’s government said last month. In Mexico and elsewhere in Latin America, Uber has faced resistance from taxi drivers who say the company competes unfairly given that its drivers are not subject to the same regulations and inspections that they are. Brazil’s largest city and capital have moved to outlaw the service. What is the future of Uber in Latin America? Does it provide users a valuable alternative transportation service, or does it encourage labor informality, as critics allege? How is the “sharing economy” transforming Latin American business, and do you expect it to be as disruptive to companies in the region as it has been in other parts of the world?

Luis Antonio Espino G., Mexico City-based speechwriter and communications consultant: If there is one thing at which governments are really bad, in Mexico and other Latin American countries, it is regulating markets. Regulation does not promote innovation, competition or better services at fair prices. What it promotes is ‘cartel economies.’ Whether formal or informal, legal or illegal, economic actors find it easier to survive and thrive when they form organizations to promote their interests, even against the law. From street vendors to industrial tycoons, and from teachers’ unions to taxi drivers, different groups organize to pressure authorities to bend or break regulations in exchange for political support and social order. Uber is already disruptive, not only because of service quality or technology, but also because it exposed the reality: taxi drivers in Mexico City have to pay very high formal fees to operate, but they also pay bribes to avoid the enforcement of cumbersome regulation, which results in a low-quality service and thousands of unauthorized vehicles providing transportation. These ‘pirate taxis’—as the locals know them—are organized in groups that provide political support to local politicians, who then turn a blind eye toward them. But Uber and Cabify disrupted this arrangement, as they did not pay a dime to the government or to one of the many leaders of ‘taxi cartels.’ So, when the Mexico City mayor says that Uber and other smartphone services will be regulated, it means that they will have to pay for a special permit and, from time to time, bribes to police officers and transport inspectors so they can operate. Users will probably have to absorb part of the cost, and there will be no new benefits for them. Uber and other companies are an example of how innovation will always find strong resistance in economies that are not ruled by the law, but rather by special interests.

Agustín Rossi, non-resident fellow with the Global Public Policy Institute (GPPi) and a PhD candidate at the European University Institute (EUI): Uber will face the same resistance as in Europe and the United States, but will end up establishing in most Latin American markets. Uber offers a cheap and good service to cash-strapped consumers and an opportunity to make extra money to cash-strapped workers. It screens drivers and cars and pays taxes for its transactions since they all go through the formal banking sector. This is already better than the informal/pirate taxi industry. Uber has tremendous possibilities for improving Latin Americans’ lives. Safety is an issue, even for users of traditionally regulated taxis. Uber can allow customers to share real-time information about their trip (driver, car, route, GPS location and ETA) with other users. Parents would be happy to know who is driving their kids, where and when. Drivers would also enjoy not having to carry cash, discuss a fare or not know the reputation of their passengers. Uber can solve all these problems. Uber does not encourage labor informality per se: pirate or illegal taxis exist across Latin America. Uber offers a service for which there is a market (cheap transportation) with more guarantees than the existing alternatives to traditional cabs. However, Uber should be regulated to guarantee that it pays its fair share of taxes and its drivers are correctly protected. The sharing economy is already transforming Latin American business by introducing the culture of use over the culture of ownership: for example, almost 10 Latin American cities already have a bike-sharing system. The sharing economy has the potential to bring out of the shadows many of Latin America’s informal markets like pirate taxis (Uber), off-market vacation housing rental (Airbnb) and odd jobs (TaskRabbit). That said, the sharing economy is the iPhone version of the informal economy. Latin American regulators should embrace the possibilities of the sharing economy to bring to the surface many informal markets in a way that allows for taxation and regulation. However, they have to be careful since inadequate taxation and regulation can send those markets back to the shadows. The entrance of services like Uber will spark new ideas in regional entrepreneurs to provide unique services in a new way.

Susan A. Shaheen, adjunct professor and co-director of the Transportation Sustainability Research Center at the University of California, Berkeley: While our research has focused mostly on ridesharing, ride sourcing, and e-hail services in North America, we are certain that services such as Uber will make a profound impact on urban transportation in Latin America. Each city in Latin America is different, so it’s difficult to broadly state that ride sourcing and e-hail services will either provide a valuable alternative or encourage labor informality. Given that Latin American cities are developing at rapid rates, ride sourcing and e-hail services provide a transportation alternative in cities where public transit and infrastructure has not kept pace with population and economic growth. Shared mobility services, a segment of the sharing economy, are now transforming Latin American business, especially in promoting transportation alternatives to vehicle ownership and driving alone. Car-sharing and bike-sharing systems in Mexico City and São Paulo are examples of successful services in shared mobility. They provide short-term access to cars and bicycles, providing mobility to those who do not own cars, and providing relief to overcrowded bus and rail services in these congested cities. We believe shared mobility will continue to affect cities worldwide, particularly in developing cities, such as in Latin America.

Editor’s note: The Advisor requested a commentary from taxi driver organization Taxistas Organizados de la Ciudad de México (TOCDMX) but did not receive a response.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor