It is probably part of my flesh that still needs serious work (Prov 24:17), but I have to publicly confess I get a thrill of “Justice!” when I see those that are profiting from political power get their comeuppance.  Crony capitalism is perhaps, like beauty, in the eye of the beholder.  But at its simplest, it is the bestowing of a special privilege to someone, that by definition restricts others.  For example, it is not crony capitalism for the government to provide police protection, because they can (and should) provide police protection to all.  But other government actions provide a sinecure to a particular group or individual by limiting what others can do; often in the form of some monopoly privilege.  The history of monopoly is littered with government action, as restriction of competition must be enforced–and only government has the monopoly of violence that can limit competition.  Whether the monopoly charters under mercantilism, or legislation granting unions exemption from antitrust laws, or the selling of taxi medallions, the result is the same:  ostensibly on behalf of public purposes, someone gets above normal profits.

In the case of taxi medallions, many large cities regulate taxis in part by limiting the number of potential taxis–a taxi driver must purchase a medallion that gives the right to operate a taxi.  This medallion becomes a capital asset,the value of which greatly exceeds the value of the taxi and the underlying business.  Indeed, taxi medallions have spawned their own industry to finance and trade these medallions.  But as CNBC relates, “Houston we have a problem.”  Enter Uber, an technology-based firm that matches up potential riders/drivers to give people faster, cheaper rides.  If you’ve been in a city recently and seen a car pull up to the side of the street and someone hop in, there is a decent probability you’ve seen an uber transaction.  While there are laws precluding this (to protect the incumbent taxis), there is very little that can be done about it, other than trying to “sting” taxi wannabees.  And this is drastically undercutting the value of the monopoly privilege:

“I have had a pretty successful thing,” said Gary Karczewski, 65, a Chicago cabbie who inherited his medallion from his father 28 years ago and earned enough to purchase two homes and help send his two daughters to college by driving the equivalent of 80 times around the world. “My hope was to wind down soon and give whatever I could sell the medallion for to my mother. But I am not confident there’s a market now.”

As you can imagine, the vested interests are not taking this lightly–they rightly understand the attack on their capital.  They are fighting being “uber’d”

And the trade association Taxicab, Limousine and Paratransit Association (TLPA) has launched a vigorous media nationwide campaign called “Who’s Driving You?” in an attempt to raise questions about Uber and other ridesharing companies safety record. The TLPA maintains a long list of alleged crimes and other embarrassing incidents by Uber drivers and drivers for other ridesharing outfits.

But in other respects, they are fighting by innovating, i.e., they are being forced to compete.

In New York and Chicago, the industry has backed efforts for a universal hailing app in a bid to compete with rideshare outfits for riders that prefer the convenience of finding a ride with a couple of taps on their smartphone.

Uber is a perfect example of Joseph Schumpeter’s creative destruction:  entrepreneurship coming up with better ways to do business that destroys an older business model.  Bereans love above normal profits for firms, when that profit is from providing superior service to consumers without restricting competition.  But given the monopoly privilege basis for taxi’s, I’m afraid I can only shed a crocodile tear.

EDIT UPDATE 5/22

France ruled against Uber today, siding with the taxi drivers who decried the “unfair competition.”  In my opinion, this is only a temporary setback, and if its not Uber, it will be something else.