The politics of innovation holding back Uber, Tesla and e-cigs

Profile picture for user gonzodaddy By Den Howlett December 29, 2013
Summary:
Innovation can cause serious reactions among legislators and incumbent players. Here are three industry example.

uber
An extraordinary new rule will come into force January 1st in France that means alternatives to the traditional taxi service like Uber, LeCab, Allocar and others will have to make prospective passengers wait 15 minutes before picking up a 'hailed' fare from one of these services. This topic has been in the wind for some months and, according to reports, has been universally (except for the incumbent lobbyists) been condemned as a bad idea:

Last week, the Competition Authority (Autorité de la concurrence) even wrote that the 15-minute delay was a bad idea.

“This competitive imbalance is not necessary to protect the taxi monopoly on this market. Moreover, it potentially contradicts the objective to improve free traffic flow,” the report says.

Yet the government has chosen a time of year when many are distracted by seasonal festivities to introduce this new rule. Such is political life. You can get a flavor of how this works in France from the conversation Loic LeMeur had with Arnaud Montebourg, French Minister for Economic Renewal at LeWeb:

His [Montebourg] suggestion that innovation should only be allowed if it does not disrupt existing industries shows how unaware he is of how innovation actually works. He supports passing a law requiring preventing Uber drivers from picking up passengers less than 15 minutes after they are called.

Montebourg didn't actually say what has been widely reported but instead made a case for 'compromise' - whatever that means which was interpreted as anti-competitive in the context of innovation.

One interpretation of this situation is that the incumbent system is a cartel that has a very high barrier to entry. Obtaining a taxi licence in Paris is reputed to cost €150-400,000. If I was paying that amount for the right to operate a taxi I'd be pretty annoyed at an unregulated entrant coming into the market. Economics - or rather the taxing of resources - is a powerful motivator for protecting an industry. Both government and operators have a lot to lose. The same goes for the tobacco industry.

Tesla's battles

tesla model s
The more I visit the Bay Area, the more I am fascinated by the technology that Tesla is pouring into its products. I describe the car as a compute device that happens to look like a car.

Its progress in creating a network of supercharger stations that eliminate the fear of running out of power is an amazing effort by a company not prepared to wait for legislators or others.

Ray Wang has convincingly modelled the potential economies of running a Tesla compared to luxury vehicles that have a lower buy in cost. Yet...

In the middle of 2013, there was a genuine fear that New York would outlaw Tesla's distribution model. The draft legislation was eventually shelved but hasn't been killed off completely. In Texas, Tesla has lost for the time being. Here's the reason:

"Because power follows money, and I think there just wasn't enough money behind the Tesla people," Burka said. "They just didn't have the heft to fight them."

Tesla is expected to take another crack at the Texas statute in 2015, when the next general session of the Legislature opens.

To have a chance at winning then, Tesla will have to spend time and money in the Texas capital and make contributions, Burka said: "If they're going to survive, they're going to have to play the game."

Need more convincing that it's all about the money rather than recognising innovation that can do good?

The e-cig (re)-evolution

A man smoking an electronic cigarette
In the last few years, we've seen the rise of alternatives to the 'evil weed' and in particular the growing e-cigarette market. As a lifelong nicotine addict who enjoys a cigarette I am sufficiently rational to understand that sooner or later they'll kill me. I'm also one of those who will likely never give up. A viable alternative would therefore be welcome.

Putting aside the obvious comparisons between heroin and methadone, the e-cig business has worked pretty hard to invent new ways of satisfying the addict's need. It's also had some decent celebrity endorsement.

The last year alone has seen some cool ideas like the wireless iGo4 and variable voltage iTaste devices. Most recently I read about mods for devices that remind me of the days when you could assemble best in class PCs out of components. My sense is the industry is at the beginning of delivering stunning innovations that will persuade the diehard addict that making the switch is worthwhile.

Why should anyone who doesn't smoke tobacco products care? e-cigarette politics has some interesting quotes. An example:

"If all the smokers in Britain stopped smoking cigarettes and started smoking e-cigarettes we would save five million deaths in people who are alive today. It’s a massive potential public health prize." - Prof. J Britton, Royal College of Physicians

Now before even getting into the math on health related costs saved versus tax revenue raised, the site authors make the following point:

Smoking has created one of the world's biggest money machines - a machine that benefits innumerable people in multiple industries, organisations, and government departments. The smoking economy is worth more than one trillion dollars a year; it is immensely powerful and well able to protect itself. Its power is obvious from the way that, now a way to finally remove smoking has been invented, that solution is being blocked.

In Sweden, promoting 'snus'  - a form of oral snuff and another alternative to tobacco products has produced a dramatic impact:

Sweden now has the lowest rate of tobacco-related diseases in Europe and the world's lowest rate of lung cancer in males. While using Snus is still highly addictive, it is widely held to be between 95% and 99% less harmful than smoking.

Once again we see the economics of invested interests holding back the potential for an alternative - an innovation - taking wider hold:

Why then does the EU still ban the export of Snus to other EU countries? The answer, as documented in an insightful book by Christopher Snowdon, lies in a combination of stubbornness on the part of anti-tobacco campaigners and the vested interests of the pharmaceutical industry.

It's all a bit depressing isn't it?

Verdict

If 2013 was a year to celebrate innovation we should caution that while innovation doesn't stop it can be stifled and/or held back.

The power of incumbency should never be underestimated and especially in markets that can be regulated. How these challenges play out will not be resolved by that old adage 'the market decides' but the extent to which the players themselves are able to make the case in those states where regulation is the most onerous.

Governments will continue to show how out of touch they can be with modern realities. The job of the innovator is not to denigrate their efforts but to demonstrate the value of innovation. Having said that, I fear that in common with many other industry instances, even the best facts can be blindly ignored with an irrationality that beggars belief.