Shades Of Grey Markets: How Government Overregulation Creates Counter-Economic Opportunities

The basic law of Counter-Economics is to trade risk for profit. Having done so, one naturally (acting to remove felt unease) attempts to reduce the risks. If you reduce your risks while others continue to face the higher risks, you naturally out-compete and survive longer. And you profit. Samuel Edward Konkin III, An Agorist Primer.

In 2008, I took a software development gig at a startup in Santa Monica, CA called LP33 (lp33.tv). The company had originally been named MyAWOL (My Artists WithOut Labels). The “My” prefix was a not-so-subtle nod to MySpace, the giant (at that time) of the social media industry. Facebook had opened to the public in 2006, but was still an outlier in the space. Venture capitalists around the world, at that time, were dumping money on startups promising to create “The MySpace of X.” MyAWOL had been founded by music industry veterans and sought to become the premier social network for independent musicians - “The MySpace of Indie Artists.”

For the past several years, the most exciting label for a startup is “The Uber of X.” Unlike MySpace, Uber is seeing its market share continue to grow and is expanding into other areas. UberEats, for instance, is Uber’s own entry into the already established (and crowded) “Uber of Food Delivery.” The ubiquity of smartphones and mobile broadband connections has given birth to such startups as “The Uber Of Stylists” (TheGlamApp.com), “The Uber of Dog Walking” (Rover.com), “The Uber Of Car Rental” (Turo.com), and even “The Uber Of Car Rental For Uber Drivers Who Need To Rent A Car To Use To Drive For Uber” (HyreCar.com). It is remarkable how quickly the outlaw antics of Uber are swept aside when such antics generate profits.

It was (over-) regulation on the part of government that, ostensibly, led to Uber’s creation. It was overreaction on the part of regulatory agencies that clearly led to the creation of “The Uber Mystique.” Uber has achieved victory in the vast majority of battles it has fought with governments determined to keep the service out of certain jurisdictions. In the cases where Uber has retreated, new “Grey Market” opportunities have arisen in the space left by Uber’s absence. Uber’s brief history serves as a case study which proves that Agorist theories - put forward by Samuel Konkin in the late ‘70s and early ‘80s - give a powerful framework for a peaceful supplanting of government coercion by non-violent, market means.

Although Uber was created in San Francisco, its first significant battle was fought in New York City, the Mecca of the taxicab industry in the United States. Overregulation created the space for driver demand. Overreaction on the part of Las Vegas authorities, in their dealings with Uber, created a public relations scenario that allowed Uber to finally gain a foothold in my lucrative hometown.

In Austin, TX, overreaction by government eventually ended with Uber (and competitor, Lyft) deciding to pull up stakes and remove themselves from the municipality. The market demand created by the ensuing vacuum incubated what may turn out to be the Facebook to Uber’s Myspace. The tale of these three cities is a harbinger of the new economic paradigm that lies just on the horizon. Those who understand the paradigm will have great economic opportunity in the coming years.

The Counter-Economy is vast. Our brief study of economics tells us that this should be no surprise. The more controls and taxation a State imposes on its people, the more they will evade and defy them. Since the United States is one of the less (officially) controlled countries, and the CounterEconomy here is fairly large, the global Counter-Economy should be expected to be even larger — and it is. Samuel Edward Konkin III, An Agorist Primer

Uber launched in New York City in May of 2011, a year after the app first went live (in San Francisco). Uber arrived on the scene in the middle of the latest battle in a taxicab civil war that had already been raging for a century. Their arrival tipped the scales in favor of the Counter-Economy.

The metered cab industry first began in New York City in 1907. Immediately, grey market “illegal” cabs began plying their trade on the streets. The grey market grew alongside the white market. In Los Angeles, these illegal cabs were known as “jitneys” (a slang term for a nickel, which was their fare in the early days). By the 1930s, the grey market cabs of New York had acquired the moniker “wildcat taxis.” The wildcats were known for providing drastically reduced fares, and the licensed drivers complained that they were losing business to these illegal competitors. This claim was demonstrably unfounded, however, because by the 1960s licensed drivers (medallion holders) had a lucrative enough business that they began restricting their activities to the hub of Manhattan - refusing rides to certain “types” of people and to certain destinations. The wildcats (now known as “gypsy” cabs - a name still used today) became the primary operators in the outer boroughs - mainly Brooklyn and Queens.

In 1967, as a reaction to lobbying by medallion holders, the city ordered that medallion cabs paint their taxis yellow (gypsy cabs must paint their cars some other color) so that riders could immediately distinguish between the two. The reaction was swift. Gypsy drivers turned over or burned no less than 14 licensedmtaxis in Brooklyn. The mayor, John Lindsay, offered full police protection to medallion holders but simultaneously voiced his opposition to the law that gave birth to New York’s famous Yellow Cab.

In 1971, the city created the Taxi and Limousine Commission (TLC). In a moment of foreshadowing that would echo through the decades, the new TLC Chairman, Michael Lazar, suggested that the gypsies could become legal by simply no longer taking “street hails” and only picking up fares who had called ahead and scheduled rides. The gypsies in The Bronx organized protests of the initiative. The protests turned violent when firefighters, responding to a blaze set by the protesters, were attacked with bottles and bricks. The initiative eventually went through - creating the livery, or Black Car, industry - but the gypsies never fully left the streets.

In 2011, New York was in the middle of the implementation of the Green Cab system. A green cab is a cab licensed only to operate in the outer boroughs where the yellow cabs do not. In other words, the green cabs (or “borough cabs”) were the city’s attempt to “license the unlicensed.” Yet another battle between the state and the grey market was in full swing. The TLC began doing undercover enforcement in the boroughs, pulling over and citing gypsy drivers. The gypsies, in turn, began forming “crews” to hold onto turf and as protection against the TLC. Puncturing the tires of TLC vehicles and chasing off green cabs became necessary crew activities. Enter Uber.

In 1987, Michael Lazar, the former TLC chairman who established the livery laws, was indicted on federal racketeering charges, fined $200,000, and sentenced to 3 years in prison. Lazar’s weapon in New York’s taxi wars, regardless of its impact in 1971, has turned out to be the “sword pulled from the stone,” that has enabled Uber to triumph. Uber’s model – pre-arranged rides – falls squarely within the boundaries of the livery system. Lazar’s weak attempt at stifling the gypsies gave Uber the foothold it needed.

The 2011 green cab program, one of Michael Bloomberg’s final acts as mayor, pushed the gypsy drivers - now in fear of losing their livelihood – right into Uber’s arms. The city tried for 5 years, unsuccessfully to oust Uber. Uber stuck to its guns and “hacked” the livery system. Now there are millions of weekly Uber rides in New York City (not to mention deliveries from UberEats and UberRush). Uber’s fleet is more than 3 times the size of the entire licensed taxi fleet. Uber drivers, many of them former gypsy drivers, are averaging between $30,000 and $60,000 per month.

Had the city simply left the outer boroughs alone, the story might have been different. A yellow cab medallion, in 2011, could only be purchased at auction (the city didn’t issue new medallions). Medallions were going, at auction in 2011, for a million dollars a piece. Had the gypsies been allowed to keep their turf unmolested, Uber would have had to fight battles on 2 fronts against the yellow cabs and the TLC in Manhattan and against the gypsies in the outer boroughs. As it happened, however, the city’s overregulation united the grey market and shifted the balance of power in a Hundred-Year War.

Everyone is a resister to the extent that he survives in a society where laws control everything and give contradictory orders. All (non-coercive) human action committed in defiance of the State constitutes the Counter-Economy. (For ease of analysis, we exclude murder and theft, which are done with the disapproval of the State. Since taxation and war encompass nearly all cases of theft and murder, the few independent acts really should be classified as other forms of statism.) Since anything the State does not license or approve of is forbidden or prohibited, there are no third possibilities. Samuel Edward Konkin III, An Agorist Primer

In October of 2014, two representatives from Uber had a meeting with Bruce Breslow, the Director of Nevada’s Department of Business and Industry. Up until that time, Uber had stayed out of Vegas, a market dominated by a cartel of politically powerful taxicab companies that some call the last vestiges of “Old Las Vegas” (aka The Mob). The taxicab lobby effectively neutered the Las Vegas Monorail (the largest, privately owned, public transportation system in the US) by preventing expansion to McCarran Airport. Instead, the end of the futuristic train’s line is across the street from the airport, at MGM Grand Hotel - ample distance to prevent it’s use by air travelers. The taxi cartel is also well known in Vegas for shaking down strip clubs – charging a per-head fee for every patron brought, by taxi, to a club. The shakedown is so noxious that clubs find it more profitable to maintain fleets of complimentary limousines and party buses than to pay off the cab drivers. The Uber representatives were meeting with Breslow to see where the state itself stood on the company’s planned entry into Sin City.

Breslow told the representatives that they could either apply with the Nevada Transportation Authority as a common carrier (like a limousine company) or they could register with the aforementioned Taxicab Authority as a taxicab company. The representatives thanked Breslow for his time and walked out of the office. Two days later, Breslow, a registered Uber user himself, received an email – sent to all registered Uber users in Nevada – with the subject line “Your Uber is arriving now, Las Vegas!”

Uber’s legal department, after reviewing Nevada’s laws, had ascertained that Uber, as a ride-sharing company, was not required to be regulated as either a limousine or taxicab company. They turned on their app and drivers hit the Las Vegas Strip. The Taxicab Authority hit back. Masked Authority agents in unmarked SUVs, armed with assault rifles, used Uber’s app to tail suspected drivers. When the drivers stopped at the passenger’s destination, the agents swarmed from their cars, like movie terrorists with a neon backdrop. Drivers were arrested. Cars were impounded. A Nevada judge issued a preliminary injunction banning Uber from Nevada.

Instead of fighting a protracted battle in the courts, Uber sent a battle-tested team of lobbyists into Southern Nevada and began to fight in the court of public opinion. Suddenly there were political fundraisers for Nevada politicians, hosted by Uber, being thrown in hip Downtown Las Vegas. Twitter and Facebook ads filled Nevadans’ news feeds. By the summer of 2015, just months after that meeting in Breslow’s office, Uber had secured enough legislative votes to begin service again in Las Vegas. Their only concession, a new 3% excise tax levied against all cars for hire – including taxis. Not only did the taxicab cartel lose market share to Uber’s grey market tactics, but Uber convinced the state to punish the cartel for fighting by stealing 3% more of its revenue. The goonish tactics of the corrupt state agencies swayed public opinion toward Uber and the grey market.

The other business is Information. The Internet explosion has led the American State — for now, at any rate — to throw up its tentacles at regulation of the Information industry. Every legislative session, however, brings new attempts to tax and control the [Internet]. But consider this well: should the Counter-Economy lick the information problem, it would virtually eliminate the risk it incurs under the State's threat. That is, if you can advertise your products, reach your consumers and accept payment (a form of information), all outside the detection capabilities of the State, what enforcement of control would be left. Samuel Edward Konkin III, An Agorist Primer

Uber arrived in Austin, Texas in 2014. Unlike Las Vegas and New York City, Austin didn’t have a highly established taxi industry. However, the growing tourist base (mainly attendees of the SXSW and Austin City Limits music festivals) created a demand for more readily accessible transportation. Uber filled the void perfectly. Austin is a young, tech-savvy town that took to Uber like a duck to water. The Uber drivers I have had in Austin have been some of the most pleasant of any with whom I’ve ridden. But…statists gonna state.

Allegations of sexual assault by drivers and (of course) lobbying by cab companies became the impetus for the city fathers to demand that Uber fingerprint all their drivers (just like the taxi drivers). Uber balked at this suggestion and raised the stakes in the gunfight. Uber funded a referendum. Were Uber to win the vote, the company would be forever exempt from fingerprinting requirements. Uber played the state’s game…and Uber lost. Austin voters did not grant the exemption. As a result, Uber (and competitor Lyft) pulled up stakes and left Austin for good. In their wake, they left 10,000 unemployed drivers and even more riders without wheels.

The vacuum created by the Uber departure, combined with Austin’s peculiar culture, gave birth to a fateful experiment. In a Facebook group called Arcade City, individual drivers and riders began arranging rides privately. Riders would make a request in a post, drivers would reply with a specially formatted driver bio (called a “collage”), and the rider would pick the driver they wanted by sending a private message. Soon, thousands of rides – and quite a bit of press – were being generated.

This grey market activity attracted the curiosity of a team of software developers working in the cryptocurrency Blockchain space. The developers saw an opportunity to combine Uber with Bitcoin, creating a completely “unregulatable” platform for ride-sharing (or house sharing, or “anything-sharing”) where the Blockchain handled both payment and reputation management. Stark differences in vision between the original Austin community and the developers saw a fracturing of the project. The Austin ride-share group has kept the Arcade City name and has launched an app that moves the functionality off of Facebook and onto their own platform. The developers started Swarm City (named after the term for the nodes on their network – “the swarm”) and have been slowly rolling out their platform. Both projects embrace the grey market ethos and provide virtually no handhold for regulatory authorities. By trying to overregulate Uber, Austin created a hydra-like, unregulatable replacement. Konkin’s vision of Agorism is not a prescription for ideological action. It is, instead, a description of the world in which we live.

The Counter-Economy is growing stronger every day as technology makes the State obsolete. Every attempt by the State to overregulate creates a niche for creative entrepreneurs to avoid that regulation. Soon, a point of critical mass will be reached. A free society is the goal of many people, not all of them agorists or even libertarians. Agorists can see nothing but a free market in a free society; after all, who or what will prevent it? Samuel Edward Konkin III, An Agorist Primer.

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