It's time to ditch EU anti-Uber business rules

Enter the European Court of Justice. Referring a case on Uber to the EU’s highest court, a Barcelona judge has triggered the process that might potentially end Uber’s Europe woes. The ECJ will now have to decide whether Uber is a transport company ("mere transport activity") or a digital service ("an electronic intermediation or information society service").

While it may seem like a false dilemma (anyone vaguely familiar with Uber will know that it is both a transport company and a digital service), that distinction will spell the future of the Silicon Valley firm in Europe—if declared a transport company, Uber will be subject to the rigid national regulations on transport; if declared a digital service, on the other hand, favourable EU digital market rules will apply.

Will the ECJ ruling solve the regulatory ambiguity? One would hope so. But there is a frustrating challenge: in their legal interpretation of Uber, the court is confined to the current framework of regulations that does not quite capture the eclectic essence of innovation and therefore puts the sharing companies in an awkward position with the regulators.

"Outdated rules—such as return to garage regulations or minimum price and duration—are being used across the EU to squash competition, which would benefit consumers and help stimulate jobs," said Uber’s former top lobbyist Mark McGann. He is not alone in that view.

Describing the EU market as "insufficiently innovation-friendly", the European Commission considers "outdated regulations and procedures" as an obstacle to innovation in Europe. But it seems as if the commission shies away from hinting at any specific regulation standing in the way of innovation.

Perhaps the mother of all those outdated regulations, and the source of Uber’s greatest worries in Europe, is occupational licensing. Put simply, it is a form of government-mandated permission to work in a particular field. When a particular profession is licensed, aspiring workers need to jump over a number of entry barriers to earn the licence.

To understand how ridiculously outdated occupational licensing laws can be, just consider London’s licensing regulations for taxi drivers. If you want to become black-cab driver in London, you will have to spend some serious time training for the infamous Knowledge of London test which covers London’s 25,000 streets, 20,000 landmarks and 320 basic routes, not to mention the total application costs coming to ‎£900. Now compare this to Uber’s low-barrier recruitment method, which the taxi drivers accuse of imposing unfair competition in the sector.

In Europe, there are 5,500 professions that require a licence to practise (‘regulated professions’ in the eurojargon). While the effects of occupational licensing on the labour market have been well-studied in the United States, it is so remarkably neglected in Europe that a recent UK government-commissioned study found no substantial European research to cite in its literature review.

As the usual policy justification goes, the purpose of occupational licensing is about public safety and consumer protection. But the research suggests this is a suspect claim.

Only two of 12 reviewed studies in a White House paper on occupational licensing find a positive link between stricter licensing and better safety. Most research findings show that the net impact of those regulations is negative – nine out of 11 reviewed studies show that occupational licences drive up the consumer prices.

There is one particular reason why the industries insist on stricter enforcement of occupational licensing rules. As Paul J Larkin Jr argues in Harvard Journal of Law & Public Policy: "The effect of licensing is to create a cartel that supplies its members with economic rents on an ongoing basis because entry restrictions operate like a 'hidden subsidy' to licensees."

Uber will be able to dodge those draconian occupational regulations beloved by the taxi industry if the ECJ rules that the company is a digital service. Given past experience, however, it would be naively optimistic to assume that European taxi drivers will bow to such a ruling. Competition from Uber is still a competition, regardless of Uber’s declared legal status.

That is exactly why focusing on the ECJ ruling and the legal distinction matters less than shifting our attention to the European public policy’s elephant in the room. If the European Commission is serious about targeting outdated regulations, then occupational licensing is the right target. It is not just the future of Uber at stake here, but the future of innovation and entrepreneurship in Europe.

Ekin Genç is affiliated with the Ankara-based Freedom Research Association and currently based in Washington, D.C. through a policy fellowship. His previous writings were published in Bloomberg Businessweek in Turkey.