You never know which lesson will come handy.

“May you live in interesting times”. Said to be (probably apocryphal) a Chinese curse. Times of peace and tranquility and boredom are possibly best for quality of life. Life without issues, innovation, pressure is a boring lovely simple life. Hah! That is a 41 year old talking. The same thing as a 14 year old would be a life with nothing new to look forward to. How is a life, sans pressure and change worth living is it? Wouldn’t we all want to live in interesting times. Where productivity is constantly increasing and change is helping us lead more meaningful and sweetly ripe lives. Ya, I for now like to live in interesting times as things change around me, as I understand this change and get a ring side view of the changes and their impact on people and interplay of the characters. I was lucky to have been born in 1975. Which meant I was the one who entered college when liberalization started and exited when its impact was in full flow. Today I am seeing the impact of internet and mobile penetration in the country and how its changing the landscape. It an era that looks like massive change is coming and it’s going to sweep everyone off.

Many years ago, I read a book by John Nasbitt called Mindset. It was quite an interesting book and it talks about predicting the future from current news, science and trends. I don’t remember most of the book (like always) but one lesson stuck tight in the head. Most of the trends that really matter to us over the long term are hidden in the inside pages of a newspaper and never on the front page. Yes, I agree. Change happens in small increments and over a long period of time. Suddenly the tipping point comes in and it looks like a rapid sudden change. The internet first wave came in the year 2000 and I rode that wave for some time and worked in a few start-ups. I saw that internet was changing the world and that crazy things would happen, but the advent of the mobile internet and apps put the dam thing on steroids. The most interesting disruption that affected a lot of our lives was the advent of App based taxi servces, especially Uber.

Every commuter, including me hailed Uber as the solution to all issues. This was the best thing ever. In Mumbai we were victims of the taxi mafia, that had a few things to do with regulation and a few thanks to lack of competition (of course both are interconnected). You wouldn’t be able to get a taxi when you wanted and whenever you got one, he would first ask where you wanted to go and then refuse to go in that direction. The cars were in horrible condition, the government refused to allow AC to be run in the taxis. For AC taxis they gave out separate permits. These were called cool cabs. These were the ultimate jokes. These taxis only plied from the airport and were stationed near the five star hotels. They also invariably refused small fares and were typically employed by either shopping seduced NRIS or foreign nationals. The meters of these were completely rigged and would show some random price, which was up to 3 x of the real rate. The humble black and yellow taxis also tended to have rigged meters and whenever I used to take one from the airport, I would get an inflated price after which I would fight and pay only the normal fare and walk away. Taxis were so broken down that they could be considered dilapidated. You could see the road down from a few holes in the floor of the cabs. Serious. They were that bad.

On the side lines, the government had given permission to launch AC call cab services. Here you could call and book your cab in advance. These cars were decent looking and maintained and theoretically they could be flagged down anywhere on the roads. Slowly these too gravitated towards airport pickups and drops and five star hotels. You could call for a cab and book in advance only to be told later that there was no cab to be found at your appointed hour. Even at the airport one had to wait in a line before one could book the cab. It was a great step forward but it still wasn’t enough.

So, when Uber launched in Mumbai, it was a crazy dream for the commuters. Good, new cars were on the road. You could load the wallet with money and then order a car from app. You could see that the pricing was competitive and that you could get the taxi confirmed without telling him in advance where you wanted to go. You simply booked and sat. The app became so good, that you could book your car on the phone and reach your destination without ever speaking to the driver. The location was prefixed and the wallet was loaded. No need to speak to anyone. You could see your taxi in real time and it was supposedly the safe and best way to ride.

It broke the back of the normal black and yellow cabs. Being subsidized (read predatory pricing), the rates were awesome and people rushed to download the app. Usage went through the roof. Airport pick up and drop was a breeze. People were happy and could show the middle finger to all normal taxis. I remember going to Hyderabad a year and a half ago and being completely independent of the completely fraudulent rickshaw drivers. I roamed around in Hyderabad in a taxi at the same cost of a metered rickshaw. Of course no rickshaw would go on meter and invariably you have to haggle your way everywhere. The world had just become a little smaller.

The promise of unbridled capitalism had benefited the common man. But like all unbridled capitalism, there were consequences to be had. The party on free flow of funds had to stop sometime. The crazy demand had created crazy supply. Uber and their Indian rival Ola, went all out to woo the Indian drivers. They wanted more and more taxis on the road. Drivers at the start were making unheard figures of 90 thousand or so a month. More and more drivers came in form villages and started driving their cabs. Some smart ones, expanded their fleet. On the back of robust income streams these drivers started having robust credit scores and the credit poured in. Fueled by a small upfront investment and a seemingly unending source of business cash flow, you could become a driver owner at worst or a fleet owner at best. Adam Smith’s invisible hand started to play havoc. The demand for drivers meant that driver salaries went up. In the last two year’s I would reckon that the salary went up by 1.5X at the minimum. Slowly more and more cabs started coming on the streets. To ensure enough cars everywhere, Uber had a surge pricing system where if there was demand and not enough supply, they would increase the pricing (surge pricing) to tempt more cars to reach the areas that are underserviced. The consumers had a chance to book or wait till more cabs hit and reduce the surge in the area. This caused dissonance with the users who thought that it was unfair.

Taxis also were being pressed into service which were actually tourist taxis and were on the fine line of the law, if they could be considered as everyday call taxis.

Of course a lot of good things happened, economy wise. First of all, a large part of the business became legit. Taxi drivers were till now an all cash business. They would earn all their income in cash and possibly never ever filed a tax return. Being outside of the system, they would be ineligible for credit and therefore were forced to be on the fringes of society. Uber allowed them the opportunity to legalise their entire business model and therefore access finance and grow.

With more and more taxis hitting the street, different sets of issues started cropping up. These guys were so many in number that civic planning became chaotic. With access to cheap cabs more people started to use it to commute to work. Traffic was full of Uber cars choking the road. While the consumers demanded it, at a fundamental level, the playing field was lopsided in favour of the app cabs. They could charge free fares which the black and yellow taxis couldn’t. So, they could benefit from surge. Second - parking spots for black and yellows were designated. That’s where they could park and wait for customers. These Uber taxis could wait anywhere, and they did. They would invariably wait around the roads causing jams. An Uber waiting or wanting to search for a customer would keep moving slowly till he found his customer, fundamentally slowly down the traffic for the rest on the road.

In the middle, an Uber driver raped a girl in Delhi and the world realized that these drivers need proper verification as the alleged rapist was a known criminal on the loose. Just because you can track someone doesn’t mean you can’t be harmed from them.

The point of all this history isn’t to document this but to learn interesting lessons from this. When regulations happen they invariably choke the system and give consumers a shitty service, but when capitalism is left unchecked, equally great ills can be unleashed in the form of unintended consequences. False predatory pricing brought a lot of credit fuels cars on the road, but when the pricing stops as it nears it real value, these drivers will be held to a lower income stream and a mountain of debt. Its already started happening. Now an Uber driver will tell you that today he receives only 4 to 5 trips a day compared to the 10, 11 earlier. He hardly got any surge pricing benefits now days as you see Uber cars everywhere. Debt servicing is going to be an issue.

The government has woken up to this service and is now trying to regulate it. It is trying to put in pricing curbs and some other rules like regulating car color.

This is interesting. The swings are happening real time. The consequences of market forces coming together and partying are causing hangovers. Suddenly, you will have lesser cars in response to lesser demand thanks to increase in price. What will happen to the drivers? What will happen to these excess cars? What will happen to roads, parking and commute?

Fun things I assume. In many countries, private drivers can work their cars as Uber cars during their spare time. That is another level of complication being built into the economics of car ownership and commute.

The point here is simple. There are two sides of the coin. If the government interferes then it’s an issue; if it lets the private enterprise go unchecked, the issues are of another scale. This is not simply a government versus non-government issue. It is an issue of intervention. Any intervention, big or small has consequences, intended or unintended. Things move crazy after a small change in initial condition. I think it’s called the chaos theory. Here large changes in final outcome can be attributed to small changes in initial conditions. We argue and argue on so many small and big issues. We seem to understand all the issues and then we give our opinions on it. Life has taught me that issues are not straightforward. They have choices and choices and thenthe decision tree rapidly multiplies and assumptions start taking over. SO much so that after a point guessing is worse than tossing a coin.

All of what is happening at Uber is simple and possibly one could have explained it, with the benefit of hindsight. But it’s almost impossible to figure it as foresight. We get lost in the waves of optimism around us. All will be well. We argue (me included) that private enterprise is good and must be free. Sure – it must be free’er’ than where it is today but it cannot simply be unchecked. Then the problem is who is to check it? The authority in any case doesn’t understand it. None of us – including the authority or the entrepreneur knows the game more than two steps ahead. In such a scenario, how can you plan so far in advance. And when you do plan in advance, you will invariably start glossing over small details that will make significant impacts over a period of time.

When the Uber frenzy was happening and drivers were earning 90k a month and above, I too felt like getting into the bandwagon. Whats wrong with this? One car costs around six hundred thousand. That’s at best 8 months for profit to keep rolling in. And people like me have good credit history and with a good balance sheet, I can leverage and expand like crazy. It’s a story that too good to be true. I knew one thing – if anything is true good to be true – it isn’t.  there is always something up. If there is free money then there will be a flock of vultures making a cacophony attracting other vultures. Soon enough there won’t be any meat left for any of the vultures. There can’t be free money for long. Especially if it is capitalist money. Government money can be free for much longer. Corruption, lethargy and smoke can ensure you have a sweet spot for a longtime to come. But definitely not open market money. It comes with risk. For me the biggest risk was simple – government. Here I knew that the government would get involved and at worst – ban it all and at best – regulate it to a jam. It cannot grow thus for long. I never reached the free money fallacy on this deal in advance. I never got there. I think I too was swayed by it all.

This is the fun bit when you live in interesting times. You see economics 1.0 being played out over your life. It is the greatest lesson that you can learn. Free! You just have to look around and make mental models of what’s happening.  Life has enough to teach you. That’s why it’s amazing to have a conversation with an older experienced person who is able to retain his /her memory and give you the benefit of their life. Simple stories make a huge learning experience. My favorite one is how one friend running a premium saree shop explained that the Ahmedabad airport opening up reduced his sales in Mumbai as the gujju NRI’s simply took the direct flight there and skipped Mumbai altogether.

Parenting is also complex. Here only time will tell how much of a effect does chaos theory have on the child. Small decisions like schooling, neighborhood, choice of sport, movies etc have an impact on the child as it grows into an adult. Who knows what the consequences are. That’s why parents who like to have a greater control over their child’s future will sweat hard over agonizingly simple decisions. Long term decisions with limited data. A simple act of choosing our child’s play dates can have different consequences than what we can imagine. Yet we have no choice but to choose.

It’s the classical Keynesian versus Hayekian model for economics. Should I or the government interfere or should it be free to grow. Left free, over a period of time, the people find amazing things to do and innovate. But in the long run, we are all dead. And the actions affect us or the people we love. Can we but not interfere and try and guide it to the place we want it to sit. Can we simply just sit back and say – lets see where it goes. If it gets too ugly, I can always get in. It’s not so simple. Like in the Uber case – you don’t know how ugly is ugly. Suppose Uber folds shop world over, my assumption is that an app based taxi concept will remain. Someone else will come in but the demand may not be that much. What happens to all the taxis drivers. All the credit guys who put in the money. How do they make good? It takes a few taxi drivers to commit harakiri – a strike (which we have seen), violent protests, immolation and suicide. What gives then? Who is to answer. The commuter enjoyed his ride in an AC cab for cheap. The irritating black and yellow cab driver got shown his place, and the driver too enjoyed higher wages and a chance to be the boss himself. When the party is over, the hangover hurts.

Jispa is growing up now. Its good fun. She is close to us, we enjoy hugging her and we like her close. We like that thanks to our protection (read the alst post) she remained safe and happy – ok – not happy completely but atleast no real bad things happened. But then what are the long term consequences. I don’t know. Plus, I have only one kid. I can’t even learn and improve on this. What to do.

That’s why I like economics. At the base level its simple. And it helps understand life. I wish Jispa reads a lot of my books and a million more of hers as well. You never know which lesson will come handy.