How to improve regulation of utilities – comparing Delhi and DC

The Business Standard reports that the Delhi government has rejected the license applications of Uber, Ola and TaxiForSure. The snippet doesn’t say much more.

Contrast this with Washington D.C. which has passed a law that Uber has hailed as “model”. So what gives between the two capitals?

The answer is simple – it is the privileges accorded to the politicians. As a result of colonial hangover, Indian politicians have been mollycoddled with all kinds of perks such as houses in prime localities, chauffeured cars and the like. Thanks to such perks, bureaucrats are cut off from the market in general, and thus fail to understand any market failures.

The solution is simple in theory but hard to implement – basically cut the perks for government officers and instead compensate them further in cash, with the market value of the facilities that are now being provided for them. Clever structuring can make this cash-neutral. On the one hand, the bureaucrat now has a choice with respect to the kind of facilities he requires, leading to a more efficient allocation of resources.

More importantly, the bureaucrat is now part of the broader market, and thus exposed to the same market failures that plague the common man. If the transport commissioner of Delhi had to catch an auto rickshaw to get to work every day, we might have seen a completely different response in the Uber case.