In January 2016, Prime Minister Benjamin Netanyahu traveled to Davos, Switzerland, to participate in the annual gathering of the World Economic Forum. While there, he held a series of meetings with top business executives, including Uber co-founder and then-CEO Travis Kalanick.
After returning to Israel a few days later, Netanyahu convened his cabinet, and at the beginning of the meeting blasted his transportation minister and fellow Likud member, Israel Katz.
“Why aren’t you promoting competition in the taxi industry?” Netanyahu asked Katz. The transportation minister didn’t stay quiet. “Now you’re talking about competition? My job is not to worry about foreign tycoons but to serve Israeli citizens,” he said.
Nearly two years have passed since that clash at the cabinet, and nothing has really changed when it comes to Uber’s status in Israel. On the contrary – the situation has only gotten worse. Instead of opening up the roads to greater competition, which would reduce the cost of transportation, the government is being held hostage by socialist-style regulations mixed with politics.
Though Uber has been operating in Israel since 2014, it only works with taxis. UberX, the cheaper option that is available worldwide and allows users to order a private car – not a cab – to drive them, is banned from the country.
The reason is simple: current government regulations forbid payments for rides offered by private individuals.
Only taxis and other commercial transportation entities are permitted to collect a fee for driving someone.
In May, the Transportation Ministry escalated its fight against Uber and filed an indictment against the company and six private drivers for allegedly operating without a proper business license. While Uber claimed it was running its pilot program – called UberNight – in line with Israeli regulations, the matter is still being debated in court.
But why is Uber running into this trouble to begin with? Shouldn’t Israel – touted as the “Start-Up Nation” – be a leader when it comes to innovative ride-sharing apps? Shouldn’t the country that gave birth to Waze be able to integrate a system that reduces the cost of car services while at the same time lowers the number of cars on our roads? All of this is a stain on Israel. The tech sector is legitimately the pride and joy of the country’s economy, but the state is still plagued by a regulatory and bureaucratic burden despite efforts by a few government officials – such as Eli Groner, director-general of the Prime Minister’s Office – who fight to cut down on red tape.
Uber’s problems stem from the Transportation Ministry’s alliance with the taxi union, which reportedly yields significant power within the Likud central committee. Katz, who seems reluctant to go up against them, said in an interview with the Calcalist business newspaper a few months ago that in his professional opinion, Israel does not even need UberX.
I think he’s wrong. Anyone who lives in Israel and has taken UberX around the world knows the feeling.
An UberX from Manhattan to JFK, as an example, costs about $60. That is almost NIS 100 less than the price of a cab ride from Jerusalem to Ben-Gurion Airport, approximately the same amount of time. This difference is too big to ignore.
The Transportation Ministry likes to highlight two primary reasons for its opposition to UberX. The first is the harm it will cause the taxi industry.
Katz has gone so far as to claim that the government would need to allocate some NIS 8 billion to compensate taxi drivers for their lost income.
This is strange since in other countries where UberX exists, private cars drive people from place to place, and cabs, which do need to work harder, survive. Katz and the Transportation Ministry shouldn’t be solely worried about the country’s 22,000 taxi drivers.
They should be looking out for the millions of Israeli commuters who stand to benefit from having UberX in Israel.
When Cofix, the low-cost coffee shop, opened a few years ago and started selling a latte for NIS 5, coffee shops around the country that charge NIS 12 for a coffee didn’t create a union and threaten to strike. The government didn’t try to stop Cofix because of the loss of income at thousands of small businesses. Instead, everyone adapted and capitalized on their market advantage.
UberX has the potential to do the same. There will be people who will prefer to drive in an UberX and others who will want to keep driving in cabs.
Just like there are people who prefer to drink an NIS 12 latte even when they can get one for NIS 5 down the block.
The Transportation Ministry’s second argument against UberX is that Israel will not be able to control who the drivers are, and that in a country plagued with security threats, it could be dangerous to suddenly allow random people to become public drivers.
This is true, but there are ways to create security oversight. In New York, for example, drivers undergo a background check. While this does not always weed out potential criminals – as demonstrated by the attack in New York on Tuesday which was perpetrated by an Uber driver – security experts know that there is no such thing as hermetic defense measures. The recent attack at Har Adar, carried out by a Palestinian with a work permit, is another example.
If it wanted, Israel could adopt some of the measures being implemented in Montreal, where Uber drivers are ordered to undergo police-approved background checks as well as 35 hours of training before getting their license.
Israelis though don’t get to enjoy any of this. In a country already plagued with a high cost of living, you would think that the government would seek small wins like permitting UberX to operate here. But this is an example of small politics, where a union wields more power than is beneficial for the public as a whole.
There are also ways to get around a lot of the Transportation Ministry’s concerns when it comes to taxis. In Australia, for example, Sydney recently announced that it will allow taxi companies to offer discounts and get cost estimates before accepting rides, two measures aimed to help them better compete with Uber.
For a solution to be found though, the Transportation Ministry needs to sit down and work together with Uber, but that too, apparently, is not as simple as it should be, according to Yoni Greifman, general manager of Uber in Israel.
“There is no real dialogue with the ministry,” Greifman told me. The main problem with existing regulations, he said, is that they were drafted in the 1960s, before Waze, GPS or cellphones.
A graduate of Wharton and veteran of the Israel Air Force, Greifman took up his current post in 2014. Back then, he admits, he didn’t fathom that government approval would be held up for so long.
“We didn’t think it would be easy, but we also didn’t think it would be this hard,” he said. “Regulation takes time, and it takes time to fit a specific model to a local market, but I think the mindset around the world is that Israel is at the forefront of a lot of things, and that the conversations would have been productive.”
But they haven’t been, and the question is why. To me, it seems that politics are playing a role in the considerations.
In recent years, Katz has been the government’s bulldozer. He has single-handedly upgraded Israel’s highways, while implementing the Open Skies reform which brought low-cost airlines to Israel, creating more competition and allowing more Israelis to enjoy the benefits of overseas travel.
If it weren’t for the taxi union, Uber could easily be another feather in his cap.