Disruption is good for economy

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Ned Ludd is the individual from whom the Luddites – the textile artisans who protested against newly developed labour-saving machinery in the 1800s – took their name, and he has earned a rightful place in history.  Depending on your point of view, this could be as a defender of jobs or a man who tried to stop progress. The world has made a lot of progress since the days of the Luddites and I think we all appreciate the benefits of a power loom, even if that loom is now located in the Far East. But Ludditism still has its sympathisers, even if they might not invoke his name in their arguments.

The IoD recently came out in strong support of Uber, the app that allows a passenger to see what taxis are available locally, summon one, and then use their phone as a meter, adjusting for time and distance like a licenced black cab. The price is also adjusted depending on demand. Yes, a taxi on a Friday night or in the rain might cost more, but it is also more valued at that time. Uber makes getting a taxi similar to booking a flight, where technology has long allowed airlines to adjust seat prices depending on a wide range of relevant factors. A new technology, redefining how a product or service is delivered, and saying to incumbent businesses adapt or die – that is a disruptive business.

There is no doubt that disruption is hard on some businesses and licenced black cabs do have a legitimate regulatory gripe. But the answer is not to ban progress, it is to allow competition. Government has a vital job to do here, to liberalise an industry suffering from disruption, and to do so with a great degree of urgency. This may not be what the industry wants (they probably just want the issue to go away), but it’s what the consumer needs and businesses will always find ways to adapt and survive. Along the way successful businesses will re-evaluate what is important to customers. In the case of taxis a near encyclopaedic knowledge of local streets no longer matters as technology has devalued that knowledge. In facing this disruption taxis are joining a long list of businesses facing dramatic change driven by technology or new business models. Ask airlines, music producers, newspapers, book sellers, stock brokers – the list goes on and on. Those that survive are the ones who have looked for way to harness new technologies and business models, not stand against them.

Plenty of people are scared by technology and, more widely, by change. They influence politicians to act on their fears, but all is not lost. The spread of technologies such as mobile and smart phones through to new business services, such as low cost airlines, demonstrates pretty clearly that when people see themselves as consumers, they are more than ready to adopt new and disruptive ideas, happily ignoring the impacts on long-standing businesses. A dynamic economy is driven by businesses experimenting. If we don’t like any particular product or service, the business will wither and die quickly enough.

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Twitter: @jamesrsproule

About author

James Sproule

James Sproule

James Sproule has been Chief Economist and Director of Policy for the Institute of Directors since January 2014. Prior to joining the IoD James led Accenture’s UK Research and Global Capital Markets Research. He started his financial career as a merchant bank economist working with both Bankers Trust, Deutsche Bank and Dresdner Kleinwort, and eventually helped to found the boutique bank Augusta and Company.

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