Uber and the Mill of Sanssouci

Cite this Article
Antonio Robles Martín-Laborda, Uber and the Mill of Sanssouci, Truth on the Market (July 26, 2023), https://truthonthemarket.com/2023/07/26/uber-and-the-mill-of-sanssouci/

Freedom of enterprise is considered a second-class freedom in Spain, rather than a fundamental right. It is clear that this has been the view not only of successive Spanish governments since the current Constitution was promulgated in 1978, but also of the judges of the Supreme Court of Spain (Tribunal Supremo) and the Constitutional Court of Spain (Tribunal Constitucional). Spanish regulation of unscheduled urban transport services provided by private-hire passenger vehicles (PHVs) perfectly illustrates the former’s interventionist impulses (as part of the close and pernicious relationship between politics and business, in which economic freedoms are used as a bargaining chip) as well as the deference to power shown by the latter.

Traditionally, taxis and (to a much lesser extent) PHVs shared the market for urban-passenger transport with passenger cars, with both groups subject to numerous regulatory restrictions, including limits on the number of licenses and vehicles through which such services could be provided. But the emergence of digital platforms like Uber and Cabify has served to significantly reduce information asymmetries and transaction costs, in the process improving considerably the efficiency of transport services provided by PHVs. The success of this model has provoked a strong reaction from the influential taxi lobby, whose lobbying led to interventions by national and regional governments in the form of numerous measures to hinder PHVs’ entry into the market.

The national land-transport regulation, for example, required PHVs to get specific authorization and allowed regional authorities to limit the number of PHV licenses to one for every 30 taxi licenses (the “1/30 rule”). The Spanish government justified the measure on grounds that an increased number of PHVs would generate mobility, traffic congestion, and environmental problems, and cause “an imbalance between supply and demand for passenger vehicle transport leading to a general deterioration of services, to the detriment of passengers.”

The rule was challenged by the Spanish National Markets and Competition Commission (CNMC) on grounds that its real goal was to prevent PHVs from being able to compete effectively with taxis, that there was no economic justification for maintaining the monopoly regime in this sector, and that it was therefore contrary to free competition and the general interest.

In a regrettable judgment, the Spanish Supreme Court accepted the government’s arguments about the legality of almost all the restrictions imposed to please the taxi lobby, including the quantitative restriction of the 1/30 rule. The government’s weak arguments were accepted after a surprisingly superficial examination. For instance:

  • If taxis and PHVs are two forms of urban transport that compete directly in the same market and provide a similar service, as the ruling itself accepts, why is it necessary to protect—or, rather, impose—a certain mode of service provision?
  • Why, despite representing a tiny part of the total number of vehicles circulating in cities—much smaller, in any case, than taxis—is it only PHVs that are presumed to generate “mobility, traffic congestion and environmental problems”?
  • Can the government prohibit competition in a given market, suppressing certain companies’ freedom of enterprise and users’ freedom of choice, in order to “maintain a balance between the two modes of urban transport”?
  • Is the 1/30 rule really a necessary and proportional measure to guarantee “the interests and safety of the recipients of the services and the protection of the urban environment”?

Too many questions remain unanswered, because the Supreme Court chose not to ask them.

Based on the national rule that the Supreme Court allowed, the Metropolitan Council of the Metropolitan Area of Barcelona agreed to impose the 1/30 quantitative limitation for PHV licences. In practice, as the number of taxi licenses had remained stable for 35 years (another restriction on supply caused by the relationship between politics and business), it was impossible for PHVs to enter the market. This rule was challenged by a PHV company before the High Court of Justice of Catalonia, which decided to suspend the proceedings and refer certain questions to the Court of Justice of the European Union (CJEU) for a preliminary ruling. Among the questions, it asked whether Article 49 TFEU, which prohibits restrictions on the freedom of establishment, precludes national rules—statutory and regulatory—that “without any reasonable justification, limit PHV authorisations to one for every 30 taxi licences or fewer.”

The CJEU held that a purely economic objective, such as that of ensuring the economic viability of taxi services, cannot constitute an overriding reason in the general interest that would justify a restriction on a fundamental freedom guaranteed by the Treaty. Such an objective could therefore not be invoked to justify rules to preserve a balance between the two forms of urban transport or a specific proportion of licenses for PHVs and taxi services.

As to the objectives of sound management of transport, traffic, and public space, and of environmental protection, without prejudice to the assessment to be made by the national court, the CJEU found that it has not been shown how those objectives can be guaranteed by limiting the number of PHV licenses to one for every 30 taxi licenses, nor why less restrictive measures did not exist to achieve those objectives. Consequently, the freedom of establishment precludes imposing the 1/30 rule where it is not established that the measure is suitable to ensure in a coherent and systematic manner that the stated objectives would be attained, and that it does not go beyond what is necessary to attain those objectives.

Not even three weeks later, the government had already approved a new national regulation to please the taxi lobby, again restricting competition in the sector to the detriment of PHVs and consumers. Under the new rule, PHV authorizations would be refused until certain criteria for improving air quality, reducing carbon emissions, and managing transport, traffic, and public space have been met.

Of course, this ban on granting new licenses also does not appear to be either appropriate or proportionate, so it is likely to be challenged. As was made clear before the CJEU, PHV services are not allowed to park their vehicles on public roads and reduce the use of private cars. In fact, the Spanish Government itself acknowledged at the time that it was unaware of any study on the impact of the PHV fleet on transport, traffic, public space, or the environment, or the effects the legislation would have to achieve those objectives.

Fortunately, “there are still judges in Berlin” (in this case, in Luxembourg). Soon, we will see whether there are any in Madrid.