Jul 18, 2018

Will The Electric Scooter Movement Lose Its Charge?

Jennifer Huddleston Research Fellow , Trace Mitchell Research Associate

Could the electric scooter movement be over before it has really had the chance to begin?

Dockless electric scooter rentals have been popping up in a variety of cities across the country and around the world, providing a cheap and convenient way to get around. These scooters could change daily transportation options in many densely populated areas. Yet this new industry has already faced a multitude of threats from local regulators. It’s a pattern we’ve seen before for disruptive technologies. If electric scooters are going to become part of the urban transportation market, regulators need to learn from past experiences and avoid unnecessarily harsh, preemptive regulation.

Electric scooters are one of the most recent parts of the “sharing economy” to emerge. Companies like LimeBikeBird, and Spin offer apps that allow users to find a scooter and ride it to their desired location. The app then charges the user a price typically based on how long the scooter was used.

But these scooters are not just a novelty. This is a rapidly growing industry, and companies have raised more than a combined $255 million dollars from investors. Many cities are seeking new forms of transportation that won’t exacerbate congestion or environmental products. Much like bike shares, electric scooters provide an alternative, particularly in dense cities with wide sidewalks like Santa Monica. However, despite this excitement for electric scooters, regulatory threats are rapidly emerging that could make widespread implementation infeasible.

Electric scooter companies have tended to follow the model of “act first, ask second” pioneered by many ride-sharing companies about a decade ago. They quietly begin in a new area, quickly establish a market demand, and then count on consumers to counter local regulators restrictive reactions. Kenneth Baer, a spokesman for Bird, said, “We enter markets where scooters aren’t prohibited, and we follow the laws on the books. But in most cities, the laws never anticipated this technology.”

Santa Monica, California was one of the first cities where Bird experimented with this concept. The company swooped in and placed hundreds of their electric scooters on the streets of Santa Monica overnight. They were met with an overwhelmingly positive response from most consumers, and the scooters were driven over 60,000 miles in only seventeen days. At the same time, other locals have complained that the scooters aren’t responsibly used and instead are blocking paths, disability access, and entrances.

In San Francisco, despite complaints about high costs of transportation and the need for more green options, some locals have been so annoyed by scooters that they have resorted to vandalism, including literally pooping on them. In many of these communities, there seems to be a classic “not in my backyard” problem emerging. NIMBYs love the abstract idea of having more green transportation options — so long as they don’t have to actually encounter them.

This unregulated state was short-lived. Regulators tried to impound the scooters and filed suit against the company for improper permits. Fortunately, the company was able to leverage its popularity to find a solution that would allow it to continue to operate.

A statement by the company explained: “Bird needed a mobile vending license — like a taco truck would have. We didn’t think that this was necessary as we are not selling tacos or hot dogs.” They went on to say, “This type of misunderstanding happens as old regulatory schemes need to adapt to new technologies.” Bird eventually settled the lawsuit with Santa Monica; however, they were forced to pay over $300,000 in fines and comply with a multitude of business licensing requirements and other laws subjecting riders to various licensing and safety requirements.

Some cities have embraced this technology as a potential solution to some of their transit issues, but unfortunately, many more have tried to prevent it. MiamiNashville, and Denver have all issued cease-and-desist letters demanding that scooter companies stop their operations immediately. In the case of San Francisco, the authorities went as far as to impound the scooters.

However, scooter companies have established a large enough user base that they are often able to work with regulators after these initial tensions. For example, the San Francisco Municipal Transportation Agency (SFMTA) has since adopted a one-year pilot program for the scooters.

Imagine if these companies had to go through the process of getting shut down, fighting with regulators, and paying massive fines every time they wanted to open up shop in a new city. Such regulatory barriers yield major upfront costs that will drive up the price that users’ are charged. Scooter users like them as a cheap, efficient alternative and having to deal with such barriers is likely to make companies change the way the operate.

The problem of electric scooters is not unique. Often, technology and regulators face what is known as the “pacing problem,” which refers to the way technology evolves faster than regulators can develop appropriate regulations. This means that technologies like electric scooters may be disruptive before regulators can prevent them, but it can also mean that regulations don’t actually address the problems.

One solution has been to use “soft law” methods such as guidance and sandboxing, where regulators and innovators come to an agreement before deployment that allows operation with minimal regulatory interference — at least for a limited amount of time. These methods of regulation give both some certainty to innovators and flexibility for regulators. In general, this has emerged as a more pragmatic approach for technological regulation. In fact, this is very similar to the approach some cities have taken on scooters.

In Memphis, officials made sure that they were ahead of the game by introducing a 30-day operating agreement before Bird even offered services in the city. This allowed the company to transition smoothly into the area without incurring the risk that is associated with legal uncertainty. The chairman of the city council explained why they were so proactive when it came to this new technology: “This is just something that can prove to the world that Memphis is ready, that Memphis is open to business, and that Memphis makes accommodations for things we want.”

Approaches like this allow local administrators to maintain some level of control without placing undue burdens on emerging technologies. It also creates an incentive for other types of firms to conduct business in that area. An innovative company is far more likely to set up shop in a new city if it knows that the local officials tend to be supportive of innovation.

Regulators often cite safety issues as the justification for their concern about scooters. However, there are already formal mechanisms in place that would be much better suited to deal with those concerns. For example, there are laws on the books in all 50 states that govern the precautions an individual must take when riding a bike as well as what happens in the event of an accident. While it may be necessary to adapt some of these rules to better mesh with evolving technology, preemptive prohibitions are not the best solution. Local administrators should work towards finding more efficient remedies that are aimed at limiting the harm caused by these services while still encouraging innovation and keeping the barriers to entry relatively low.

We’ve seen all this play out before. As our Mercatus colleagues Chris Koopman and Adam Thierer discussed in 2014, some cities are taking the approach of “ban first and question second.” This cycle has repeated for many sharing economy disruptions including ride sharing, short-term home rentals, and even dog sitting. Unfortunately, it is often analogue industries — not consumers — asking policymakers to regulate these new young upstarts rather than seeking to deregulate themselves. As Thierer has argued, when policymakers look to promote innovation and its benefits, they should look to promote parity to a less-restrictive level of regulation, not the most burdensome.

If electric scooters are to be more than a fad, cities should look to promote them as an alternative rather than regulating away the option. While it may just be a few cities that are going after scooter companies right now, the impact of these regulations basically tells future innovators to look at something else to do. Cities should seek to develop a regulatory framework that says “new transportation innovation welcome here!” rather than “we’re fine with the status quo.”

Photo Credit: JIM LO SCALZO/EPA-EFE/Shutterstock

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