Kazuhiro Ota: The Significance and Challenges of the Japanese Version of Ridesharing

2024/06/17

The taxi business in Japan is said to have begun in August 1912 (the first year of the Taisho era), making this year its 112th anniversary. On the other hand, the first passenger car ran in Japan in 1898 (the 31st year of the Meiji era). At that time, private use was unthinkable, so paid transportation was being conducted even before the taxi industry was born.

When demand is limited and supply is low (there were only about 100 cars in Japan even in 1910), activities remain free from government intervention, whether they are free of charge or for-profit (business). Taxis, which are individual transportation rather than shared transportation like trains or buses, were not subject to public transportation policy.

When I ask students, "Do you think taxis are public transportation?" half of them answer that they are not. This was certainly the case during the Meiji and Taisho eras. Public transportation means transportation that is "open to the public," and specifically, it carries the obligation that "anyone who pays the fare must be allowed to ride." The reason why refusing a passenger is illegal for taxis is because they also bear this common carrier obligation.

The Japanese version of ridesharing began in April of this year. From the perspective of the taxi industry, ridesharing is a true "Black Ship" in its history of over 100 years. It should be emphasized that because it is the "Japanese version," it incorporates specific measures that distinguish it from pure ridesharing.

Ridesharing involves transporting others in a privately owned vehicle for compensation. For reasons such as ensuring safety, the Road Transportation Act generally prohibits ridesharing—that is, private paid passenger transport. Being prohibited "in principle" means that exceptions can be granted, and it has traditionally been conducted as "private paid passenger transport" under the provisions of Article 78, Item 2 of the Road Transportation Act to ensure mobility in depopulated areas. The current Japanese version of ridesharing was introduced based on the provisions of Article 78, Item 3 of the same law.

Those wishing to operate the Japanese version of ridesharing must register with the Ministry of Land, Infrastructure, Transport and Tourism under Article 79 of the same law. Currently, only taxi companies are deemed to meet the registration requirements; therefore, taxi companies bear the obligation to manage rideshare drivers.

In the future, the debate over whether or not to introduce pure ridesharing will be on the table. Pure ridesharing is a system where matching companies like Uber match passengers with private car drivers, and the driver takes responsibility for the operation, transports the passenger, and collects the fare. The matching company's business model is to collect a brokerage fee from either the passenger or the driver.

Online travel agencies are the same type of brokerage business. If you book a hotel online and a problem occurs during your stay, the travel agency is not responsible. It is only natural that a rideshare matching company does not bear operational responsibility.

For this reason, safety concerns remain unresolved. Some argue that ridesharing is a reform in the way people work, in the sense that drivers can earn money using their private cars in their spare time. In other words, there is a possibility that drivers may push themselves even when tired for the sake of earnings, and there is no mechanism to suppress this.

Furthermore, matching companies hold significant power, while the position of the driver is weak. Even if brokerage fees are high and earnings fall below the minimum wage, drivers, as self-employed individuals, do not receive protection as employees.

Proponents of introducing pure ridesharing say that the competition between new and existing services will improve productivity. In other words, they claim that ridesharing and the taxi industry can coexist. However, because transporting people is a service where differentiation is difficult, low-cost ridesharing will eventually drive taxis out of business.

Taxi companies must cover vehicle purchase costs and social insurance for drivers from fare revenue. On the other hand, rideshare drivers do not consider the purchase cost of the car they already own when determining fares. From the taxi industry's perspective, rideshare fares constitute dumping.

If pure ridesharing is legalized, the taxi industry will not be viable. Operators who still wish to handle transportation would likely stop their taxi businesses and transition to matching companies. In this way, taxis will disappear. Since fares would be determined by demand and supply, there would be a succession of drivers earning less than the minimum wage during off-peak periods, while during peak periods, users would have to bear transportation costs more than ten times the current taxi fares. Nonetheless, on average, the amount paid by users for ridesharing would likely decrease.

In short, the choice is between "safe operation + stable supply + stable fares (public transportation)" or "diverse quality + unstable supply + fluctuating but lower average fares (free mobility market)." This choice should not be made uniformly across the country. This is because taxis are local transportation, and it is a policy issue that each region should decide.

The choice between taxi regulation or pure ridesharing is a matter of public versus private, but it is also an extreme dichotomy between the state (the ultimate public entity) and the individual. The principle of subsidiarity—that the state should only handle what cannot be done locally—has not taken root in Japan. I hope that the discussion on ridesharing will contribute to the decentralization of regional transportation policy.