When Technology and Free Market Competition Make for Good Service

Walk around the backstreets of the main tourist cities of Samarkand, Bukhara, and Khiva in Uzbekistan, and one would never be too far away from a "hotel" or "hostel" sign hanging from a building. On some streets, it almost seem as if every single building has been converted into family guesthouses seeking to get in on the roaring foreign tourist trade. Along with restaurants and to a lesser extent, tour companies and independent guides, tourist revenue is trickling down the most entrepreneurial members of the local society.

For the foreign tourists themselves, the ubiquity of accommodations, in particular, has been an extremely positive development. Backpackers, in person and online, discuss the best places in every city to stay, to eat, and to save money. The growing power of reviews and ratings, in booking sites like Booking.com, review sites like TripAdvisor, and even Google Maps, has helped some guesthouses to prosper based on good service, and others to improve quickly in order to survive in the cutthroat market.

The result is perhaps some of the friendliest services at the cheapest prices anywhere in the world. In a country where English proficiency is glaringly lacking, hostels and hotels are prominent for having proficient English speakers who can not only explain the details of the guesthouse itself, but help out with pointing out attractions, arranging onward transport, and have nice chats, all without additional costs. And breakfast buffets, included in the lodging price, have become a norm even in the cheapest of hostels.

Of course, one can argue that Uzbeks are naturally predisposed to friendliness. While it is difficult for foreign travelers to comment on such a notion, what they quickly come to realize is just how the free market surrounding services for tourists play a major role in weeding out those places and persons who are unfriendly. Travelers talk about how restaurants and hotels quickly open up, but shut down years or even months later as they fail to get good reviews from travelers. To survive, good service has become a key.

Such is the power of the free market, especially in a business with lower barrier to entry like family guesthouses and restaurants. Anyone with a spare room and a kitchen can get a business started, and in a country where steadily well-paying jobs can be scarce, especially in provincial areas frequented by customers, there is every incentive for locals to get in on the action. The hyper-competitive environment created the greatest asset to Uzbekistan's tourist industry, first-rate service at rock-bottom prices.

The vibrant tourist service industry should provide a cue for the local government to loosen other, non-competitive sectors. One example of the unproductive monopoly is the local car industry. With over 90% of cars on the road made by the 75% state-owned GM-Uzbekistan and enormous tariffs on imported cars, Uzbeks are stuck with new Chevys made with mediocre 1980s design, with little real alternatives. The benefit of consumers are sacrificed for the sake of import-substitution.

The same can be said of the state-owned railways. While it is admirable in introducing an extremely convenient online booking system, it also wastes money on importing Spanish-made high speed trains, only to have them underperformed on rail lines laid decades ago. The vanity of modernism has trumped over much more practical and needed refurbishment of regular trains and laying of new rail lines that can bypass confusing international borders of Central Asia.

At GDP per capita of USD 1500, Uzbekistan is on par with some African countries in economic terms. But a legacy of Soviet statism and modern free market mean that the services available here are better than anything African incompetence can muster. But as Uzbekistan seek to continue growing by attracting foreign money, in both tourism and investments, it needs to consistently, and not just partially, open up the market to allow more players, not the least local grassroots entrepreneurs, to thrive.