CALLS FOR TAXICAB DEREGULATION

by 'Think Tanks' in Recent Years

A Summary by Terry Smythe

As Posted to the TAXI-L InterNet Special Interest Group

16 June 1997

Over the past few months as I've been surfing around the 'Net, burning up the excess of my 30 hour day, I seem to have stumbled across something of interest. It seems that in recent years, a number of "think tanks" have been targeting deregulation of the taxicab industry in various cities in North America. A number of reports have emerged which make what appears to be a good case for and argue very persuasively in favour of deregulation of the taxicab industry.

Leader among the group is the Institute for Justice, based in Washington, DC, which has prepared reports advocating taxicab deregulation in Baltimore MD, Boston MA, Charlotte NC, Detroit MI, New York NY, Denver CO, San Antonio, TX, and San Diego CA underway as we speak.

The Buckeye Institute for Public Policy Solutions, operating out of Dayton OH, has published a report advocating taxicab deregulation in 8 cities in Ohio - Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, Toldeo, and Youngstown.

The Cascade Policy Institute, operating out of Portland OR, advocates taxicab deregulation in Portland and Independence, Oregon. The Independence Institute in Denver CO, echos the call for taxicab deregulation in Denver CO as proposed by the Institute for Justice. The Consumer Policy Institute, operating out of Toronto ON, advocates taxicab deregulation in Toronto. The Frontier Institute for Public Policy, operating out of Winnipeg MB, advocates taxicab deregulation in Winnipeg. And the American Enterprise Institute advocates deregulation of the taxicab industry in New York City, echoing that proposed by the Institute for Justice.

InterNet discussions suggests there are many more. Certainly there appears to be an unusually large number of these 'think tanks' all over North America. Another interesting thing I've noted is that many quote one another, adding to the glowing mantle of truth therein.

Typical statements found in these reports include such things as:


"The State of Maryland should open entry into Baltimore's taxicab market by lifting the cap on the number of taxis permitted on the streets, providing greater entrepreneurial opportunities for drivers and better service for consumers. Anyone with a safe driving record, a safe vehicle, and the proper insurance should be allowed to enter the taxicab market. One of the major problems within the industry has been the hoarding of licenses by companies and individuals. An increase in demand has created a black market on cab licenses so that a commodity that can be purchased from the city for $161 is sold on the street for $3,000 or more [up to $20,000 in Baltimore]. City policy should not facilitate the creation of black markets."

"It is a difficult and dangerous occupation,7 but driving a taxicab traditionally has been one of the ways that low-income persons earn money for themselves and their families. However, taxi driving is becoming a less accessible form of self-employment, and the City of Boston certainly does its part to keep low-income residents out of this occupation."

"Taxi driving has for generations been recognized as a "poor man's gateway to mainstream America." The current regulatory scheme in Boston benefits only the existing medallion holders, their lobbyists, and their lawyers. As a result, most Boston taxi drivers do not enjoy the fruits of their own labor. They must pay exorbitant weekly fees for the "privilege" of driving for someone else who owns the taxi medallion. In essence, cab drivers become urban sharecroppers."

"An increase in demand has created a black market on cab licenses so that a commodity that can be purchased from the city for $161 is sold on the street for $3,000 or more. City policy should not facilitate the creation of black markets."

"...the city's current policy as it relates to taxicabs is that cab companies that control the limited supply of licenses turn around and lease those city-issued licenses to drivers for a profit. City policies should not create a system where individuals or companies are making a profit by leasing city property."

"In a climate in which welfare reform emphasizes the transition from public assistance to work, it is vital that government make sure that all Americans have the opportunity to earn an honest living, free from arbitrary or excessive government regulation."

"In many cities, driving and owning a taxicab is a common entry-level entrepreneurial pursuit. Less so in Charlotte, which instituted a temporary moratorium on new taxicab permits and whose rules governing such permits are unclear.

"...regulations make single-vehicle taxicab companies impossible. The City requires that companies offer citywide round-the-clock service and maintain a 24-hour dispatch facility. These regulations place ownership of taxicab companies outside the reach of smallscale entrepreneurs."

"Taxicabs are heavily regulated in cities such as Los Angeles, Chicago, Boston, New York, Miami, Buffalo, Houston, and San Francisco, and market entry is tightly restricted. Taxicab regulations often far exceed legitimate safety concerns, and instead are designed to protect existing companies from competition. The barriers to entry are entrenched and long standing."

"As The New York Times recently noted, taxidriving has for generations been recognized as a "poor man's gateway to mainstream America." The current regulatory scheme in Denver benefits only the three existing companies, their lobbyists, and their lawyers."

"This lawsuit is part of a comprehensive effort to restore judicial protection for "economic liberty" -- the basic civil right of every American to pursue a business or profession free from arbitrary or excessive government regulation. Economic liberty is an essential part of our nation's promise of opportunity."

"The Denver taxicab market today is an oligopoly, even as the three existing firms demonstrate inefficient management and poor service to low-income neighborhoods. And a potential avenue for legitimate entrepreneurial opportunity is completely and unnecessarily extinguished."

"...taxi driving is becoming a less accessible form of self-employment, and the City of Detroit certainly does its part to keep low-income residents out of this occupation. The most formidable barrier is the limit Detroit has placed on the number of taxi licenses. As a result of all these barriers, taxicab medallions command an artificially high price on the open market and entrepreneurs seek to avoid these regulations in numerous ways, both legal and illegal. Some of the most severe barriers to enterprise in Detroit stem from the stupefying bureaucracy and regulations..."

"New Yorkers seeking to follow in this tradition of entrepreneurship face a bewildering array of laws and regulations that prevent or stifle honest enterprise."

"...the lucrativeness of the Manhattan and airport markets, coupled with the statutory limit on the number of taxi medallions and the fact that medallion owners are allowed to sell and lease them, combined to make entry into the taxi industry extraordinarily difficult and medallion prices ever escalating. The high medallion price contrasts with relatively basic requirements for those who want to [own and] drive a cab."

"Attempts at adjustment, however, beg the core question about New York City's taxi system: why should there be a limit on the number of medallions, and what is the justification for the specific numerical limit that exists?"

"Current city regulations have created a cab cartel that restricts entrepreneurs from creating job opportunities and providing better service. Portland should dissolve its onerous regulations and open the taxi market to entrepreneurs. For decades, like nearly 90 percent of cities across the nation, Portland has blocked a primary avenue of opportunity ideally suited to low-income entrepreneurs: taxicab driving. Driving a cab, like street vending, barbering and a host of other occupations, is a perfect entry-level business for the poor because it requires minimal training or capital investment, and the more you work the more your earn. But, the economically disenfranchised are stymied from entering such occupations by government restrictions."

"The effect of the de facto ban on new taxicab businesses and, more importantly, on the lives of would-be cab owners and drivers, is devastating. It impairs their ability to earn a decent living for themselves and for their families. It limits their opportunity to work for themselves, instead of for others. It destroys their dream of a brighter future."

"The argument for opening taxicab markets rests on the principle that government should not protect for-profit cab companies from competition to the detriment of the riding public and would-be entrepreneurs. Rather, government's proper role should be to protect the public's health and safety. Insurance and vehicle inspection requirements, as well as background checks for drivers, are reasonable. A prohibition on competition is not. Common sense says such decisions can best be decided by individuals in the marketplace, not government bureaucracies."

"San Antonio's ground transportation industry promises to test a budding entrepreneur's wherewithal. In its statement of policy, the vehicles-for-hire ordinance purports to "respect the concept of free enterprise" as it "protects the public health and safety [and] promotes the public convenience and necessity." In fact, however, free enterprise takes a back seat to protecting existing transportation providers, particularly in the taxi industry. Worse for the budding entrepreneur, the application process is mired in red tape, requiring potential drivers to expend a great deal of time and money just to apply for the right to earn a living in this industry."

"This seemingly benign term [PC&N], commonly applicable in cities nationwide, often acts to mask a deeper motive: protection of existing transportation providers from competition."

"San Antonio has fashioned a "rubber ceiling" on the number of taxi permits it issues in a given year, so called because it uses a formula based on the city population to determine whether more permits are appropriate. Rather than limit the number of taxi permits, the City should allow market forces to determine the appropriate number, just as it does with the other transportation providers. Supply and demand, not bureaucrats, should determine the appropriate number."

"Ohio's largest cities impose numerous regulatory burdens on the start up and operation of taxicab businesses. The regulations often prohibit small, independent operators from starting a taxi business. This limits economic opportunities in Ohio's major cities. Additionally, the regulations severely limit service and price competition among taxi companies."

"A taxicab business could be one of the easiest businesses to start up, The only requirements would be a clean, safe automobile; a driver in good physical condition without a recent criminal record; a driver's license; a simple, low-cost business permit; and the proper insurance."

"Taxicab regulations are some of the most common in city ordinances, and may also be some of the most restrictive."

"Criteria for determining public need are often ambiguous and subject to wide interpretation by regulatory authorities. The burden of proof is also almost always shifted to the new entrants who must "prove" a "need," or unmet demand, exists for new taxicab companies and operators. Often, existing companies have an opportunity to show local authorities how they will meet the need discovered or identified by the applicant for a new taxicab company license."

"Cities should depoliticize the licensing process, reducing the role of licensing boards in granting taxicab licenses."

"Independence is not the only city that routinely denies some people the right to earn a living driving a cab. Many cities nationwide, including Portland, use occupational licensing to restrict the supply of transit services. When government creates such monopolies prices are driven up, which benefits those privileged few able to meet the licensing requirements."

"Urban transportation is one of the last transport monopolies to confront the customer-driven challenges of a competitive marketplace. In most cities, the public's flexibility to move freely on a competitive urban transit system has been compromised by the inefficiencies of the local government's monopoly service provider, and by a complex regulatory framework that discourages innovation and prevents safe private sector alternatives."

"Freedom of movement, and the freedom to pursue a respectable living in a chosen field, should be the right of every individual, yet these freedoms have been limited by self-interest and obliging government bureaucracies since the turn of the century."

"Taxicab regulation discriminates against single mothers, low- and fixed-income wage earners and the physically disadvantaged by reducing supply in their neighbourhoods and making the product uncompetitive and unaffordable. Taxi regulation also acts as a barrier for displaced workers, recently arrived immigrants, and people on welfare who would prefer a hand-up rather than a handout to become economically self-sufficient in an easy-entry, low-cost business."

"Excessive regulation has benefitted existing participants in Canada's taxicab industry. Fixed pricing, jurisdictional restrictions, and closed entry have resulted in a transfer of wealth from the customer to the producers in the industry."

"In this system, taxi drivers also suffer because the shortage of vehicles creates a relative surplus of taxi drivers. This artificial surplus drives down the compensation that taxi drivers earn. Under the current system, even the plate holders suffer -- not so much from immediate hardships but from insecurity. Owners know they're living on borrowed time, that they're operating in a grey area of the law, and that their business could come crashing down on them."

"At the same time, the commission should encourage taxis to advertise fares other than the posted fare, to foster competition within the taxi business on the basis of price and service. Drivers will also be immediate winners. Because there will be extra cabs on the road, the cost to rent a cab will drop. And because consumers will have additional options, including lower fares, people will take cabs more often, greatly increasing the volume of business in the taxi industry."

"A province-wide, deregulated taxicab industry would transfer the cost advantage from the producer to the customer where it belongs, by increasing supply, reducing fares, and improving service. A truly competitive industry would also create new opportunities, particularly in niche markets such as low-income users and intercity."

"Abolition of all restrictions on the taxicab industry, except for those that govern public safety and environmental standards, will result in an immediate increase in taxicab supply, an overall reduction in taxi fares, and improved service, while reducing pressure on urban transit systems, and creating new business and employment opportunities in a low-cost, easy-entry industry. The government of Ontario should immediately create a province-wide open market for the taxi industry by ending price controls, restrictions on taxicab supply and on shared-ride services, and jurisdictional boundaries."

"Were the entire medallion system to be abolished -- let's say some courageous, and I do mean courageous, mayor were to wave a wand, persuade the City council to forego the enormous campaign contributions of the taxi industry and thereby clear the way for the elimination of the medallion entry fee -- fares would drop, just as they did when the airlines were deregulated."

"Most owners do not drive cabs themselves, but make their money by leasing the service medallions to drivers. That's why we have this anomoly of both high fares and poorly compensated drivers -- everybody loses, except the medallion owners."

"The city can gradually create more and more medallions, thus lowering the value of them. The medallion owners have been collecting on their monopoly tickets for a long time. Now it's time to be fair to their customers."

"If there's one thing that students of the modern market economy have learned over the past two decades, it's that regulatory agencies become dominated by the industries they're supposed to oversee. In economic jargon, these industries experience something called "producer capture." Inevitably the interests of a small, well-organized minority industry (the servive providers), supersede those of the general community (the service consumers). The taxicab industry is a textbook case of regulatory capture."

"Various cities and countries have shifted the focus of public policy in the cab business away from protecting a handful of operators towards maximizing benefits for consumers. They ended price and entry regulation in their taxi sectors. As economic theory predicts, fares fell while service increased."

"The taxi board, like the woolly mammoth, belongs to the Ice Age."


From this array of quotes, it is clear that these think tanks are focusing their collective efforts on abolition of entry and fare controls, and even the regulatory agency itself. From the consistency of approach and at times even language, it is again clear that these think tanks do link up with one another, sharing common perceptions. And all appear to perceive operating and driving a taxicab to be a modest, entry level occupation requiring little skill, knowledge and assets.

What is it about the taxicab industry that is attracting the attention of so many of these think tanks, all sharing a common focus of attention? Is this a good thing? What are the merits and hazards of their efforts?

Are there others among us who have detected the presence of such think tank activity in their communities, focusing attention on deregulation of their local taxi industry? What is the local reaction? Can copies of their reports be obtained?

My apologies for such a long message, but the issues appear to be quite important and of interest to all.

Thoughts of others on this sensitive issue........

Regards,

Terry Smythe
55 Rowand Avenue
Winnipeg, MB, Canada R3J 2N6
(204) 832-3982 (voice/fax)
tesmythe@videon.wave.ca
http://www.mts.net/~smythe


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