A version of the following column was published in the Portland Oregonian newspaper on February 17, 1997 under the headline Taxis perfect for entry-level entrepreneurs. It responded to a Feb. 5 editorial, "Rethink taxi rules," which stated that "Portland should be accomodating airport shuttles, not cracking down on door-to-door service."

Open the Door To Portland's Taxi Entrepreneurs

by William H. Mellor and John E. Kramer

Serious problems exist within Portland's taxi market, as highlighted by this week's airport shuttle service controversy. 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.

Current city taxi regulations also harm the very individuals most likely to rely on such transportation: the poor, elderly, and others with fixed or low-incomes. These individuals, and other taxi customers, are harmed in at least two ways. First, a low level of competition leads to higher fares; second, less competition decreases service; for example, fewer taxis means waiting longer to get a ride.

Several cities recently opened their taxi markets. The results are positive; increased competition has produced more options, better service, lower fares, and job opportunities.

In 1994, Freedom Cabs became Denver's first new cab company in 50 years. Today, it employs nearly 100 people and provides service to the historically under-served minority community.

In Indianapolis, six months after opening entry into its taxi market, there was a nearly seven percent increase in the number of cabs. Seventy-five percent of the new companies are female- or minority-owned. Nearly all the new taxi owners are former drivers who had long wanted a chance to own their own business. Fares were reduced: pick-up charges dropped 12 percent; the average mileage rate dropped three percent; and the average first-mile rate dropped seven percent. Cabs are safer with all companies passing police background checks and enhanced safety inspections.

After deregulation in Cincinnati, 209 new taxis (mostly driven by driver/owners) began providing additional service in the city.

Since 1979, through its Bureau of Licenses, Taxicab Supervisor and Taxicab Review Board, Portland has imposed an unofficial moratorium on taxicab permits (licenses required to operate a taxicab). Under the "public convenience and necessity" standard imposed that year, the city gives existing companies an unfair advantage--in fact a veto on entry--over would-be competitors. Though control appears to be in the hands of government, it really rests in the hands of existing cartel companies.

The "public convenience and necessity" standard creates yet another nearly insurmountable presumption in favor of established businesses. The entrenched companies can examine an aspiring entrepreneur's application, which identify new market niches. Thus, an old business can that idea and provide the very service the applicant was using to gain market entry. With the standard filled, there is no need for a new company.

It should come as no surprise that since the public convenience and necessity standard was enacted, not a single new cab company has entered Portland's taxicab market. The last new entry into the market was in 1976. In a five-year period, from 1985 through 1990, not a single one of the five applications to begin a new cab company was accepted. The four taxicab companies currently doing business in Portland (Radio Cab, Broadway Cab, New Rose City Cab, and Portland Cab) have all been around since 1979. No applications for new cab companies are currently pending.

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.

These aspiring entrepreneurs realize there is no guarantee of success in a competitive economy, but only upon encountering this ban did they realize that they would not even have a chance to compete. Until Portland's oppressive ban is removed, they will be denied one of the most basic civil rights: the right to earn an honest living.

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.

William H. Mellor is the president and general counsel, and John E. Kramer the director of communications for the Washington, DC-based Institute for Justice . This article is adapted from "Opening Portland's Taxi Market", one of ten winning reports from the 1996 Oregon Better Government Competition, organized by Cascade Policy Institute in Portland. For the full report call (503) 242-0900.
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