by Michel Trudel
1.1 To regulate or not to regulate: the basic question
Why regulate taxi transportation? How are the taxi industry's services any different from other services available on the private market, such as grocery stores, restaurants or hair salons?
This question can be answered in two ways, depending on two schools of thought.
According to the first, local authorities or governments play no role in the private sector's supply of services, and market forces are left to balance themselves based on supply and demand.
The second school believes that government authorities are obliged to intervene because of what economists call "market imperfections" which prevent the market from achieving a balance between supply and demand. 2
There are three varieties of market imperfections: outside forces, public interest and consumer incompetence. Many of these imperfections operate in the taxi market:
Taxicabs are a vital public service. They comprise an essential complement to the smooth operation of public transit services, whether urban or inter-urban, and for some groups of people are the only available means of transportation (disabled, rural dwellers, etc.). Taxis are also a back-up service for unplanned travel (business, emergencies, etc.). As a result, authorities bear a responsibility in ensuring the availability and proper operation of this transportation service.
Furthermore, on their own, clients cannot compare the quality of service and fares, especially in the large cities, to make an informed decision before hiring a cab, whether at a taxi stand or by hailing a taxi in the street.
According to a generally accepted principle, regulations are necessary only to offset market imperfections.2
We also note that few government authorities are willing to allow full deregulation of taxi transportation: even the most radical deregulators continue to uphold vehicle safety or driver knowledge requirements.3
The drawbacks of taxicab deregulation became apparent by the eighties, and offered "lessons for policy makers."4
A review of taxi regulation objectives shows other examples of measures used to remedy the imperfections inherent in the taxi market.
1.2 Traditional Objectives of Taxi Regulation
Taxi regulations have a long history in all of the large, Western cities. This regulatory heritage has its bases. It may also create biases. Therefore, we must regularly check back to determine the initial objectives of a regulation before introducing major changes.
The following is a list of the major objectives traditionally targeted by government authorities through taxi regulation. These objectives are listed in order of importance as we perceive it. `
1.2.1 Public Safety
In pursuing this objective, the authority ensures that vehicles are in good mechanical repair and that the health and "good character" of their drivers is acceptable. Next came requirements concerning the operator's insurance coverage for compensating accident victims.
Mandatory technical inspections for vehicles dates back to the 18th century, and regulations were introduced as early as the 17th century to prohibit coachmen who were vulgar, cruel or receivers of stolen goods.5 A medical exam for taxi drivers was later required in Paris after one driver and four of his passengers died in July 1948.6
1.2.2 Consumer Protection
This involves setting fares to prevent abuse in situations where clients are unable to negotiate the cost of service, and makes taxi meters mandatory to ensure compliance with these fares. The driver's name and vehicle number must also be posted in plain view to allow clients to complain of violations.
By 1685, authorities had set coach fares from the city of Lille. As well, the numbering of cabs began in Paris in the early l8th century, and had to be posted on the rear, sides and interior of vehicles in 1774.
1.2.3 Availability of Service
Privileges given to taxi operators relate to certain public service obligations: availability of service at all times, in all areas, obligation to provide service, access to telephones, etc.
Once again, by the l7th century, coachmen were obliged to "provide transportation whenever required. " This objective gave rise to many measures designed to regulate the service provided by operators.
1.2.4 Service Quality
This involves monitoring the vehicle's quality (size and cleanliness) and the driver's ability (knowledge of area, social skills).
Local authorities are particularly sensitive to the tie between taxi service quality and the city's image and reputation. Poor treatment of tourists by taxi drivers, our ambassadors of circumstance, can tarnish the city's reputation.7
Significantly, organizations with a direct or indirect tie to the tourism industry were precisely those which took steps with authorities to reestablish taxi regulations in Atlanta and Seattle, and to implement the taxi license buyback plan in Montreal.
1.2.5 Reasonable Profitability of Service
The reasonable profitability of such services relates to its availability and to its quality. Concern exists to prevent excessive competition on the same markets from diminishing profitability and thereby lowering the quality and safety of service.
This objective therefore assumes setting fares and limiting the number of taxis. This latter, highly controversial, measure is discussed in more detail in the following section.
1.2.6 Reduced Traffic and Pollution
A city with traffic or pollution problems would want to reduce the inconvenience of an excessive number of vehicles on the road. To do so, it could prohibit hawking, establish taxi stands or even limit the number of taxis.
By 1635, the activities of coachmen in London and Westminster were regulated and their numbers limited because they were causing street congestion.8 The same argument is used in 20th century New York.9 Given traffic problems and crowding at taxi stands, taxi licenses in France are called "parking licenses" (in Paris) or "travelling and parking licenses" (in Lyon, for example).
REGULATION TARGET PUBLIC
OBJECTIVES (by objective)
(in order of
importance)
GENERAL PUBLIC CONSUMER OPERATOR
1. PUBLIC SAFETY - Vehicle in good - Driver's "good character"
mechanical repair
- Operator's solvency and
insurance coverage
2. CONSUMER - Fare-setting
PROTECTION - Calibration and tamper-
proofing of taxi meters
- Driver's name and
vehicle number posted
3. AVAILABILITY OF - Available at all times - Obligation to provide
SERVICE service
4. SERVICE QUALITY - Vehicle size and
cleanliness
- Driver's ability
(knowledge, social
skills, etc.)
5. PROFITABIIBITY - Adequate rates
OF OPERATION - Limit on number of taxis
6. TRAFFIC - Limit on number of - Conditions governing
REDUCTION taxis to reduce traffic access to taxi stands
and pollution
The major objectives concern the public in general and consumers in particular. It is striking to note, however, that the public or consumers rarely if ever participate as regulators in debates on taxi regulation. The taxis are far from absent, however!
1.3 Limiting the Number of Taxi Licenses
Vehicle quality, driver skill or operator solvency requirements are founded on the basis of the fundamental objectives targeted by regulations. However, what about limiting the number of licenses?
Limiting the number of taxi licenses is a very common measure in Western cities. It can be explained and justified by the following objectives:
Failure to limit the number of licenses, if combined with the absence of operator selection criteria, can lead to:
One feature of taxi transportation is the relatively low cost of entering the market: an automobile and a driver's license is practically all it takes, and this investment is within everyone's reach. In an unregulated situation, the low cost of entering the market means that taxis attract many people with limited employment opportunities, despite the low profitability of the undertaking: independent taxi drivers flood the market, crowd the streets and lower the quality and reliability of service. During the Depression of the 1930s, this phenomenon emerged in many North American cities, prompting authorities to regulate taxi services, particularly by limiting the number of licenses.
Interestingly, during the same period in the United States, public transit organizations politically approved limiting the number of taxis and, obviously, prohibiting them from offering public transportation services, particularly by means of the "Jitney."10
We should also mention that even in a regulated situation, where the number of licenses is limited, fluctuations in taxi service supply contradict certain economic theories. On the whole, taxis reduce their operating hours in good years and increase them when the economic situation worsens and demand falls; this phenomenon is particularly evident when the industry largely consists of independent operators.
Various methods are used to set the number of taxis authorized to serve a given area: the following is a list of the major categories used to set the number of licenses, from the most to the less severe.
Some of these criteria can be very stringent and constitute a formidable barrier to entering the profession. Such is the case in London, where the skills of professional drivers are subject to very strict testing;
Regulations which limit the number of licenses can have insidious effects:
Some claim that the high market value of licenses has benefits:
Whether the impact is positive or negative, a limit on the number of taxis and the market value of licenses form part of a heavy regulatory legacy, and much caution must be exercised in weighing the advantages and disadvantages of tampering with the foundations of this structure. The regulator can deal with this reality by targeting action to reach specific objectives.
Limiting the number of licenses is not a regulatory solution for every problem. However, it is a simple measure that can be introduced quickly and produces short- term effects.
Considering the many objectives to be reached, limiting or even reducing the number of licenses where an obvious imbalance exists must be combined with other measures designed to improve the quality of service, open new markets and enhance the skills of drivers. However, these measures are difficult to implement and produce results only in the mid to long term.
The authority responsible for regulating taxis in Barcelona has made a start in this direction by developing a plan to buy back a number of taxi licenses, decrease the number of drivers and increase demand, particularly through a new fare-setting policy.13
Another example can be found in Quebec, which initiated a taxi license buyback plan in Montreal while opening new markets in the industry and raising the minimal criteria for entering the profession, especially with respect to professional training.
2.1 Taxi License Buyback Plan
A plan to buy back taxi licenses was launched in Montreal between 1985 and 1990. The operation led to the elimination of 1,287 licenses, a 25% decrease in the 5,222 taxi licenses formerly in effect. The total cost of purchasing these licenses amounted to some $21 million, and was paid for entirely by license holders. The Quebec Department of Transportation supported and coordinated implementation of the buyback operation.
The glut of taxi licenses in Montreal dates back to the post-war period. Back then, concern to create jobs for veterans and public complaints about a shortage of taxis led to the elimination of the license limit (765 at the time) introduced during World War II. This action triggered rapid growth in the number of taxis: between 1946 and 1952, this figure rose to 4,978 for all of Montreal Island.
Systematically since 1952, all studies on the taxi situation in Montreal have blamed the excessive number of vehicles for all of the industry's economic problems. When the government of Quebec proposed An Act respecting transportation by taxi in 1982, all public- and private-sector players in the Montreal region unanimously asked for a plan to reduce the number of taxi licenses.
The first buyback plan was implemented in May 1984 but ended in failure late the same year because of various legal and financial factors. A second buyback plan, similar to the first but including more flexible financial terms, was submitted to the Ligue de taxis de Montreal which approved it by a 75% majority; the plan took effect in June 1985.
The primary objective of the buyback plan was to reduce the number of licenses in the City of Montreal in the aim of improving the effectiveness and profitability of the taxi industry without diminishing the quality of service. It was agreed that the buyback cost would be absorbed by license holders who decided to remain in or enter the business since they are the ones to benefit from the increased profitability of taxi operations and the added value of licenses.
The maximum number of licenses to be bought back was set at 2,000 (there were 5,222 licenses on the market at the time); this ceiling was established primarily for financial reasons related to the purchasing power of the remaining license holders, However, it was agreed that the repurchase of 1,200 to 1,500 would be acceptable.
The Ligue de taxis de Montreal asked the Department of Transportation to appoint a trustee to manage the buyback plan. This trustee was instructed to:
PRICE OFFERED BUYBACK PERIOD NUMBER OF
LICENSES
REPURCHASED
10,000 June 1985 to May 785
1987
(24 months)
18,000 June 1987 to March 288
1990
(34 months)
30,000 April 1990 to 214
November 1990
(8 months)
TOTAL 66 months 1,287
The buyback plan lasted five and a half years, from June 1985 to November 1990. Within a relatively short period of time, this operation reduced the number of taxis in Montreal by 25%, with 1,287 licenses bought back and eliminated. The buyback plan cost a total of $21 million, and was paid entirely by taxi license holders; in exchange, the profitability of their licenses increased, along with its market value, which now stands at approximately $55,000.
2.2 Developing New Taxi Services15
2.2.1 Legislative Openings
An Act respecting transportation by taxi was adopted by the Quebec National Assembly in 1983; it gave effect to the plans of government authorities to open new markets in the taxi industry. The Act provided measures related to public transit by taxi, transportation for the disabled, limousine services, taxi tourism services and school transportation.
Another important measure was the Act's allowance of taxi service contracts, particularly the freedom to set fares other than those prescribed. Section 42 of the Act states that private transportation by taxi subject to a written contract may be performed at the price specified in the contract on the condition that a copy of the contract is kept in the taxi during the time of transportation. Rates could therefore be used as leverage in a strategy to develop new markets. The following are examples of taxi services created in Quebec.
2.2.2 Range of Taxi Services
2.2.3 Future Considerations
This list of new services may seem impressive, but we must not lose sight of the fact that not all are offered by all taxi companies. In many cases, these are sporadic initiatives which operate at a low profit. What conclusions can we draw concerning efforts to develop new markets in Quebec's taxi industry since the Act's adoption in 1983?
The taxi industry must be attentive to institutions and companies to understand their needs; it must make the necessary efforts to design, develop and sell these specialized services, and especially to ensure its collective ability to provide impeccable service and to collectively assume both the financial risk and rewards.
One means of achieving this collective ability is professional training.
2.3 Professional Training Within a Taxi Marketing Strategy16
The Quebec Department of Transportation targets two key objectives through its professional training initiatives for the taxi industry:
2.3.1 Mandatory Training for New Drivers
Since May 1994, anyone applying for a taxi license in the major urban centres of Quebec is required to take a professional training course.
The course lasts approximately 60 hours and covers the following topics:
This basic course can be expanded upon by more detailed training on knowledge of the area prescribed by regional authorities; the Urban Community of Montreal, for example, added a 90-hour program on knowledge of its area and a few special features of its regulations.
This measure's implementation significantly reduced the number of new taxi drivers entering the market. It also means that, compared to their more senior co-workers, the new generation of drivers is more familiar with the law, its industry's opportunities and the importance of customer service.
2.3.2 Professional Development for Experienced Driver
Why this concern for professional development for experienced taxi drivers? The reasons and advantages of development training concern drivers as individuals, the taxi industry on the whole and the clientele. A summary of these reasons and advantages is given in the chart below and draws attention to three major points:
The Quebec Department of Transportation, in cooperation with other partners, has already developed three professional development courses for experienced taxi drivers. These three courses are now included in the mandatory new driver training.
This course was a major success, not only because of the number of drivers trained, but also because it raised the participants' awareness of their important social role, the vital service they provide to certain people, the public recognition they gain from this training and, lastly, their interest in being better prepared professionally to meet the demand for more specialized services.
FOR THE DRIVER FOR THE INDUSTRY FOR CLIENTS
Break isolation, an opportunity for
contact with others, discussion,
personal renewal and motivation
Be better equipped to meet Standard quality of service Assurance of standard service quality
expectations
Be as good as new drivers who will Better collective ability to adapt to New services adapted to new needs
receive training changes in demand
Increase business volume: new Better consensus within the industry
markets and increased demand to offer new services and protect
gains
Personal and professional satisfaction Better trade image for the industry More professional services
Professional recognition
Reduced stress More relaxed services
Increased tips Increased satisfaction
We would also like to encourage cultural exchanges between Quebec's "Taxi Ambassadors" and their colleagues in other countries: the appropriate discussions are already in progress with our contacts in Barcelona and France.
Other courses could also be used by the taxi industry for development training of its members:
Lastly, discussions have begun with the Federation des centres d'action benevole du Quebec (Quebec federation of volunteer bureaus) to design a course several hours long on providing accompaniment services to the sick or frail.
2.3.3 Mandatory Professional Retraining
These few initiatives are praiseworthy and are gradually being introduced on a voluntary basis, but how can the taxi industry be sure that its members in most need of training and development will attend the course?
An Act respecting transportation by taxi was recently amended to include the authority to prescribe mandatory training courses prior to taxi driver license renewals through regulations in areas designated by the regulations.
If the government prescribed that a different course would have to be taken every two years, in ten to fifteen years, we would have an entire new generation of taxi drivers better trained and better prepared to meet their clients' expectations.
If the taxi industry seeks genuine recognition of its professional status, it will have to act in unison. In these days of economic recession, when demand is lower, what better time to urge taxi drivers to spend a few hours retraining and developing their skill? Professional retraining would also reduce the number of taxi drivers and finally put the industry in the hands of the people providing the service: taxi drivers.
In Quebec, two organizations representing the taxi industry have already asked us to make two courses mandatory for experienced drivers: transportation for the disabled and taxi ambassadors. We fully intend to act on their request.
This overview of the basic objectives of taxi regulations and the industry's development strategies lead to the following conclusions:
Note: The opinions expressed in this document are those of the author and do not necessarily reflect the opinions of the Quebec Department of Transportation Michel Trudel, January 20,1995
1 FRANKENA, Mark W., and PAUTLER Paul A., "Taxicab Regulation: an Economic Analysis," in Research in Law and Economics, Vol. 9, pp.,129-165,1986, JAI Press Inc., p. 136.
2 GORMAN, Gilbert, "Howto Make Regulation Work,"in Proceedings of the International Conference on Taxi Regulation, North American Transportation Regulators Inc., Montreal, 1992, pp. 13-25; p. 16.
3 Price Waterhouse, Analysis of Taxicab Deregulation & Re-Regulation, Washington, November 1993, 19 pages; see also TEAL, Roger F., "An Overview of the American Experience with Taxi Deregulation", in Proceedings of the International Conference on Taxi Regulation, NATR, Montreal, 1992, pp. 123-138.
4 ROSENBLOOM, Sandra, "Lessons for Poliry Makers," in Taxicabs, Transportation Research Record 1103, T.R.B., Washington, D.C.,1986, pp. 15-19.
5 LANEYRIE, Philippe, Ie taxi dans la ville, l'enversdu mythe, Editions du Champ urbain, Paris, 1979, 278 pages; p. 20.
6 ROUXEL Claude La grande histoire des taxis francais 1989-1988, Ediiac, Pontoise, 1989, 302 pages; p. 234.
7 HARA, D., and LEWIS D., "The Political Economy of Taxi Regulation, Reconciling Public Welfare with Political Process," in Proceedings of the International Conference on Taxi Regulation, NATR, Montreal, 1992, p. 73.
8 TONER, Jeremy P. , "Regulation in the Taxi Industry," in Proceedings of the International Conference on Taxi Regulation, North American Transportation Regulators Inc., Orlando, 1993.
9 SHREIBER, Chanoch, The Economic Reasons for Price and Entry Regulation of Taxicabs, in Journal of Transport Economics and Policy, No. 3, September 1975, pp. 268-279; p. 279.
10 FRANKENA & PAUTLER, op.cit.;see also SHREIBER, op.cit.;p. 275.
11 Metropolitan Licensing Commission, Review of Taxicab Licence Insurance, The Coo ers & L brand Consultin Grou, Toronto, February 1987, 26 pages and appendices. See also same authors: Review of Tuxicab Industry Licensing and Fare- Setting Methods, Toronto, March 19R2, 22 pages and appendices.
12 GALLICK, E.C., and SISK D.E., "A Reconsideration of Taxi Regulation," in Journal of Law. Economics and Organization, Vol. 3., No. l, Spring 1987, Yale University, pp. 117-130.
13 Institut Metropolita del Taxi, "Plan de Trabajo para la Reestructuration del Servicio del Taxi, I995,"in Taxi 89, Taxi Metropolita de Barcelona, October-November 1994.
14 TRUDEL, Michel, "Evaluation du plan de rachat de permis de taxi a Montreal," conference presentation to the Institut Metropolita Del Taxi, Barcelona, May 2,1994.
15 SMITH, Gordon, "Bilan des ef'ort.s de developpement de nouveaux marches de la part de l'industrie du taxi," conferenee presentation to the taxi conference of the Association quebecoise des intervenants du taxi, Laval, June 11,1994.
16 TRUDEL, Michel, "La formation professionnelle dans une strategiede mise en marche des services de taxi," conference presentation to the taxi conference of the Association quebecoise des intervenants du taxi, Laval, June 11,1994.
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