Break open the taxicab monopoly
by Jeff Jacoby
■ YOU LIVE in a modest neighborhood in, let us say, Boston or Houston or San Francisco. You have an appointment to keep, but you don't own a car. No problem. You walk out of your front door, head to the nearest intersection, hail one of the cabs that are always cruising for fares, and you're on your way.
■ You're an ambitious 19-year-old growing up in the inner city. You're willing to work hard and you'd like to be your own boss, but all you've got is a few hundred dollars. Happily, that's all you need for a down payment on a car, and a car is all you need to start a cab company. You apply to the city for a hackney license. Since your record is clean and you know your way around town, your application is approved. You pay a small fee, receive your medallion -- and climb the first rung on the ladder to success.
■ Lobbyists representing a few wealthy taxicab owners petition City Hall. "Pass a law freezing the number of taxi medallions," they demand. "Pass another one setting taxi fares. Set them high, and make it illegal to charge less. Send the police to arrest 'gypsy' cab drivers. Protect us from competitors, so we can grow even wealthier." The mayor laughs in their face. City Council ignores them. Their attempt to monopolize the taxi industry flops.
Fantasies, all of them -- but why? The taxi business, after all, ought to be a model of free enterprise. There are plenty of buyers (passengers), plenty of sellers (drivers), and no barriers to entry beyond the price of a car. If it weren't for government interference, the laws of supply and demand would govern the taxi trade with almost frictionless efficiency: Cabs would be plentiful, fares would be reasonable, and service would be available nearly everywhere it was wanted.
But governments do interfere. Taxi owners routinely get the state to kill their competition. "London's first recorded taxi war, in 1636, did just that," the Economist recalled some years ago. "Sparked by the resentment of Thames water taxis at growing competition from coaches on land, it led to a proclamation from King Charles I restricting the number of coaches to 50. Lucky coachmen were happy. Watermen were happy." But customers got gypped.
A lot of medieval practices have been junked since 1636, but protectionist taxi regulations aren't among them. Nearly every major US city (and thousands of smaller ones) chokes off access to the taxicab market. Exactly 11,797 taxicabs, for example, are permitted to operate in New York City -- a figure that hasn't budged since World War II. FDR was in his first term as president when Boston decreed that only 1,525 cabs would be permitted on its streets. Other than a few new medallions for wheelchair taxis, 1,525 remains the limit.
The results? Right out of Econ 101: The supply of taxi medallions is far lower than the demand, so their value long ago exploded to obscene levels. Today, the going rate is about $140,000 in New York; about $90,000 in Boston. Those who got medallions when the getting was cheap grew rich. Everyone else got shafted. Would-be cabbies are forced to choose between going deeply into debt to buy a medallion or paying murderous lease rates to somebody who owns one. "In essence," write Chip Mellor and John Kramer of the Institute for Justice, "cab drivers become urban sharecroppers."
The institute has helped break down taxi oligopolies in Denver, Cincinnati, and Indianapolis; Mellor and Kramer have now drafted legislation to do the same thing in Boston. Last week, their proposal received one of the Pioneer Institute's much-coveted Better Government Awards.
Except for the few who've been enriched by the system, anticompetitive taxi regulations are a disaster.
"Economists left and right agree," Mellor and Kramer write, "that consumers are the big losers -- second only to would-be cab owners. They pay higher fares, wait longer for a cab, and get worse service than they would with competition. Poor, minority, and elderly consumers are hit especially hard." Research by the US Department of Transportation shows that regulations locking up the taxi trade rob the public of $ 800 million a year -- and prevent the creation of 38,000 new jobs.
The remedy is basic: End the monopolies and the price-fixing. Any qualified driver who wants a taxi license should be issued one, so long as he (1) pays a biannual fee, (2) has a safe vehicle and a clean record, (3) submits proof of insurance, (4) reads and speaks English and (5) demonstrates mastery of the city's streets. To protect out-of-towners from gouging, the city might set a cap on fares and require it to be posted in each taxi. But cabbies would be free -- like other businesspeople -- to win customers by offering lower rates.
Unshackle the taxi market -- restore the liberty government took away -- and there would be more cabs on the street, more passengers riding them, better service, and lower fares. If Big Brother presumed to dictate the number of doctors allowed to treat patients or jacked up the price bakeries charged for bread, we would seethe with resentment. Its meddling in the taxi industry should make us no less indignant.
(Jeff Jacoby is a columnist for The Boston Globe.)