The Case for Deregulating the Taxi Cab Industry

WE’RE ALL THE BENEFICIARIES OF CREATIVE DESTRUCTION

In recent weeks, taxi services have protested in Washington D.C., Boston, London, and elsewhere over the existence of ride-sharing services like Uber (or Uberx), Lyft, and Sidecar.

These latter companies, it’s alleged, are taking customers traditional taxis would otherwise assist.And since they’re not taxi services in the ordinary sense, they’re operating outside the control of regulations that mandate everything from the cameras on the inside of traditional taxi cab to the font of the decals those cabs are required to display.

Further, in most cities, strict licensing rules make it prohibitively expensive for a new driver to enter the market (it requires as much as $1 million to get a license in New York). With start-up costs so high, drivers already within the industry are insulated from taxi-based competition from the outside, but services like those offered by Uber, Lyft, and Sidecar cut around those barriers. As Uber seeks to expand into South Carolina, taxi companies are debating whether to take legislative action to regulate these potential competitors’ services.

Elected officials will have to make a choice. Before they do, they should consider the larger question of regulation.

The obvious benefit of allowing Uber to proceed unchecked is that it will create greater competition in the market for transportation, which, in general, leads to better quality service. Just the threat of Uber entering the Charleston area has caused the Charleston Yellow Cab Company to develop its own smartphone app, an innovation that has long been available. As it stands, however, there can only be one outcome to this competition. Uber is a wholly unregulated entity capable of becoming whatever the consumer desires; taxis are stuck in a mold that was designed in the 1930s. As ride-sharing services break into the market around the regulations, what was once a barrier designed to insulate taxis from harm becomes a yoke that prevents them from keeping up with their unregulated neighbors.

The state’s response should not be to yoke everyone equally, but to lift the yoke from all parties.

When “mini-cabs” began their work in Paris, the traditional taxi-drivers expressed outrage. These new, smaller vehicles could get to passengers much quicker than normal taxis because they didn’t have to adhere to the same size requirements as a normal cab and could slip through traffic easier. The government’s eventual response? Require the mini-cabs to wait 15 minutes before picking up passengers. So instead of allowing innovation, the government forced all companies to provide equally bad service. The result, of course, is entrenched companies won and consumers lost. The taxis flourished, the mini-cabs disappeared – their only advantage had been taken away – and the passengers were kept waiting.

Laws like France’s “15-Minute Rule” (or any regulation deliberately designed to reduce the effectiveness of a business) harms everyone but the rent-seeker, and results in a net loss over time by stifling progress. If politicians want to level the competitive playing field between ride-sharing services and taxis, the better choice would be to deregulate the taxi industry to the same level as the ride-sharing industry.

Regulations are put in place in an attempt to ensure public safety, so when people argue against deregulated industries they often cite examples of people being harmed in ways that would have been prevented by a regulation. In the case of ride-sharing, opponents of deregulation might point to cases in which unregulated drivers kidnapped passengers or hit pedestrians. If only there had been state-mandated standards for who could drive their cars, the reasoning goes, nothing would have happened.

In that case, we would expect there to be fewer such incidents in more-regulated industries. But that’s just not what has happened. There are thousands of cases in which taxis harm passengers or hit pedestrians while driving recklessly. Furthermore, regulation’s deterrent effect on low safety standards is slight compared to the likely costs a civil lawsuit could command. Airline industries don’t have rigorous safety procedures because they might get fined by the FAA for not complying; they have those procedures and standards because a multi-billion dollar lawsuit after a plane crashes would cripple their business. Civil regulation is much more powerful than legislative regulation.

But perhaps the most persuasive argument against allowing for Uber to enter South Carolina is presented in this article written by a cab driver from St. Louis. Even with deregulation, he contends, the taxi industry could be destroyed by ride-sharing services. The taxi companies aren’t protesting because they have ethical problems with Uber or Lyft; they’re protesting because they think that their livelihoods are being threatened, and it’s possible they’re right.

Looking back into the history of transportation, we can see that some industries were decimated by new technology. In 1900, 109,000 people made a living making horse-drawn carriages. Today, the profession is almost gone. Simply put, the buggy business died largely because of Henry Ford and his Model-T. This process, sometimes called creative destruction, is similar to a snake shedding his skin; it doesn’t fit anymore, it’s not as glossy, so he trades the old for the new. That analogy doesn’t take into account that “shedding” the old services in the economy means hurting peoples’ livelihoods.

Of course, some who lose their jobs to newer technology get jobs elsewhere, and many times their lives improve as a consequence. But creative destruction is both creative and destructive, and there’s no use pretending otherwise.

In the end, we should foster a free, level playing field in the transportation industry by deregulating the taxis and leave ride-sharing alone. In the long run, when consumers win, everybody benefits.

Like this analysis? Get all our material delivered to your in-box once a week by clicking here.

Print Friendly, PDF & Email

Category: Taxes & Regulation · Tags: