It is easy to see where we went wrong. Our plate system institutionalizes a cartel, capping the number of cabs on the roads. Scarcity has become public policy, and with demand unable to keep up to supply, councillors must cap fares to eliminate the otherwise inevitable price gouging. The regulatory mess that the city has created — and has failed to reform — hurts customers, discourages new entrants to the market and impoverishes drivers.
Regardless of the demand that residents and tourists may have, our leaders have decided that the industry will only supply a certain number of cabs. This lack of competition means that existing taxi plate holders have little incentive to cut costs, improve efficiency or improve the quality of service customers receive.
Further, the plate system has facilitated a grey market in which city-issued plates are sold or rented for thousands of dollars. If you want get into the taxi business, you have to pay the gatekeeper. Plate holders can get rich through special status gifted by the government. It’s basic rent-seeking, and profiteers are exploiting this public privilege.
We are, in essence, paying plate holders to give us sub-standard service.
This also hurts new entrants to the market, confident that they can provide good service, balancing the twin demands of efficiency and quality. Generally, we understand that an open, free market is the best and most efficient manner to determine the allotment of resources to a specific good or service. But not when it comes to cabs, apparently. Taxis must be restricted, and prospective drivers must be discouraged from earning a living.
As it turns out, this system is also harmful to current drivers. Fares have been frozen for a few years, but costs — gas, insurance, plate rents — have not. The cost of operating a cab can now run over $10,000 a year. With such a burden, it is quite understandable that cabbies will want to charge a price that both covers these costs and provides them appropriate recompense.
And so it is that last week, the taxi driver union requested a fare increase of seven per cent. I have no idea if this is appropriate.
And neither do you.
With our existing market, it is impossible for anyone to authoritatively declare what a just fare would be. In order to establish an appropriate fare, the city needs to stop limiting the growth of the industry. It must excuse itself, eliminate the plate system, allow new entrants into the market and let each cabbie establish her own fare. Those who can run their business effectively will thrive.
This isn’t a call for taxi anarchy. The city will still have the power to regulate drivers and their vehicles. There can still be licensing requirements to ensure that all drivers have the necessary qualifications to drive a cab. We just need to let this market operate in the same manner as just about every other market in the city.
If drivers want to break free from the pricing constraints of city regulators, they should make common cause with their fares. Customers deserve an open market, not a cartel. Cabbies deserve to be free to peddle their services without being subjected to extortionate fees.
If the union is truly interested in establishing fare rates for their drivers, they should fight to liberate the taxi market. If they won’t, we will see their duplicity and we should no longer reward them with a protected market.