fbpx

Uber and Taxicab Licensing

John McGinnis argues against compensating traditional taxi companies for the harm that Uber imposes on them. His policy argument is that:

New technologies always replace the old. That is the story of the creative destruction of capitalism. Providing compensation would make individuals less likely to shift employment in the face of foreseen technological change and government more likely to suppress innovation. . . . Taxis are in the same position as blacksmiths, carriage makers, and providers of telegraph services, all enterprises that lost out to new competitors with better technologies.

I agree with John, but I have some thoughts to add.

It is not simply that the new technology of Uber should be allowed to displace the old technology of taxicabs. It is also that taxicab licensing is a pernicious regulation. Like most licensing systems, the system restricts competition. There are strong arguments against any licensing, but even if one believes licensing should be allowed, one can only make a plausible case for it if consumers are unable to monitor the quality of the service. This is certainly not the case with taxicabs. Moreover, even if one allows licensing of a service, one would not permit a restriction on the number of persons allowed to enter the industry, as does taxicab licensing. (One could conceivably make an argument that industries with high fixed costs require restrictions on entry, but that is not true of taxicab companies.)

Thus, one should not have had taxicab licensing in the first place. And therefore the opportunity to eliminate such regulations with Uber is a welcome one. In fact, as I have argued in the past, there is every reason to expect that it will be difficult to eliminate taxicab licensing. Uber is especially desirable because it provides the occasion for circumventing taxicab licensing.

Finally, the use of taxicab medallions is especially problematic. Unlike most licensing systems, such medallions involve initial payments to the city government and therefore enrich the city at the expense of consumers. Moreover, those medallions give the holders the appearance of a property right that makes it even harder to eliminate the system.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on June 23, 2014 at 10:42:53 am

Right, and that putative property of the medallion is generally judgment proof.

read full comment
Image of CLS
CLS
on June 23, 2014 at 10:59:07 am

[T]axicab licensing is a pernicious regulation.

Whatever the merits of this assertion, is it dispositive of the question whether to compensate people who invested in reliance on those pernicious regulations?

Perhaps so. As I scroll through examples of policies that have altered because we came to regard them as pernicious – slavery, restrictive covenants, drug laws, trade in eagle feathers/endangered species/drugs, various environmental laws – I’m not aware that we compensated private parties for their losses.

[I]f one believes licensing should be allowed, one can only make a plausible case for it if consumers are unable to monitor the quality of the service. This is certainly not the case with taxicabs.

How are consumers supposed to detect whether a given car/driver has insurance, or is otherwise solvent? Taxi regulations typically require taxi companies to have insurance. Moreover, the medallion itself arguably functions like the expensive engagement ring of old -- as a form of bond that a wronged party could claim in the event that the relationship sours.

read full comment
Image of nobody.really
nobody.really
on June 23, 2014 at 12:29:45 pm

Interesting take on this issue!

You are correct in asserting that there is some "public interest" in licensing of taxis - if only to provide some assurance to the public that the fleet is insured, is solvent, is not staffed by serial killers (although given current initiatives to not allow an employer to check / consider criminal backgrounds, this is now questionable) and that the vehicles are safe and subject to inspection.
Other than that the whole notion of licensing via medallions is a restrictive enterprise and one typically would not consider compensating the participants in such schemes for loss -real or imagined.
However, the examples you cite are not quite on point. In none of the examples were the participants made to pay a "fee" to a municipal agency to participate - a fee, which Mike rightly points out was paid to the municipality. Originally, the fee was a rather modest sum - however as they were marketable and the municipal regulations created a scarcity in the marketplace, these medallion grew quite considerably in value. At one point in NYC, for example, they approached $500K (maybe higher). Here's the rub: In some instances the municipality decided to increase the number of medallions and the municipality sold these at something approaching market value. One can say that this complicates the issue of compensation and / or destruction of property interests. In what other endeavor would we accept such a scheme? Were this purely a case of the taxi operators creating and marketing their medallions, I would be prepared to let them deal with the consequences of their "medallion bubble" - yet, in this case they were compelled by municipal "engagement" to engage in the bubble if they were to pursue a livelihood. Heck in Seattle, they have been forced to switch to Prius sedans - so much of this is of the state's doing that it is difficult to place responsibility upon the shoulders of the taxi drivers. Here is a case where, in effect, the state is compelling a private party to expend capital in a prescribed fashion. when that expenditure of capital is destroyed or made near worthless, what is the proper response.

IMO. I would dispense with all restrictions upon medallion fleets. allow them to compete on an equal footing, set their own rates, pick up "hailing" passengers as in NYC, and require that the newcomers submit to similar inspections, insurance requirements etc.
What to do about the loss of investment in medallion "fees" is something else again but they ought not to be penalized by adhering to the rules.

read full comment
Image of gabe
gabe

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.