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.