Something Rotten in the State of Winnipeg Taxi Market

Commentary, David Seymour, Manitoba, Marketing Boards, Role of Government, Uncategorized, Winnipeg (historic)

There’s an old joke about the Soviet Politburo wanting to rule everywhere but New Zealand. Why New Zealand? “Well, prices have to be set somewhere.” The Soviets knew that sometimes statistics and planning couldn’t anticipate market conditions, so they were prepared to keep at least one natural economy living in capitalist hell as a barometer. Then again, if a report released this week is to be believed, the Manitoba Taxicab Board is still catching up with them.

The report begins with a section entitled “why regulate taxis” and ends with a list of cherry-picked studies that answer the question predictably. Cynical readers might think the Taxicab Board found the go-to-guy for reports in favour of the status quo and commissioned him. Pity. A more imaginative look at the topic finds something rotten in the state of the Winnipeg taxi industry and some very positive international experiences of open taxi regulations.

If taxi license numbers had kept up with growth in the workforce over the last two decades (the current number was actually set in 1947) there would now be 504 regular licenses. Instead, there are still 410. Not coincidentally, the price of a license has gotten as high as $280,000. Now, the long-term average return on the TSX is 10%. A license owner could sell it, get another job, and make a $28,000 annual return by investing it there (especially good buys right now), but they don’t. Presumably being in a market that is protected from competition is a better option, albeit at the expense of taxi users and would be taxi drivers. These license owners are not all hard-working drivers trying to get ahead in life. Often, the drivers are paying extra to rent a license off tax-cab company “magnates” who own a plethora of licenses.

According to the report though, anything can be explained with enough ingenuity. Without any evidence, it asserts that license prices are high because immigrants use licenses to prove to authorities that they have a job. Ignore that a quarter of a million dollars could buy a whole business. If the immigrant hypothesis were true then any license would be equally valuable, but the fact that they vary by $100,000 depending on which company they are associated with favors the return-on-investment explanation.

Similarly, the total lack of positive comments about taxi service in surveys in the study are explained away as unfair perceptions. People of Winnipeg: you just don’t know when to stop complaining. To be fair, the study did find and verify very reasonable wait times for cabs, but that’s where Soviet style statistics have their limits.

Ironically, it was New Zealand that removed controls on taxi numbers and prices in 1989. The result? Fares went down, numbers doubled, and thousands of additional jobs were created in a time of recession. In the words of one university study eight years after, “the removal of entry and fare restrictions has released forces which have led to a new and considerably more vibrant local taxi industry.” All the same prophecies of doom contained in the Winnipeg Taxi Study were also made prior to deregulation; ditto for Ireland eleven years later.

Ireland deregulated taxis in the year 2000 and experienced reduced wait times and increased customer satisfaction. Cab numbers went to 9,000 from about from about 3,000 over two years and yet, (–here’s why the Soviets needed New Zealand) official projections estimated only a jump to for 5,000, and only after ten years. That the Irish and New Zealand examples failed to make it into the Winnipeg study is telling.

In truth, it is not so much deregulation as re-regulation that New Zealand and Ireland carried out. They still require cabs to pass safety checks, driver competency tests. Fares must be displayed on windows and airports still limit which cabs can solicit passengers at their terminals to prevent overcrowding and to give unprepared travelers a predictable market.

In line with these practical experiences, an overview study of 28 papers by professional economists found 19 in favour and two ambivalent about removing restrictions, but politics lies between theory and practice. The Irish had to prevail over taxi driver street blockades and court action; New Zealand’s re-regulation took place amongst a maelstrom of much greater political changes. Winnipeg too will need leadership from its provincial and municipal policy makers if taxi market reform is to work. Then perhaps Winnipeggers will one day have an explosion of choice and fair prices.