More Jobs and Better Taxi Service

Commentary, David Seymour, Local Government, Marketing Boards, Transportation, Uncategorized

A dismissive-five word reply – “Just get rid of it!” – was all a busy elderly man bothered to give when I asked what he thought of Canada’s draconian taxi regulations. “Draconian” in no exaggeration and Canada is far behind New Zealand, for example, where two decades ago, Sir Roger Douglas led the most comprehensive deregulation program ever carried out in a Western country. It included removing restrictions on the number of taxis in a city and the prices they could charge.

Years later, there is a good argument for why Canada should do the same.

In my survey of three Western cities, I found that if the number of Calgary’s licenses had grown at the same pace as the rest of the workforce for the last 23 years (the last time new licenses were issued), there would be 2,495 licences instead of 1,311. In Saskatoon there would be 222 instead of 160, and in Winnipeg, 496 licences would exist instead of 410. Instead, the status quo means skyrocketing values for a government-created monopoly position in the marketplace.

A license in Saskatoon now trades for around $80,000. Collectively they are worth almost $13 million. If all those owners sold them and invested in the TSX (–OK, perhaps not right now) they could expect a return of over one million dollars per year. The fact that they don’t suggests they are getting an equal or better return by holding on to their spot in a market that is protected from competition.

There is clearly something wrong with an industry where regulation creates such high barriers to entry. The losers are existing taxi drivers who are forced to rent licenses at up to $100 per shift, residents who face an artificial shortage of taxis, and would-be drivers who would join the industry if they were allowed to by authorities.” In particular, it is the elderly and low income earners who suffer most from taxi shortages.

Removing the entry restriction to the taxi market would result in more taxis, shorter wait times, and cheaper fares, of particular benefit to elderly and low income households who are more reliant on taxi services. It would also increase the number of jobs available to for low-skilled workers who would become cab drivers to meet the currently unmet demand.

In contrast to Canada, Ireland and New Zealand removed price and entry controls from their taxi markets in 1989 and 2000, respectively. The results have been three times as many taxis in Ireland and twice as many in New Zealand. In New Zealand significant extra jobs were created in a time of recession, and fares went down. The Irish found improved customer satisfaction in public surveys.

Removing price controls (extra competition would take care of gouging) would lead to a wider range of services to suit different tastes and budgets, relieving city councilors of the impossible task of setting one price for all.

As a hard-up student living in a deregulated taxi market, I knew which companies I could afford and I was prepared to put up with old cars and drivers who had a limited knowledge of the city. My girlfriend’s well-to-do and cautious parents insisted she travel only with a cab company which used late model sedans and where the driver wore suits and who knew every street. Freed-up competition and prices meant different people with different needs and priorities get the kind of service they want.

Deregulated prices mean that drivers and companies can set deadhead charges and fares so that all trips are equally worth their while. Short trips, remote locations, phone orders, all get served equally in a price deregulated market. The alternative is waiting a long time or forever for a cab at a politically-set price.

Despite the proven benefits of taxi deregulation, the political hurdles are still significant. Open entry means that licenses lose their scarcity value and fall to zero. A change would benefit many drivers who currently have to lease a license off “magnates” who often own many taxis; it is taxi magnates who the strong incentive to influence the debate—to the detriment of the public.

Job opportunities for low-skilled workers entering an expanded market mean competition for incumbent drivers. While deregulation would benefit a lot of people a little bit, it would hurt a small number of people a lot. Last year taxi drivers in one city crammed into a council meeting to protest 10 additional licenses being issued. In Ireland, drivers opposed deregulation with road blockades and a series of court cases. But in the end, the politicians did the right thing and Ireland is better off for it. Canadians deserve the same leadership.