The Role of Taxis in Urban Transportation

Worth A Look, Regulation, Frontier Centre

The malaise of the taxi market in Winnipeg is a symptom of a much larger problem facing urban transportation in Canada. The Tennessee Transportation and Logistics Foundation (TTLF) report to the Manitoba Taxicab Board documents why the status quo is no longer acceptable. It presents some recommendations, but in terms of a comprehensive solution to the chronic complaints about taxi service in Winnipeg, the TTLF proposes only tinkering at the margins. The time has come for modernizing the regulation of urban transportation across Canada, and especially in Winnipeg.

The TTLF report is very cautious for three reasons. First, it attempts to tweak a regulated taxi industry that has been found wanting. The artificial shortage of cabs inflates the value of the taxi licences and creates a seasonal scarcity of cabs when the public most needs them. The TTLF focuses more attention on the welfare of 410 taxi licence holders than the 750,000 residents of Winnipeg that the taxis are suppose to serve. Winnipeg is the only city in Canada where people don’t even bother trying to hail a cab on the street.

Second, the TTLF relies on dated literature (prior to 1992) that espouses a skeptical view of competition in transport markets. These writings reflect the early experience of deregulating intercity transport (truck, rail and air). The transition was turbulent. Established businesses were forced to adapt to a more competitive market, but prices dropped and service improved measurably. Since the focus of federal transport regulation changed from who delivers the service to how the service is delivered, truck, rail and air carriers have made steady improvements in productivity.

In contrast to efficient intercity transport, regulated urban transport systems operate much the same way as they did 50 years ago. If the TTLF had looked at the more recent literature on deregulated taxi systems in New Zealand and Ireland they might have come to a different conclusion. Regulators in these countries focus on safety and let supply and demand determine taxi numbers. The experience of deregulated taxi markets is closer to the success of intercity transport than to the fears expressed about deregulation in the early literature on the subject.

Third, the TTLF focuses a lot of effort on one variable — response time of dispatched cabs. This is an important performance measure but only one. Downtown workers, who could take the bus, drive because there is never a taxi to hail when needed to make a few trips out of their office. Too many car-owners risk severe fines for impaired driving instead of taking a taxi. We have an aging population with more people who should not drive, but continue because taxis are expensive and buses are inconvenient.

The logic of the Province of Manitoba regulating taxis in the City of Winnipeg contains no obvious policy purpose. Important synergies exist between taxis and transit systems, but with the exception of handi-transit, they are never embraced. Taxis are banned from the diamond lanes and given no leeway to pick up or drop customers most conveniently. Splitting up jurisdictional control compartmentalizes the urban transport market. All urban passenger services, including transit buses and city streets, should be managed by an independent transportation authority that focuses on the safety, quality and integrity of the customer service.

Lest this sound like a tirade for free-market economics, the author recognizes an important role for public oversight of urban transportation. Market failures do occur and should be mitigated. The TTLF report cautions that without proper regulation “bad taxis can drive out the good.”

The asymmetric market power of taxi drivers and customers creates an opportunity for misbehaviour. Modern technology offers low-cost means to monitor conduct.

GPS data recorders can precisely document the time and routes used by any taxi that tries to take advantage of its customers. Standards for quality, condition and age of taxis must be enforced to ensure that the service is acceptable.

Another potential market failure is the dispatch service because its network economies favour a natural monopoly. The TTLF identifies this problem and the need for a dispatch system that minimizes empty miles and provides unbiased access for large and small taxi fleets. The regulation of a monopoly dispatch service that directs the nearest car to a waiting customer should be separate from licensing and operations of the cabs.

Supporters of the status quo often express the opinion that the taxi market is unlike any other and that its special characteristics demand economic control of taxi numbers and fares. The same claims were made about trucking and the airlines before entry restraints were relaxed and rate controls were removed.

The weight of evidence argues for opening up the taxi market to competitive delivery, and reducing regulation to safety, customer service and the dispatch system. Winnipeggers deserve a taxi service that the status quo is not delivering and that fine-tuning a failed model will not provide.

Barry Prentice is a professor of supply-chain management at the University of Manitoba.