No Need to Regulate High-Tech Taxis: Technology will eventually make Toronto’s taxi troubles quaint.

Commentary, Transportation, David Seymour

It's an industry that is troubled on several fronts. Drivers are divided between those who hold Ambassador plates, which can only be used by one driver and never sold, and those who hold regular plates that can be transferred and used around the clock by multiple drivers.

The Human Rights Tribunal has been asked to investigate whether the allocation of plates will reveal a pattern of racial bias.

Meanwhile, taxi passengers (in Toronto and most major cities) face a type of restriction that is almost unique in the Canadian economy: artificial shortages caused by a statutory cap on the number of cabs allowed to operate.

It's a no-win situation for those in City Hall. Ideally they should remove restrictions on the number of cabs in the same way that OECD reports and surveys of professional economists have suggested, which Australia is discussing with increasing intensity, and actual deregulation experiences in Ireland and New Zealand commend.

However, the privileged will always resist deregulation, and with the value of a Toronto plate last reported at $114,000, plate holders have every reason to oppose it.

Now stop for a moment and imagine a very different scenario: You've just finished afterwork drinks. To be safe, you probably shouldn't drive. Instead of calling a cab you pull out your GPS-enabled smartphone and open an application designed to order cabs. The phone already knows your location. You touch a map to tell it your destination, and your order is out on the network. Drivers in the vicinity are automatically alerted and several respond that they would accept your fare. You scan them, their prices, and the reputations they've built up from previous passengers giving feedback. You make your selection and track the arrival of your cab in real time. When it arrives, you're automatically billed based on either the set price you agreed to when you selected the route, or a per-distance fee based on the GPS-calculated distance travelled.

Science fiction? The technology already exists in the form of iPhone Application Avego Driver for one, and Canadian start-up company TaxiNow, for another.

Half of all mobile phones in the United States are now smart phones, up from 10% in 2008. Ubiquitous smart phones in Canada are one replacement cycle away.

In most industries, such a change would be of great interest to stock market pundits, technology enthusiasts, and soon-to-be-obsolete industry moguls. However, because municipalities play such a heavy role in regulating cabs, it is also an important question of public policy.

Toronto's current taxi troubles are rooted in the impossible choices that all municipalities face when regulating the industry as it stands. It simply is not possible to set a price and quantity that everybody will accept.

The advent of a smartphone co-ordinated taxi network would make the role of City Hall both unnecessary and impossible. Such a network would ensure real price competition, and also give drivers and passengers alike better information than one-size-fitsall regulation can offer. However, the current regulations on price and quantity would not only become unnecessary, but also impractical.

Currently it is easy for authorities to detect rogue operators because the latter must publicly advertise their services in order to reach customers. A smartphone co-ordinated taxi network would be much harder for authorities to police. An outlaw taxi market could function just as well as people on the Internet can copy illegal music and video; the authorities never quite catch up.

The smartphone co-ordinated taxi network will be a boon for passengers, drivers and legislators alike, cutting the current middle men out of the industry and relieving regulators of their necessity. The public policy question is how municipalities will anticipate and deal with the coming disruption.