Taxi Regulation and the Failures of Progressivism

February 16, 2012

The Progressivism that first appeared in the 1880s and 1890s had at its heart admirable goals.  The movement sought to root out the nepotism and corruption that characterized politics and to create professional oversight over public services.  However, these policies have led to a public sector that is dominated by political interests and rife with inefficiencies, says Samuel R. Staley, associate director of the DeVoe Moore Center at Florida State University.

This is extremely evident in the various systems of regulations that govern taxicabs in many American cities.  Admittedly an unusual example, taxis operate under a cumbersome political system that distorts incentives, depresses driver wages, imposes nonsensical requirements and protects large market participants.

  • As a recent survey shows, regulations vary drastically between cities -- no single rule was present in a majority of cities surveyed.
  • Fewer than half the cities surveyed required fares to be set by distance-based meters.
  • Forty percent regulated logos and taxi colors, or mandated radio dispatching.
  • One-third capped the number of vehicles, required public hearings for licenses, or mandated service hours or physician certificates.

One of the most onerous means of control that cities exercise over the industry is limiting the number of taxicabs that it licenses for use within the city.

  • An "optimal number" of cabs is often set by a city commission, staffed by bureaucrats and regular citizens with little knowledge of the industry.
  • The presence of a cap on the number of taxis creates a barrier to market industry that depresses supply and increases returns for companies that are already in the market.
  • Medallion coins, which are given upon licensing of a taxicab, are often sold in the black market for large sums (two New York coins sold for $1 million each in October 2011), yet such a market would not exist if this "optimal number" truly had been reached.

It bears mention that the commissions that establish these rules are often advised or even partially filled by representatives of already-existing taxi companies.  This allows those businesses to hijack government institutions in order to create barriers to entry and reduce competition.

Source: Samuel R. Staley, "Taxi Regulation and the Failures of Progressivism," Foundation for Economic Education, January/February 2012.

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