INDUSTRY IN REVIEW

By Don McCurdy

You broke it, now fix it!

Any regular reader of this column knows pretty much how I feel about micro regulation. Micro regulation? What does micro regulation mean? It means too much regulation of any industry. There are always unintended consequences to regulation.

Well, in New York City many years ago they had a problem, there were so many cabs that people weren't riding the bus. Solution, limit the number of cabs by introducing medallions. Problem solved! Well, not so fast. Yellow cabs were passing up customers on their way to radio calls. Solution, ban yellow cabs from having radios. Problem solved. Well, not quite so fast, then you couldn't get a cab anywhere except Manhattan.

Enter the "livery," or "car service" depending on who is telling the story. Great, now people in the neighborhoods can get a cab, well sort of a cab anyway. But there's still an issue, the people in the outer boroughs, not Manhattan, can't flag a cab because it is illegal for livery cabs to pick you up without you calling a livery base in advance to arrange it.

Why is it illegal for livery cabs to pick up street hails? Well, the city sells yellow cab medallions, a license to do business, for hundreds of thousands of dollars. The medallions are worth it, of course, since that gives the driver exclusive rights to pick up street hails. Yeah, but, (I love sentences that start with "Yeah,but") you still can't flag a cab in the outer boroughs. Solution? Sell special livery medallions that are allowed to pick up street hails in the outer boroughs. So, let me see if I understand, you're going to pass a regulation to fix the problem caused by the regulation to fix the problem caused by the regulation to fix the problem, right?

The yellow cab drivers are up in arms about the new street hail livery medallions and rightfully so. They were sold a bill of goods when they purchased their medallions that they would have exclusive rights to street hails and now the city is changing the rules after the fact. Sound dishonest? It is dishonest, but that's how it is when you make a deal with someone who can change the rules any time he or she pleases.

Examples abound of the government passing well intended regulations that lead to unintended negative consequences, think Fannie and Freddie. The truly amazing part for me is that someone who is reported to be adept at business could believe that more regulation was the answer. I can understand why academics with no real business experience might believe that, but Bloomberg is experienced in business, he should know better. No so, apparently.

It's a New York State bill that will create these hybrid livery cabs, 30,000 of them at $1500 each. Along with that the bill
authorizes 1500 new yellow cab medallions. I'm sure the medallion price will cruise right along until somebody figures out that the city will keep adding them as long as they can get a buck out of the deal. I'm also sure that the value of the livery cab street hail medallions will increase, especially with the inevitable crackdown on illegal pickups.

It can only be politicians that can take your money at the point of a gun and call it revenue. Plainly, the city is cheating the yellow medallion drivers out of their exclusive right to street hails. Nobody is going to complain except the yellow medallion drivers because they don't see the inevitable increase they will have to pay. How so you ask? Well, eventually, the price of the livery medallion will climb and when it does so will the cost to the driver and ultimately to the passenger.

The city will get a one time bump in revenue, but the good citizens of New York City will pay more in perpetuity. The real irony of the situation is that the new medallion livery cabs are slated to collect a 50 cent MTA surcharge on each trip bringing the entire affair full circle to the taxicab industry being forced to collect donations to the very entity the entire medallion system was designed to protect. I guess they just can't get enough protection.

I thought it obvious.

Well, opposition to the DC taxicab medallion plan is starting to heat up. They even had a couple of reporters arrested for trespassing on public property. Trespassing? Is it possible to trespass on public property? Well, if you're videotaping the DC Taxicab Commission you can be arrested for trespassing on public property.

Currently, DC has taxicab companies that have to cater to the needs of the drivers or the drivers go somewhere else or simply go independent. There are government workers that drive their cabs to work and provide taxicab service only during the busy periods, a feature lacking in tightly controlled markets. Nobody is controlling the industry and its thriving. How is that wrong?

Need to see what happens when you switch to medallions? Look at New York City. They are constantly having to tweak the beast they've created. Why would you want to get involved in that? When you shove the little guy out of the industry and limit competition that is always bad.

One article billed the medallion system as a fix for a "non problem." Fares go up, service goes down, rider satisfaction goes down, availability goes down and driver payouts go up. Where is the overriding impetus for this government intervention into the market? I realize that it has become fashionable for government to interfere in business for the "good of the people," but how much more "good" can we stand? I realize you're in DC, but let's not try to act like congress.

Speaking of solid regulation.

Colorado never ceases to amaze me. Grand Junction taxicab company K2 Taxi is allowed to service trips originating in Grand Junction, but not outside of the city. So, when riders went to a recent concert outside the city limits there was no service to bring them back. Here in Texas you can start up a taxicab company to service unincorporated areas or towns with no taxicab ordinance, with no notice to or requirements from the state. How is that possible? Well, the reality is that most unincorporated areas are simply serviced by the companies of the nearest town. How easy is that? No government expense or bureaucracy required.

How much wasted productivity have the good citizens of Colorado endured in the name of protecting inefficient businesses from competition? The idea that a company can get the government to keep competitors out is unimaginable to me. Perhaps, the upcoming audit of the PUC can shed some light on how they make decisions. It seems pretty obvious that logic isn't involved, so, perhaps, we'll find out.

What will we do now?

Reports out of Corning, New York are that the City council will no longer regulate fares. What! How can they do that? For me the real question is how can other cities decide what a business should charge for its product? What level of ego do you have to have to decide that you're smarter than the business owner and should set the price for them? City councils all over the country, who know nothing of the business, make that decision all the time. Good for the Corning City Council. The largest local company reported that they have no plans to increase fares.

I'm the gypsy!

Atlantic City Yellow Cab is reported to be upset that the city isn't doing anything about gypsy cabs. Upset enough to sue. How amazing is that? You have to sue the city to get them to enforce their own laws?

The city has issued 250 medallions which you must have to provide taxicab service. The medallions have appreciated to around 200k. Problem is that the limousine companies are providing taxicab like service for higher prices and no medallion. Once again limiting supply has proven to cause problems.

It has long been my contention that cities regulate the willing and have neither the desire nor ability to enforce the laws they enact. It's all about the revenue. Cities are basically looking for something for nothing. Add a franchise fee or license fee and nobody complains, at least nobody beyond those who require a license. Now, here comes the franchisee looking to get something for their money, like enforcement of the requirements that they are in compliance with. What are they thinking?

C'mon and take a free ride.

Amarillo Texas has a taxicab ordinance. That ordinance states that you can't give free rides. Well, those scofflaws at Jack and Son's Family Taxi have been giving away free rides despite the ordinance and have now been warned by the police that what they're doing is illegal. Is this an unfair business practice to undermine their competitors? Well, no. A cheap publicity stunt? Well, no. It's just charity. Apparently they take the term "Family" taxi in their name pretty seriously, and are mindful of the income level of some of their customers. God bless them. Can I say that still? I'm not exactly sure how the good citizens of Amarillo are being protected by this ordinance, but there are a lot of things I don't understand.


If you have any comments regarding this or any of my articles please feel free to contact me at dmc@mcacres.com. —dmc