Commentary

New York Taxis Should Be Targeting Regulations, Not Uber and Lyft

Jason Snead
By Jason Snead | July 16, 2018 | 8:37 AM EDT

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When will New York City learn that heavily regulating the taxi industry is the source of its ills, not it’s salvation?

Not any time soon, apparently. After a brief respite, city leaders are returning to a favorite pastime: concocting new ways to rein in ride-sharing’s free-market revolution and protect a beleaguered political ally, taxi medallion holders.

In cities across the country, medallion owners have fought to get rid of their ride-sharing rivals, preferring legal bans to free markets. They have gone so far as to argue in court—presumably straight-faced—that they literally own the for-hire market, and that competing against them is illegal.

The reason for medallion owners’ antagonism is clear: They blame ride-shares for causing the value of their medallions to plummet.

A medallion is two things: a legal license to operate a taxi, and a mechanism for strictly limiting the number of cabs allowed in a city. In New York, there are only roughly 13,000 taxi medallions.

This artificial scarcity made them a tremendously valuable commodity that grew in price over time. Four years ago, medallions sold for more than $1 million in New York City. Then came Uber, Lyft, and other ride-sharing companies.

Today, the same medallions are worth less than $200,000. Since medallions are typically debt-financed, many owners are now stuck with upside-down loans they cannot afford to pay off.

It is perhaps understandable that taxi firms have spent tremendous time, effort, and legal fees trying to force courts and governments to roll the clock back. But the shortcomings of this strategy are readily apparent: While taxi plaintiffs suffered a string of legal losses, app-based companies that concentrated on winning over customers have seen ridership soar.

Now, that consumer-friendly dynamic may be changing.

So far this year, six taxi drivers in New York City have taken their own lives, sometimes citing their struggles and financial misfortunes. Unions and medallion holders have turned these tragedies into rallying cries, blaming competition from ride-sharing companies for their deaths and demanding city officials take new steps to protect their business interests and rein in their competitors.

City officials are responding by resurrecting old ideas to cap the growth of ride-hailing, hit drivers with fees they must pay for the privilege of driving for ride-sharing companies, and lock drivers into a single app platform.

 

Readers might be forgiven for thinking such policies, though reactionary, are the result of heartfelt sympathy for struggling cab drivers. But these ideas are neither new, nor designed to benefit the average taxi driver. In fact, New York City has long been intensely hostile to free markets and competition in for-hire transportation.

The city established its medallion system in the 1930s, arguing that markets did not work and the government needed to step in with supply caps and heavy regulation. There’s a lot of evidence to suggest those claims were dubious even at the time, but they have since been thoroughly discredited by ride-sharing companies, which, no matter what you think of them, are decidedly market-driven.

Not only have these firms survived without heavy-handed regulations and strict, bureaucratically-controlled supply caps, they have thrived, creating hundreds of thousands of jobs and delivering billions of dollars in consumer surplus to riders each year.

Of course, the current narrative pushed by many is very much the opposite: that free markets, competition, and corporate greed are running taxis out of business, leaving behind a vulnerable and out-of-work, largely immigrant community driven to suicide for want of options. As they tell it, only government regulation—and presumably the perpetuation of medallions—can stop these iniquities.

But the medallion system is not the source of salvation. It is the seed of the industry’s suffering.

Most New York taxis are not, in fact, driver-owned. The majority of medallions are owned by fleet operators, and drivers must pay these owners steep upfront fees to get a shift. That’s right—they actually pay for the privilege of working.

When Washington, D.C., rejected a proposal to establish a medallion system in 2011, it did so in part based on an official report from the city’s Office of the Chief Financial Officer, which rightly concluded that “drivers who lease taxicab medallions earn very little after paying lease dues” and that the system would “deprive them of the chance of accumulating long-term wealth through ownership.”

Those who are driver owners, meanwhile, are forced to take out steep loans to purchase a medallion. When they complain about being behind on their medallion loan payments, or owing more than it is actually worth, that pain is real.

But the blame here does not lie with markets, it lies with outdated government policies that forced them to take out the loan in the first place.

Riders also pay the price of medallion systems—literally. Washington officials found that medallion systems lead to substantially higher prices, to say nothing of deteriorating service quality and other highly undesirable effects, like racial discrimination against customers and declining service in poorer neighborhoods.

That is the system to which New York City eagerly clings, one that concentrates all the benefits of taxi medallions on the select few who own them—who also happen to be major campaign contributors—at the expense of everyone else, drivers and riders alike.

Some still insist that medallions give them a perpetual lock on the market that can never be taken away. The law and the courts disagree. There is no guarantee of success in any enterprise.

Perpetuating the medallion system will only cement a cronyist oligarchy, lock another generation of driver owners in government-mandated debt, and force consumers to foot the bill.

It’s time to bring that system to an end. Regulators should step back and let the invisible hand of the market take the wheel.

Jason Snead is a policy analyst in The Heritage Foundation's Edwin Meese III Center for Legal and Judicial Studies.

Editor's Note: This piece was originally published by The Daily Signal.

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