America isn’t the only country to experiment with deregulation. Surprisingly enough, Sweden – that snowy, sunless socialist state – recently deregulated its taxicab industry. Taxis – or, as they call them in Stockholm, taxis – were deregulated in 1990 to mixed results. Fares went up twice as much as the consumer price index, leading to a 22 percent increase in the number of taxis. And more taxis has meant a much lower wait time for the average Sven.
Today, there are a few dozen Swedish cab companies, but only three big ones, creating an oligopoly. Those three operate fairly the same, offering similar rates. Some of the others make their living preying off of drunks and tourists – charging exorbitant fares for less-than-far rides. It’s a problem, but not one with a strong constituency – locals have been screwing over tourists since the days of Lot – so it’s unlikely Sweden will reinstitute some of its beloved paternalistic laws anytime soon.
Sweden’s experience reinforces the notion that the devil is really in the details when you deregulate a market – the smallest mistakes can ruin the reform. And if reading about Sweden’s deregulatory pains has you depressed, don’t worry: Taxi Stockholm now offers therapy along with your ride.
As a result of the recent arrests, the collapse of an insurance company, mayoral pronouncements, and a millionaire venture capitalist playing cabbie, I get to write this once incredibly unlikely sentence: Taxi regulations in Pennsylvania are a suddenly sexy topic.
The surprising interest in the arcane corners of the cabbie code can be traced to the efforts of two companies, Uber and Lyft, to introduce ride-sharing services to Pennsylvania. Uber X (a subdivision of Uber) and Lyft allows anyone with a newish car who can clear a criminal background check to pick up fares using a smartphone app for hailing rides.
Shocking no one, the taxi industry is fighting them at every turn and straight away, not just in Pennsylvania but all over the world. Will the taxi drivers stem the technological tide rising against them, or will they be swept away by the sharing economy? History provides a pretty decent roadmap of our regulatory future.
In Allegheny County, Uber X has been operating under a temporary permit issued by the Pennsylvania Public Utilities Commission, but everywhere else in the state they are considered unlicensed, and therefore illegal, taxis.
PUC once oversaw all taxis and limos in Pennsylvania, and still does across the state except for Philadelphia, where the Philadelphia Parking Authority has regulated rides-for-hire since 2005.
Why are most Pennsylvania taxis regulated by the same agency that oversees the Commonwealth’s electricity, gas, and water utilities? The PPA kind of makes sense – they already deal with cars, after all – but how the heck are hacks a utility?
Why, pure historical happenstance, of course.
Pennsylvania’s first utility regulator was the Pennsylvania State Railroad Commission, established in 1907. Railroads were often the first utilities regulated during the Progressive Era. Railroad lines were – and still are – expensive and difficult to build, often requiring the sale of government land. Huge costs create equally big barriers to entry. Combined with the questionable economics of creating a competing rail line where one already existed, this led to railroads operating essentially as monopolies along their routes, which begged for a regulatory response.
And so railroads became the first widely regulated utility in the US, and the first common carriers – transportation companies that are required, by law, to grant passage to essentially anyone willing to pay.
In Pennsylvania, the Railroad Commission also held jurisdiction over streetcars and telegraph corporations. The Railroad Commission was soon replaced by the Pennsylvania Public Service Commission, which regulated “all utilities” and was itself replaced by the PUC in 1937.
Back then, the streetcar and taxicab companies were in direct competition with one another. According to The Taxicab: An Urban Transportation Survivor, taxi regulations first arose in the States at the behest of streetcar companies, as a way of regulating away competition from jitney cabsthat would run along the same routes of the streetcars.
“The antijitney laws, which, among other provisions, prohibited shared-riding, providing a lasting legal legacy of the jitneys,” wrote the book’s authors, who must have killed it at dinner parties with all their regulatory anecdotes.
From overseeing railroads, then streetcars, and then jitneys, it was just short trip to regulating taxis. “When motor vehicles started also providing transportation services to the public, it only seemed logical back then to place it under the Public Service Commission,” PUC spokeswoman Denise McCracken wrote in an email. “The Public Service Code considered common carriers (carriers offering transportation to the general public) as public utilities.”
There was an obvious need to regulate taxis back then. Price competition forced cab drivers to forego needed repairs and to cheat customers, often literally taking passengers for a ride.* Cabs were unlicensed, uninsured, uninspected yellow deathtraps: the ironically named Henry Bliss, the first person to die in an auto accident in America, was hacked down by a hack.
This was before state law mandated car insurance (introduced in 1984), or regular inspections (1976). In addition to those two major regulations, New Deal lawmakers also instituted price controls and barriers to market entry.
But now that we have addressed the most egregious offenses – lack of insurance and safety measures – does it still make sense to keep taxis in a separate regulatory lane?
Mention Uber or Lyft to a regular taxi driver and they’re likely to react like you muttered some other four-letter word. They have good reason, though. Up until recently, taxi medallions were an excellent investment: Philadelphia taxi medallions have leapt in value sevenfold since 2000. But at the most recent taxi medallion auction, no one was willing to bid for a $475,000 medallion. That’s a devastating sign for drivers, many of whom financed their medallion the way most people would finance a mortgage.
All regulations have the ability to pick winners and losers. When the winners are few compared to the losers – like the number of taxi companies and drivers versus the number of consumers – the gains are concentrated and the pains diffuse. This gives the winners considerable economic incentives to maintain the regulatory system that is benefitting them. It’s what economists call regulatory capture.
Taxi regulations have been co-opted by the cabbies as a competition-stifling tool, rather than a consumer-protection scheme. In Philadelphia, taxis spent a fortune for their medallions and will fight tooth and nail to maintain their value, both as an investment asset and as an expensive license to operate their business. That means opposing any reform to remove regulatory roadblocks.
Now, I’m no Ayn Randian sycophant advocating free markets as a policy panacea. Like being surprised by traffic on the Schuylkill Expressway, that’s just stupid. Sometimes, markets fail and regulations are needed. The question we need to ask ourselves, now and always, is whether a regulated market would serve society better than an unregulated market. Put it another way: do these regulations make sense?
Some cities, following a nationwide trend across numerous industries, attempted in the to deregulate their taxi companies in the late 70s and early 80s. Instead of unleashing competitive forces as expected, prices soared and quality of service declined. Most cities, chagrinned by the experience, quickly re-regulated the taxicab market.
“Open entry increased the number of taxicabs. However, contrary to the predictions of most supporters of deregulation, rates actually rose,” one Seattle-based study explained. “It appeared that increased competition was not benefiting the public with lower rates. One study estimates that the cost of an average trip increased by 35%.” A 1983 paper from the libertarian American Enterprise Institute came to a similar conclusion: deregulation doesn’t always make sense.
So we should expect the same here, right? Slow down there, Travis Bickle. The taxi driver business has changed quite a bit in the last 30 years. As with so many other things, technology has reshaped this market.
When Seattle and the other cities tried deregulation, the ability to really compare taxi prices didn’t exist. As recently as five years ago, passengers would get into the first cab they could flag down on the street or waiting at a taxi stand, and that was that. There was no real negotiation of price, selecting one company over a competitor, or being loyal to a cheaper brand or one that provides a better service. Taxi riders were price-takers, not price makers, and without price competition, markets are inefficient.
But with e-hailing apps, potential pick-ups have the ability to discriminate on price, not unlike the way Tinder allows potential pick-ups to discriminate on my looks. If I don’t like what Uber X is charging, I can look on Sidecar or one of the apps the local taxi companies have recently developed (fueled, no doubt, by their feared new found competitors). At least for smart phone users, price discrimination – a fundamental requirement for working, free markets – exists.
The observant reader noticed a critical caveat with the foregoing: for smart phone users. A market that works for just a few is decidedly unfair, and one that effectively penalizes individuals for not having the disposable income for fancy phones is disgusting. However, if there is a critical mass of individuals with the aforementioned sophisticated phones, the market should work out for everyone – the costs of identifying dumb phone users to exploit will be too great to justify the effort.
That’s why Allegheny County’s experiment is critical. Lawmakers and regulators should craft their regulatory response around Pittsburgh’s test drive of ride-sharing apps. That’d be the kind of sober steering we should expect from our legislature and rides home.
*I asked Dr. Mark Liberman, a linguistics professor at Penn and the man behind the Language Log, if the idiom “take for a ride” came from the practice of unscrupulous taxis driving around in circles. It doesn’t. Liberman consulted the OED and found the first use in Newfoundland around 1925, “I suspect that taxis were thin on the ground in 1925 Newfoundland,” the professor wrote in an email. Another etymology pointed to criminal slang for a car journey for the purpose of murder or kidnapping. “Again, taxis are probably not in the picture,” Liberman said. But “the taxi oversight of the Philadelphia Parking Authority, on the other hand, should definitely be given some retroactive credit.”