Driving Off Economic Opportunity
Los Angeles is making a grave mistake in choosing to step up enforcement against unlicensed taxis. The answer to the city’s problem is less regulation, not more.
The Institute for Justice currently represents “jitney” van drivers in New York City and would-be limousine drivers in Las Vegas. We have helped Denver, Indianapolis and Cincinnati open their taxi markets and have studied transportation in many other cities. From all this experience, I can say that taxi and transportation regulation is one of the last bastions of central planners--people who believe they know better than consumers how much of a product or service we need (2,303 taxis in Los Angeles, for example) and exactly who may produce that service (large companies only, thank you). This discredited theory disappeared throughout Eastern Europe but lives on in our government transportation agencies.
All around the nation, taxi authorities are controlled by companies already in business, and regulations merely serve as a way of protecting these insiders from competition. In city after city, the number of taxis is held artificially low and the costs of starting a taxi business artificially high. The results of these government actions are always the same: insufficient service for consumers, excessive costs of entry for new entrepreneurs and exhausted drivers who have to work outrageous hours to make their payments to the large companies that employ them.
The inability of regulators to comprehend this is staggering. For many Los Angeles residents, taxis are impossible to find. When my mother ordered a taxi recently, more than an hour in advance, it arrived late enough to make her miss her appointment.
In its feeble attempt to respond to the need for more taxis, the city plans to auction just over 200 permits. Apparently unable to understand fundamental principles of supply and demand, the city’s new taxi administrator is “unwilling to concede,” according to a recent Times article, that the presence of between 1,500 and 4,000 illegal taxis means that there is an unmet need. This judgment ignores an economic truth so basic that even city bureaucrats should know it: If there are 4,000 illegal cabs willing to risk fines and possible arrest, that means, of necessity, that there is a market for at least that many more taxis.
L.A.’s increased enforcement is a reaction to a fatal accident by an uninsured, unlicensed taxi. Such incidents are an inevitable result of the city’s prohibition on new entrants: Unable to legally break into the market, but also seeing a demand for their services, people begin driving taxis illegally. They are forced to remain underground, however, and securing commercial insurance, business licenses and paying taxes all may subject them to unwelcome scrutiny. Even the best business practices and safest cars won’t get them a license, so why bother?
Taxi driving should be a perfect small business for a responsible person with a little capital. Instead, Los Angeles’ policies tell such people that they can work as employees, but not business owners. Rather than imposing a severe crackdown on unlicensed taxis, the city would be better served by issuing certification to any taxi operator who possesses insurance, a safe vehicle and a clean driving history. Such common sense reform would improve service for consumers and opportunity for drivers, but it requires existing companies to face competition and regulators to loosen their control over others’ lives.
Let taxis join that long list of businesses--including restaurants, computer companies and retail stores--that operate without central planning. Los Angeles should have the vision and courage to remove its barriers to entrepreneurship on its city streets and make them true avenues of opportunity.
