Political Hacks

How taxi licensing drives up costs while enriching special interests

Suppose you're the owner of a taxicab company in a largish metropolitan area. One day you notice some taxis tooling around town—and they're not yours. They belong to an upstart competitor. His cars are newer, his drivers are nicer, and his fares are lower. Pretty soon your profits start shrinking. What are you going to do about it?

You have a couple of choices. Option A: Invest a lot of money in new vehicles, customer-service training for your drivers, GPS systems to map faster routes and so on. A lot of expense. A lot of effort.

So you go for Option B: Invest a little money in a few politicians, who adopt a medallion law: Only licensed operators with city-issued taxi medallions may operate cabs. The oldest cab companies get first dibs on the medallions, at the lowest rates. Only a few medallions are left over for the new guy, and he can't afford them anyway. Bingo—your competition problem is solved. The customers might not like it, but what are they going to do—walk?

That story has played out in many cities across the United States, with sometimes amusing variations. A decade or so ago, Minneapolis (population 300,000-plus) allowed a grand total of 343 taxis to operate until Luis Paucar, an immigrant, filed suit. The city council decided to allow another 45 cabs. Then the existing cab companies sued, using the creative legal theory that they had a constitutional right not to face competition. (They lost.)

Now it's the District of Columbia's turn. Four members of the D.C. City Council have introduced a bill that would create a medallion system for the nation's capital. Medallion prices would start at $250 for the most established taxi companies and, for the newer entrants, run as high as $10,000. At least initially. As time wore on, it's likely that the price of a medallion would go up for everyone. That's what has happened in places such as New York, where a government permission slip to drive a cab costs about $600,000. In Boston, which initially capped medallions at 1,525 in the 1930s—and more than a half-century later had added only 250 more—a medallion will cost you $400,000.

At present the District has more than 10,000 licensed taxi drivers; the proposed legislation would establish only 4,000 medallions. Needless to say, such artificially imposed scarcity also drives up prices. A study by Natwar Gandhi, the District's chief financial officer, found that fares in cities with medallion systems are 25 percent higher than in cities with open taxi markets.

By the way: According to The Washington Post, one of the measure's sponsors is former D.C. mayor Marion Barry, who told the newspaper the bill "was written by John Ray, a former council member representing a coalition of cab owners and drivers." Surprised? (Ray also represents another of the bill's sponsors "in the separate matter of still-unresolved questions about his nonprofit.")

Believe it or not, D.C.'s current system represents an improvement over the old zoned system, created in 1933, whose zones consisted of concentric circles around central D.C. Zone 1 encompassed the White House, Capitol Hill, and Union Station. The old system was written by—here's another surprise—Congress.

By the time Michigan Sen. Carl Levin grew weary of the system in 2006, the District had 23 flat-fee zones that were both confusing and convoluted: A trip of several miles within one zone could cost less than a trip of just a few blocks that crossed zone boundaries. Passengers understandably worried a driver might take them for a ride figuratively as well as literally by driving across zone boundaries when it wasn't necessary. The shift to a metered system occasioned a great deal of hand-wringing over what rates should be, where to set the drop fee (i.e., the minimum initial charge), and so on.

Given the concentration of government power in the District, it should not be surprising that apparently no one has even considered adopting a laissez-faire approach. Under such a system cabbies would offer a range of services and prices—offering pristine limo rides at exorbitant rates at the high end, buck-a-seat trips in crowded Econoline vans at the low end, and everything else in between. The District would ensure that the vehicles are safe and the meters aren't being tampered with to defraud customers—and let the market sort out everything else.

For that to happen, politicians would have to recognize they don't need to run absolutely everything. Try selling that idea in the District, and you might get a free ride—to a padded cell.

A. Barton Hinkle is a columnist at the Richmond Times-Dispatch. This article originally appeared at the Richmond Times-Dispatch.