February 18, 2012

ANY ECONOMIST would say that the free market should determine the price and quality of goods and services. But, as any economist will also tell you, there are exceptions. Cases of “market failure” — natural monopolies such as electric power utilities — call for government regulation.

Consider taxis: When you’re out in the rain, looking for a ride home, you don’t shop for a cab; you take the first one that comes along. If you’re an out-of-towner, you pretty much have to trust the driver to take the most cost-effective route. These realities explain why urban taxis have been regulated since 1636, when King Charles I decreed that only 50 hackney carriages could ply the streets of London — and why the District government is once again wrestling with the issue of cab service in the city.

D.C. taxis are probably the least regulated of any major U.S. city fleet; not until 2007 were they even required to install meters. The upside is an abundance of cabs — more than twice as many per capita as any other city — at reasonable prices.

The downside, however, is ferocious competition for riders, which leads to low profit margins. That can cause underinvestment in driver training or cab amenities, unsafe racing after fares and, in too many cases, refusal to serve less lucrative destinations beyond downtown.

Fortunately, the D.C. Council abandoned the idea, floated by several members last year, to issue a fixed number of medallions, a la Charles I. As the experience of other cities has shown, that would squeeze out independents and deliver windfall profits to a few lucky medallion holders. Now, however, Mayor Vincent C. Gray, several members of the council and the D.C. Taxicab Commission want credit-card machines, global positioning systems, digital manifests and a uniform color scheme.

Supporters, including the hotel industry, say that the long-overdue package will finally bring the city’s cabs up to New York standards, all paid for by a temporary surcharge of up to 50 cents a ride. Meanwhile, drivers will also get a fare hike to offset income they say they lost with the introduction of meters.

These basic outlines are sound; even the fiercely independent owner-operators accept the need for GPS devices and cash-free payment systems. But the drivers fear that expensive changes could produce the same industry concentration as medallions. Given that several people, including the former chief of staff to council member Jim Graham (D-Ward 1), have been sentenced to prison for corrupt dealings involving taxi regulation, such concerns are understandable. (Mr. Graham faced no charges in the case.) D.C. authorities haven’t helped matters by at times bashing cabbies, who are mostly hardworking and honest. Owning and operating a D.C. cab provides a dignified livelihood for thousands of immigrants.

If drivers must install new equipment, why not give them the specifications and let them shop around, rather than have the Taxicab Commission choose a single vendor, as currently contemplated? In-cab advertising screens might help offset the cost of new equipment better than the proposed ridership-killing surcharge would. Yes, older taxis should be periodically retired. But why should the rotation be based on vehicle age, as authorities propose, as opposed to vehicle condition? At the very least, the city could commission an objective study on these and other contentious topics. There’s too much argument by anecdote on all sides of the debate.

D.C. taxis need regulation. The trick is to do it fairly and harmoniously — with due respect for the legitimate interests of D.C.’s drivers and the passengers they serve.