Deregulating the taxi industry? Been there, done that.
In recent months, battles over the taxi industry have adopted a Manichean flair: villainous, politically well-connected, protectionist cartel vs. virtuous, pro-consumer underdog start-up (assuming you consider a $40 billion company an underdog). Nevada recently banned Uber — after the company reportedly failed to obey laws relating to licensing, vehicle inspections and insurance — in a move widely interpreted as being orchestrated by Big Taxi. Florida’s Broward County threatened to arrest ride-sharing drivers and impound their cars unless they start complying with licensure requirements.
These kinds of battles have played out before.
In 1635, England’s Charles I ordered horse-drawn carriages for hire (hackneys) to be selectively licensed in order to “restrain the multitude and promiscuous use of coaches.” This order was promptly ignored, leading to a protracted regulatory fight involving both crown and Parliament.
During the Great Depression, the number of people driving unlicensed taxis surged, as unemployed Americans fled to the informal economy when they couldn’t find stable jobs. (Sound familiar?) Pandemonium ensued. In a 1933 editorial, The Washington Post railed against the rising accident rate caused by undertrained drivers; lack of liability insurance when accidents did occur; intolerable congestion; and few protections for drivers who logged “sixteen hours per day, in their desperate efforts to eke out a living.”
The District and other cities soon enacted laws to address safety, liability and traffic concerns. As decades passed, though, local livery regulators became overgrown and corrupt, and Americans grew disgusted with taxi cartels that rarely seemed to prioritize consumer interests.
Starting around the mid-1960s, a new wave of deregulation began. About two dozen cities dramatically deregulated their livery industries, allowing for the massive entry of new cabs and lifting restrictions on fare-setting, licensing and other requirements — such as having to serve poor areas. Innovation and competition were the name of the game. (Again, sound familiar?)
Alas, as legal scholars such as Paul Stephen Dempsey and others later documented, this Wild West approach proved disastrous. Taxi entry surged. But, unexpectedly, prices rose in every single deregulated market. This likely happened for several reasons: Government regulations, it turns out, had been capping prices below market value (especially in underserved neighborhoods); fares were relatively opaque and unpredictable; and consumers were reluctant to price-shop or interrogate drivers about their insurance and safety records. They just hopped into the first available cab.
Over time, traffic and pollution became bigger issues, incomes fell as individual drivers secured fewer rides, and service declined. By the early 1990s, nearly every city had re-regulated.
A generation later, the cycle is repeating itself.
Consumers are again disgusted by Big Taxi and its resistance to innovation. Impressed by well-heeled, Silicon Valley-backed services that frequently prove more reliable and — at least for now — cheaper, consumers and pundits cheerlead for tearing down Big Taxi and converting the livery industry into a laissez-faire paradise. They praise Uber, and other “sharing economy” companies embroiled in similar battles, for ignoring inconvenient laws, as if such actions were a form of civil disobedience. Those of us who question why new entrants should be unilaterally exempted from safety requirements and tax bills are dismissed as luddites or lackeys of some thuggish cartel.
And when things of course go wrong — workers and consumers get hurt, or taxes go unpaid — policymakers rush to reinvent the wheel by haphazardly restoring regulations once again (such as newly requiring people who drive passengers or rent properties to carry insurance, which should have been a no-brainer all along). That is, they do so if the newly politically connected interests — “sharing economy” companies and their lobbying partisans – let them.
Look, there are indeed lots of dumb, expensive regulations on the books, many of which have been crafted to protect commercial incumbents rather than the public interest. But the solution to bad regulation is not no regulation. It is good, thoughtful regulation that carefully considers our public welfare goals and how best to achieve them. And then it is regularly updating those laws so the regulatory apparatus doesn’t get captured by industry, thereby rebooting the same cycle of consumer disgust, deregulation and half-baked re-regulation.
Despite popular narratives, neither the protectionist incumbent nor the cowboying, anti-regulation upstart is “pro-consumer.” Both are pro-profit-making, which sometimes aligns with consumer interests and sometimes doesn’t. It’s government’s job to figure out which rules of the game actually serve consumers — and workers — best in the long run.