Boston’s cabbies are justifiably angry. They can’t afford the $380,000 it takes to buy one of the 1,825 medallions the city allows – essentially a license to operate a taxi, given out by the Hackney division of the Boston Police Department – so they have to lease them at rates of $500 per week from businessmen who own scores of medallions. They have to buy their own run-down cars to use, pay for their own gas, the city sets what fares they can charge, and as a result of all this, their net income after expenses is a pittance. So they work 12-16 hour shifts, barely scraping by, without hope of building equity because they don’t own their medallion.
Other regulations state that they can’t pick up passengers in surrounding cities, so if they drop someone off in Cambridge they have to drive back across the Charles River, passing by any hopeful people standing on corners, desperately trying to flag down a ride into Boston. To make ends meet, they sometimes disobey the laws and pick up people anyway. It's called "fare poaching" and it's a $500 offense in Boston.
On the other side, customers are angry too. All those desperate potential customers see is an empty cab blowing by. It's often difficult to tell that a cab is in "enemy territory" and that it's illegal for that taxi to stop. Within each city, there are woefully too few taxis available. If by chance one does stop to pick someone up, the cab is broken down, dirty, smelly, the driver is rude, he doesn’t know where he’s going, and it’s very very expensive. Boston currently has the third highest rates in the country, and the cab driver’s union (United Steelworkers) is requesting a new hike that would put the rates higher than any city.
What is the solution? Some are calling for more medallions, but the city has been very slow to move on that idea, and most involved agree that it won’t help much, and won’t lower the cost of purchasing one enough to open the business up to individual owner-operated cabs. The poor quality of service has led some to call for a “Passenger’s Bill of Rights”, and the union has countered with a call for a “Driver’s Bill of Rights.” The drivers want a rate hike, and the passengers want fares lowered and quality increased. In crude terms, it’s a royally screwed up situation. But why?
The problem is with the medallion system itself, and the myriad regulations that go along with it. The government caps the supply of taxis, imposing an artificial scarcity, driving up the cost of starting a cab business immensely and skewing the entire "market" from the very beginning. In a Boston Magazine article from 2004, Chris Berdik writes, “Medallions were introduced in the 1930s to curb a glut of cabs on city streets. The number was capped at 1,525 and remained there for six decades until a 10-year legal battle led to 260 more being sold at auction in the late 1990s.”
As a result of this artificial scarcity -- with a supply that has changed little in nearly 80 years -- all the other strange problems start popping up. The government adds a regulation here or a price hike there to try and fix things, and new issues crop up. Eventually we see a system that is horribly complex, incomprehensible, and basically unfixable. That is, until we start talking about deregulating the industry and abolishing the medallion scheme.
The government must get out of the way. It should not be interfering in this market at all. Fundamentally, it is violating the property rights of any person who wants to start a business carrying passengers from one location to another. On this principle alone, the entire corrupt bureaucracy should be demolished. But for those who refuse to recognize an argument based on core principles and individual rights, think of this: it would work better, too.
A Free Market Example
There is already an example of a quasi-free market for taxi service in Boston. Limousine services are mostly free to operate in the city, and the stipulation is that they can only do scheduled pickups; they can’t drive around looking for fares. But as far as I know there is no limit on the number of limos in a company’s fleet, and thus the supply is determined by market forces and the goals of the business owners.
People love the limo services because the cars are immaculate and the service is excellent. Companies like Boston Coach, which is owned by Fidelity, can respond to the market in whatever way makes sense. They can treat their vehicles as simple assets and their drivers as regular employees, selling cars or laying off workers if they have excess capacity. It's a rational response to market conditions, unaffected by the irrational condition of having sunk $380,000 into a government license to operate each vehicle.
At the same time, a smaller business owner could start up a competing firm, without having to wait until a medallion owner dies first. If they offered better limo service or lower fares, and there was a market for their products, they could start to take a bite out of the business of the larger firms like Boston Coach. It’s a free market. The businesses make money and the consumers benefit with lower prices and better service.
Under the current medallion scheme and the pressure of rising gas prices, some people are calling for a city-mandated conversion of fleets to hybrids, allowing the drivers to save gas money. Lost on the hybrid advocates is the fact that they are suggesting yet another government regulation dictating how property owners use their own property. Of course hybrids are also smaller (less room for passengers and luggage) and much more expensive up front. Remember also that the cabbies who lease medallions have to buy their own cars.
If the medallions were abolished, then the individual business owners could decide for themselves if it made sense to invest in hybrids. Or they might come up with other innovative ways to save money and gas, similar to what UPS did in reducing gas-wasting left turns.
Another innovation-crushing aspect of the whole medallion scheme is the set of absurd regulations imposed by the City of Boston, such as mandating that the trunk of every cab be painted white. One example of the absurdity of government regulation stifling progress is that drivers cannot accept credit cards. They aren’t allowed to. Why not? Who knows? It’s a bureaucratic quagmire; think innovation by committee, which means no innovation at all.
An acquaintance of mine is wheelchair-bound. She has a terrible time finding taxis in the city that can accommodate her wheelchair, and if she happens not to call hours in advance or has an emergency, she might be completely out of luck. There are so few vans in the Boston and Cambridge fleets that are handicapped accessible that it’s nearly impossible to find them.
If taxis were able to operate in a free market, then the market could respond to the need for accessible vans. Perhaps they’d charge more or less. Perhaps there would be a niche service that dealt only in that market. It’s hard to say, but if there was a need, then businessmen would find a way to exploit it to their benefit. As a natural outcome, the customers would benefit too. As a side note, it’s ironic that city, state and federal governments are so concerned with enforced accessibility and regulation, and yet their own over-regulation of business is causing problems for the very people they claim to work for.
The Simple Solution
In countless examples, the free market has shown itself to work better than any government scheme, both for producers and consumers. More importantly, the only proper function of government is the protection of individual rights, and the medallion scheme is a massive intrusion and violation of those rights. The only moral and just course of action – and one that would solve all the seemingly unsolvable problems faced currently – is to dismantle the medallion bureaucracy and open up the taxi business to full and free competition.