Ottawa’s taxi industry is a mess. We have an archaic plate system that limits service. We have business interests working to entrench their power. And we have city councillors unwilling to fix the problem.
It is easy to see where we went wrong. Our plate system institutionalizes a cartel, capping the number of cabs on the roads. Scarcity has become public policy, and with demand unable to keep up to supply, councillors must cap fares to eliminate the otherwise inevitable price gouging. The regulatory mess that the city has created — and has failed to reform — hurts customers, discourages new entrants to the market and impoverishes drivers.
Regardless of the demand that residents and tourists may have, our leaders have decided that the industry will only supply a certain number of cabs. This lack of competition means that existing taxi plate holders have little incentive to cut costs, improve efficiency or improve the quality of service customers receive.
Further, the plate system has facilitated a grey market in which city-issued plates are sold or rented for thousands of dollars. If you want get into the taxi business, you have to pay the gatekeeper. Plate holders can get rich through special status gifted by the government. It’s basic rent-seeking, and profiteers are exploiting this public privilege.
We are, in essence, paying plate holders to give us sub-standard service.
This also hurts new entrants to the market, confident that they can provide good service, balancing the twin demands of efficiency and quality. Generally, we understand that an open, free market is the best and most efficient manner to determine the allotment of resources to a specific good or service. But not when it comes to cabs, apparently. Taxis must be restricted, and prospective drivers must be discouraged from earning a living.
As it turns out, this system is also harmful to current drivers. Fares have been frozen for a few years, but costs — gas, insurance, plate rents — have not. The cost of operating a cab can now run over $10,000 a year. With such a burden, it is quite understandable that cabbies will want to charge a price that both covers these costs and provides them appropriate recompense.
And so it is that last week, the taxi driver union requested a fare increase of seven per cent. I have no idea if this is appropriate.
And neither do you.
Source : Ottawa Citizen