Ride-hailing companies like Uber and Lyft again made headlines this week. In Pittsburgh, Uber announced plans to begin the world’s first self-driving vehicle pilot program.
Meanwhile, in the incorrigible liberal bastion of Massachusetts, taxi-friendly lawmakers passed a first-of-its-kind rideshare tax that will transfer profits from successful ride-hailing companies to the foundering taxis they are putting out of business.
It’s a tale of two “firsts” that perfectly captures the dynamic of the ride-hailing industry: innovative companies pushing the envelope, and entrenched taxi interests calling for the arm of the state to stifle this unwelcome competition.
Earlier this month, Massachusetts Gov. Charlie Baker, a Republican, signed into law a new measure imposing a 20-cent tax on every ride offered by a transportation network company, or what are colloquially known as ride-hailing companies. Half that sum would be returned as revenue to the commonwealth’s various towns and cities, while the state would retain a quarter of the revenue to finance a state transportation fund.
What becomes of the remainder? For each ride that Uber, Lyft, and other ride-hailing companies provide, they must pay 5 cents to subsidize the very taxi companies they are competing against. Uber and Lyft alone provide an average of 2.5 million rides every month in the state; at that rate, Massachusetts now requires a $1.5 million annual transfer payment to the state’s taxi companies via the Massachusetts Development Finance Agency. It’s an arrangement that invites cronyism in an industry infamous for it.
Lawmakers attempted to hide the tax from passengers by banning ride-hailing companies from passing on the cost to consumers, but these companies will almost certainly find a way to do just that. For those keeping track, that’s a $6 million total annual tax hike on riders.
The state wants taxi companies to use their share of this revenue to improve their services and invest in new technologies that will help them to compete with rideshares. It’s a scheme that boils down to robbing Peter to pay Paul, in the hopes that Paul can use Peter’s money to eventually run Peter out of business. And while it is certainly a novel approach, efforts by state and local politicians to prevent upstart ride-hailing companies from competing with taxi companies are not.
Rise of Taxi Cartels
For the better part of a century, the taxi industry was one of the least competitive in the nation. Beginning in the 1920s, cities faced tremendous pressure from established taxi companies that wanted protection against competition from surging low-cost cabs. Officials responded by employing taxi “medallion” and other similar permit systems. The goal was to restrict the number of taxis that were allowed to operate within their borders, regardless of demand.
Wherever this protectionist bureaucratic meddling occurred, the result was the same: The taxi industry was turned into a powerful, politically connected, state-sponsored cartel. Without competition, incumbent taxi firms could charge above-market prices while allowing quality to slide. In fact, a report prepared in 2014 for the city council of the District of Columbia noted that in every city with medallion-type entry barriers, passengers were subjected to “longer wait times for taxis, more non-responses to phone requests, less clean vehicles, poorer quality of service, and higher fares” as compared to deregulated cities.
Rideshares Break the Mold
The rise of ride-hailing challenged this dynamic. Entrenched companies reacted with calls to ban ride-hailing services, or regulate them so heavily that they could not operate. Politicians, most notably in New York City, have responded in earnest, and have tried repeatedly to shut out Uber and its brethren.
While the latest chapter in that tired saga played out in Boston, another significant development was taking place 600 miles away. Uber announced that within the next few weeks it will begin deploying 100 self-driving cars in Pittsburgh.
Autonomous vehicles are a promising new technology that, when successfully deployed en masse, could dramatically improve vehicular safety, reduce accidents and congestion, and allow ride-hailing companies to offer service at prices even lower than today’s fares. Those picked up in the company’s specially modified Volvos and Ford Focuses will be among the first passengers in the world to be picked up by a driverless car (there will still be an Uber driver present, hands on the wheel and ready to take over if needed).
Time to Deregulate
It is telling that at the same time that entrenched taxi interests were barnstorming Boston, demanding that Uber be banned, and legislators were “compromising” by simply redistributing rideshare companies’ wealth, Uber was deploying a beneficial new technology that may represent yet another sea change in for-hire transportation. This is hardly surprising since, as New York City’s comptroller put it when describing cab operators in the Big Apple, “rather than invest in technology, these Yellow cab companies were investing in politicians.”
That strategy worked for entrenched taxi operators for decades, but the genie is out of the bottle. Rideshares have shown that better service can come with a lower price tag. It’s time to deregulate traditional taxis so they can compete through innovation and price reduction rather than rely on cronyism and protectionism to survive. If they cannot, then they should be allowed to fail. Just like typewriters, horse-drawn carriages, and the telegraph before them, outmoded technologies and services are frequently superseded by newer, better replacements.
Politicians and taxi interests can stall this march of innovation, but they cannot stop it. Taxes and protectionist schemes will not save the taxi industry; only competition can do that.