TAKEN FOR A $1 BILLION TAXI RIDE

TAKEN FOR A $1 BILLION TAXI RIDE

by Terence Corcoran
Columnist
Toronto Globe and Mail
5 April 1997

No city in Canada is exempt from the shambles created by the ancient
regulatory regimes that govern our taxi industries. In the name of
levelling the playing field and making taxis safe and cheap for
everyone, our licencing agencies have created a bumpy road patrolled
by overpriced taxis operated by undertrained drivers of unsafe
vehicles. Any lessons learned? Apparently not.

Parts of the national taxi mess explode locally from time to time,
sending city officials scrambling to clean things up. In this routine,
everbody works up a pet theory about the cause of the problem - too
many taxis, not enough regulations, incompetent licencing boards,
greedy owners, immigrant drivers, whatever - but nobody ever seems to
land on the real solution: deregulation.

Economists have been working over the taxi industry for decades,
finding the obvious economic problem. David Carr, a transport analyst
for the Consumer Policy Institute, cites two studies that point to the
high cost and distortions of taxi regulation. An Economic Council of
Canada study from 1982 concluded that the licencing and price controls
imposed by governments push up "the cost of taxi service in Canadian
cities by 30 to 50 per cent."

Another study of the economic effects of Tbronto taxi regulation
concluded that consumers pay the price for regulation wbile producers
are protected. Tbe policies limit the supply of taxis, inflate prices,
lower the quality of service, and cause inefficiencies and higher
profits. Despite powerful economic analysis, the push for more
regulation still dominates debate.

A taxi uproar is under way in Metro Toronto, stirred by the Board of
Trade, based on the fact that an inordinate proportion of the area's
taxi fleet is made up of ancient, unsafe and unclean vehicles. Drivers
don't appear to be in much better shape than the cars. All of this is
bad for Toronto's image and tourism. The solutions offered in Toronto,
however, appear to be limited to mandatory hosing down of both cars
and drivers, removing old cars from the road and tightening some of
the licencing rules.

None of which will work, because these regulatory solutions merely
avoid the core problem. Like most cities across Canada, Metro Toronto
controls the supp]y of taxis by limiting the number of medallions.
These medallions, or plates, are government-created pieces of paper
that nominally represent the right to operate a taxi. In practice,
however, they become like share certificates or bonds, putting a
capital value on the shortage of taxis.

At current market rates, according to my sources, a Toronto taxi plate
is worth maybe $80,000 on the market. The total current market value
of Toronto's 3,400 plates, therefore, is about $270-million. In other
cities, apparently, the value of each plate can be even higher:
$110,000 in Vancouver, $95,000 in Ottawa. A national tally of the
total market value of taxi plates could approach $1-billion.

All taxi passengers are therefore being taken for a $1-billion ride by
the taxi licencing agencies. A significant portion of each fare goes
to pay the owner of the taxi plate a decent return on investment.
Indeed, the value of the plates fluctuates with market conditions and
interest rates, much like a bond. When interest rates were high a few
years ago, and business slow, Toronto's plates were much cheaper,
apparently as low as $40,000.

These market values are for an artificial shortage of taxis created by
a government that restricts supply. Private sector executives can go
to jail for doing this. Instead of fares paying for better cars or
better wages to drivers, the money is going to owners of taxi plates.

If a plate owner controls 60 plates, his investment is worth
$5-million at current market prices. Plate owners do not typically own
the cars themselves; the actua] taxis are usually owned by somebody
else. At current rates, obviously, the $80,000 plate is worth three,
four or five times the value of the taxi. The cars and plates are then
rented aut on a shift basis to itinerant drivers, who must hustle for
long hours to make up the cost of the regulatory apparatus before they
get paid themselves.

The longer these regimes are in place, the deeper the rot and the more
difficult deregulation becomes. Easy though it may be to dismiss the
plate owners as greedy absentee landlords, the system is not their
creation. The owners were actually fulfilling a useful and logical
service under the circumstances.

One solution in Toronto, treating the owners fairly, is to buy them
out. But at $270-million current market value, that option is clearly
out of the question. A better solution would be to phase out the
transferable plate system. In many U.S. cities, plates cannot be sold
or controlled by anyone other than a driver. When the driver dies or
quits, the plate returns to the city and a new driver gets the
licence. But that's a makeshift plan that doesn't solve the problem.

The best solution of all is deregulation of supply and fares. As with
restaurants, governments could licence for safety and driver
knowledge, leaving the number of taxis and the prices to market
forces. The result, would be lower fares and better service.