Regulation stifles innovation, resulting in poor-quality products at higher prices for consumers. And removing long-established regulations takes a massive effort, usually driven by obvious massive benefits that an emerging new industry offers.
That’s the difficult situation ride-sharing services Uber and Lyft are facing today as they attempt to provide an alternative to existing taxicabs.
While the concept of private individuals using their own cars to transport passengers for money may seem like a new concept, it’s not. It first happened a century ago, as the mass production of the automobile suddenly saw an estimated 62,000 “jitneys” — slang of the time for a nickel, the typical streetcar fare — operate in 175 cities across the country.
Jitneys didn’t last long, though. They effectively were regulated out of existence across the country by 1918, in large part to protect the better politically connected streetcar industry. Since then, taxicab companies have faced regulations, usually from local governments, with the usual result protecting existing cab companies from competition.
Where the absurdity of such regulation reaches its zenith is at many cities’ airports. The situation at Charlotte Douglas International Airport is typical. In 2011, the Charlotte City
Council approved a special set of regulations on cabs operating at the airport. The justification was that the cabs running in the Queen City weren’t nice enough and would give visitors a poor perception of the city.
The solution: Upgrade a limited number of cabs to a nicer standard, with special markings showing they are allowed to pick up fares at the airport. Only a limited number of companies — three to be exact — were permitted to operate cabs that could pick up passengers at the airport.
This is madness. These limits let the city pick winners and losers. The companies allowed to operate at the airport make a lot of money; those that aren’t have a huge disadvantage compared with the favored companies.
Not surprising, the winning cab companies are generous political donors. Patrick Cannon, who in 2013 was elected mayor of Charlotte, received 10 percent of his total campaign contributions from the taxicab companies selected to operate from the airport. There had been allegations that now-former mayor and convicted felon Cannon, who soon will begin serving a 44-month sentence on public corruption charges, may have tried to shake down cab companies wanting to get in on the airport action.
Even if the charges aren’t true, the current arrangement simply encourages corruption. Still, plenty of politicos and bureaucrats have no problem with the status quo, as it gives them power over marketplace transactions. And forcing locals to rely on cabs that visitors might find too decrepit doesn’t send an encouraging signal about the general quality of taxi service in the city.
Not surprising, Uber and Lyft have done very well since coming to Charlotte. These services let passengers book rides using a smart-phone app. The drivers are independent contractors using their own vehicles. Drivers share their fares with the service.
“What they’ve done in the past five to six months is scary,” said Obaid Khan, co-owner of Charlotte-based Diamond Cab, to The Charlotte Observer. “They’ve set their rates so low small companies like us can’t compete with them.”
Khan wants to see Uber and Lyft regulated more strictly or have regulations loosened on cab companies.
The General Assembly is working on new regulations for ride-sharing companies. The best outcome would be a framework allowing ride-sharing companies to serve the customers who value that alternative while liberating taxi companies from excessive, costly regulations through which the government often picks winners and losers.
Michael Lowrey is an associate editor of Carolina Journal.