The Uber controversy has come to Toronto. As most people already know, Uber is the smart-phone app that allows people who need a drive to connect to a driver affiliated with Uber. As has happened in other cities, the local taxicab monopoly freaked out at the prospect. If one’s only source of information were the local media, one would get the impression that the beef that taxicab owners have with Uber is the playing field is no longer level, tilted now, with the arrival of Uber, against those who comply with City regulations designed to ensure driver safety and car safety.
What the media leaves unmentioned is that a cab license in Toronto costs between $80,000 to $100,000 on the open market. This is because the number of cabs in Toronto is fixed. In other words, cab owners are paying for the privilege of belonging to a monopoly. This cost has nothing to do with safety regulations.
Another associated but unstated fact is that the financial burden of purchasing a cab license means that the cab owner has less money left over maintain his car. The more you pay of the license, the less money you have left over to keep the car in good running order. The result: ratty old cabs.
Another issue is that of ‘price gouging’. This came up a couple of weeks ago when Toronto’s entire subway system abruptly ground to halt in the morning rush hour as a result of a computer glitch in the communication system. Instead of praising Uber for being there to help transport some of the stranded passengers to their destinations, the media concentrated on the fact that Uber had opportunistically raised its prices thanks to its “opportunity pricing” policy.
While I am not so doctrinaire a libertarian to fail to see the negative aspects of price gouging, what the media left unstated was that if Uber weren’t there, the rides they offered wouldn’t be available at any price. At least now, there is an option, albeit an expensive one. This for some people may be a bargain - if they have a crucial meeting or appointment they can’t afford to miss. The Uber representative was asked about this. He gave a confused PR-speak justification citing supply and demand (implying - but not explicitly stating - that peak pricing encourages service providers to come out of the woodwork to meet the increased demand). This was dismissed by the media as spin (instead of being a core principle of economics).
What was completely unstated by all concerned was the unfair nature of the existing fare structure for people living in the suburbs. Because taxi fees are optimized for the close distances found in downtown areas, taxicabs are a rare luxury elsewhere. A flexible fare structure would go a long way to giving the people in outlying areas a viable transportation alternative when they have had a few too many. Of course, such reasoning is entirely beyond a typical newspaper reporter’s understanding of economics.
The real solution for the ‘Uber problem’ is not to legislate Uber out of existence but to deal with the taxicab owners legitimate concerns without instituting a ban on entrepreneurial efforts to aid Toronto’s transit woes. What’s the answer? Simple. You buy back the existing cab licenses, while requiring everybody, including Uber, to comply with basic, simple, common sense safety rules. No more license limits, so no more monopoly pricing.
Of course, this is the last thing local politicians want to hear. It would cost the City a billion dollars to buy back all 100,000 cab licenses, and it would provide insufficient opportunities for graft. What our shortsighted pols fail to see is that this money would be pumped into precisely those local small businesses that specialize in providing transportation solutions. With Uber and the now newly enriched exiting cab companies in competition, all kinds of transportation solutions would be possible that weren’t before.
This is the conversation the City of Toronto should be having but isn’t. Mostly thanks to blinkered, incompetent local reporting.
The music industry, when faced with Napster, a similar issue, solved it by taking them to court and winning. That victory was worthless to them and music distribution is still unsolved.
I can see the same thing happening here. They may win the battle in court, but ultimately, to win the war, the taxi industry must embrace the new technology rather than cling to an old paradigm.
Posted by: WiseGuy | July 26, 2015 at 03:51 PM
I agree with Wiseguy and would add fix the government cash cow that is taxi licenses. $100,000 for a taxi license in Toronto. Wow.
Posted by: Autoguy | July 28, 2015 at 06:50 AM