May 25, 2011
The End of Taxi Regulation
The advent of ubiquitous smart phones will be the undoing of conventional taxi regulation.
In its short life, the internet has annihilated travel agents, classified newspaper ads, bookstores, and conventional encyclopaedias. All were seen as solid parts of the economy before being swept away by Expedia, eBay, Amazon, and Wikipedia, respectively. The taxi industry, with its firms and brands, government regulators, and telephone dispatch systems seems just as essential today as all of the above industries did ten years ago, but is just as vulnerable to technological disruption.
It is not that the basic practice of a driver with a car offering rides for a fee will disappear, but rather the way that the industry is coordinated will be completely overturned. The coming ubiquity of smart phones such as the iPhone has the potential to cut out the taxi cab companies and eliminate the rationale for municipalities to regulate the number of cabs in a city, and the prices they are able to charge.
“Smart” means phones that are capable of supporting software other than what they were originally sold with, can communicate on the internet, and in many cases know where they are thanks to GPS location. Putting these features together, it is possible to imagine applications that allow a passenger to transmit her location and her destination to a network of drivers armed with the same technology. Based on their own location, these drivers will offer pick-up times and prices. Each ride would result in a feedback rating much like eBay traders have; the driver and passenger rate each other on their reliability and civility. With this information in hand, future passengers would be able to choose a driver for each trip from a properly informed marketplace. In fact, applications such as Avego Driver that already exist have all of this functionality.
In most industries, such a change would be of great interest to stock market pundits, technology enthusiasts, and soon-to-be-obsolete industry moguls. However, because municipalities play such a heavy role in regulating cabs, it is also an important question of public policy.
Current taxi regulation creates absurdities. When a taxi driver requires a city issued plate to do business, the scarce plates trade on a kind of grey market for as much as $500,000 in Vancouver, and rarely less than $100,000 elsewhere. In turn, those who hold plates will do almost anything in order to stop more plates being issued, no matter what the resulting shortages of taxis means for the public. A recent report in Calgary found that many drivers suffer too. Some pay $200 per week just to rent a plate, but it is the passenger who ultimately pays.
Plate holders argue the industry must be regulated (and their protected status maintained) because otherwise passengers just wouldn’t be able to sort through the hordes of “cowboys” who would enter the industry. Such hordes, they continue, would prevent all drivers from enough money, which would lead to either higher fares but no increase in quality.
The advent of a smart phone coordinated taxi network would make these arguments irrelevant. Armed with their smart phones, passengers could order a cab and sort good from bad based on reputations built up from previous business. They would make advertising and phone dispatch irrelevant, which would have a more profound effect on current taxi regulation.
Currently it is very easily for authorities to detect rogue operators because the latter must publicly advertise their services in order to reach customers. However a smart phone coordinated taxi network would be much harder for authorities to police. An outlaw taxi market could function just as well as people on the internet copy illegal music and video, the authorities never quite catch up.
The smart phone coordinated taxi network will be a boon for passengers and drivers alike, cutting the current middle men out of the industry and making current municipal regulations pointless. The public policy question is how municipalities will anticipate and deal with the coming disruption. Either officially or unofficially the industry is set to be deregulated. The official route will meet political resistance from plate holders in the immediate term, but the unofficial route will result in much lawlessness as it becomes very easy for rogue drivers to circumvent the law. Time for some proactive leadership at City Hall.
direct the Centre’s Saskatchewan office from 2007 to 2011. He holds degrees in Electrical Engineering and Philosophy from the University of Auckland, where he also tutored Economics. In four years working for the Frontier Centre, David carried out extensive media work, presenting policy analysis through local and national television, newspapers, and radio. His policy columns have been published in newspapers in every province as well as the Globe and Mail and the National Post. David has produced policy research papers on telecommunications privatization, education, environmental policy, fiscal policy, poverty, and taxi deregulation. However, his major project with the Frontier Centre is the annual Local Government Performance Index (LGPI). The inaugural LGPI was released in November 2007 and comes at a time when municipal accounting standards in Canada must improve if the municipal government sector is to reach its potential as an economic growth engine for Canada. David is now a policy advisor in Wellington, New Zealand.