Taxi drivers made their bed, now they have to drive in it
Uber finally launched in Calgary on Thursday in what is likely to be the beginning, rather than the end, of a regulatory struggle between the company, the taxi industry, and the City of Calgary.
Uber’s entrance to the market comes at a particularly difficult time for Calgary’s taxi drivers, who are also suffering the effects of the current economic downturn, with a recent report showing total taxi trips in the city down six per cent compared to last year. Council’s decision to add new taxis last year, and an increase in the number of drivers per taxi, means trips per driver are actually down even more significantly at 21 per cent.
But the truth is the taxi industry has brought this on itself. The industry as a whole has spent decades focused on lobbying politicians, rather than on providing a good service to their customers.
Unlike in a free market, where companies make money by providing high-quality services at competitive prices, when the government controls an industry, you make money by making friends with politicians and lobbying them to pass laws and regulations that help you and not your current and potential competitors.
Calgary’s taxi industry are experts at this type of manipulation, successfully preventing increases in the number of taxis, pushing for council to set ever higher prices, and gaining favourable regulations — all to the detriment of the public.
Meanwhile, upstart companies like Lyft and Uber have taken the authentic capitalist route of focusing on improving the product that they provide, and improving the efficiency with which they can provide it. They replaced dispatches, offices, phone banks, and all sorts of physical infrastructure with a cellphone app, and were therefore able to continually reduce the price they charge their customers.
Existing cab companies have finally caught on and tried to introduce their own apps, but they’re nowhere near as user friendly, and council’s onerous regulations mean their apps have to sit on top of all their existing systems, removing any efficiency gains.
And so Calgary’s taxi companies find themselves in the mess they’re in now.
When an economic downturn hits, companies that provide products and services in a free market are able to reduce their prices to maintain high levels of utilization and stay in business. House prices, rent, hotel rates, even energy prices themselves all drop in price to stimulate demand.
Meanwhile, Calgary’s taxi prices stayed fixed at the overinflated rate they demanded when times were good, until they went begging to council for a reduction.
This shows the folly of government-run industries in general. Time and time again, governments have proven they can’t run entire industries and economies in a top-down fashion. From breadlines in the Soviet Union, to toilet paper shortages in modern-day Venezuela, when governments mess with prices, they screw up supply and demand.
Of course, no one has died of starvation thanks to Calgary’s mismanagement of the taxi industry. But city hall’s actions have led to many taxi drivers investing in an overpriced, inflated, dying industry thinking that council would guarantee they would make money. At the same time, they have harmed consumers who paid higher prices, received poorer service, and haven’t been able to utilize new technology as it’s introduced.
Were there too few taxis in Calgary last year? Are there too many now? What’s the right price for a 10-minute taxi ride? The point is no one really knows the answer to these questions, especially the taxi-industry aligned council committee that sits down each month to decide these matters.
If the public can handle variable prices for housing, food, electricity and gas, surely they can handle taxi prices that change according to demand too. Let’s take this debate away from the council table, and let the market sort it out once and for all. Instead of regulating Uber back into the 20th century, council should let cab drivers compete in the 21st century by deregulating the taxi industry.
Peter McCaffrey is a research fellow at the Manning Centre
This column was published by the Calgary Herald on October 17, 2015