What Washington cab drivers know about free markets that politicians, economists and journalists don’t

Sam Smith

Whenever I hear some pompous, politically adulterous politician talk about “free markets” – or some puerile pressie cite them as the dominant economic force in America, I think of the taxicabs in which I rode during most of my many years in Washington.

One thing I’ve learned about free markets in America is that they belong on the economic endangered species list. And high on the list would be the DC taxi industry.

For many decades, DC had a taxi fare system based on zones rather than meters. This system made it virtually impossible for large corporations to take over the taxi industry as they had no way of knowing how much an individual driver was truly making. Thus the big outfits avoided the city.

DC’s taxi industry flourished, reaching 8,000 cabs by 1994, more cabs per capita than any other city in America. If all of DC’s cabs had been owned by one company, the firm would have been the city’s largest private employer. A study I did in the 1990s found that if DC had as few cabs per capita as Paris or London, the fleet would drop more than 90%. While DC had one cab for every 75 citizens, New York City had only one for every 600.

DC’s cab system was thus in violation of an almost iron law of non-competition in the taxi industry that dated back at least to 1636, when the owners of Thames water taxis got King Charles I to restrict the number of horse-drawn hacks to 50 in order to cut down on the land-borne competition. And as recently as 1962, Chicago Mayor Richard Daley guaranteed 80% of any new cab permits to one of his buddies.

While the zone system was great for lower income residents – ranging from newly arrived blacks in the segregated city of the 1950s to a string of immigrant groups, whites and the Washington Post didn’t like it. They argued, among other things, that the zone system made it too easy to cheat the passengers. In fact, if there is one universal of the global cab industry it is that cab drivers cheat, reflecting little more than that cabbies tend to be extraordinarily knowledgeable residents who do a lot of business with extraordinary ignorant visitors.

A 1990s study by US News & World Report found, in fact, that DC was no worse than most of the major cities it looked at. While the USNWR study found overcharges of about 5 bucks on an DC airport run, it also reported that in New York one should ask a taxi dispatcher for the best route to your destination: “A driver who takes the Belt Parkway from JFK to midtown, for example, can add $20 to a $25 to $30 fare.” The reporters were overcharged $5 bucks for a similar run in Chicago, cheated by limo drivers in San Francisco, reported occasional $20 overcharges in Boston, and so forth. Even the DC cab commission’s own study found that passengers were overcharged only 17% of the time, while being undercharged 10% of the time.

And to some, there was a more important problem: the zoned fares kept powerful corporate interests from taking over the system. A Department of Justice study in the 1990s found that 87 percent of some 100 cities with taxi service restricted entry in some way. Around the same time, Chip Mellor of the Institute for Justice noted that Denver had routinely turned down every application for a new taxicab company from 1947 on. Chicago and LA were closed.

A few years ago, the city did away with the zone system. It also introduced a series of new regulations designed to make the industry more favorable to a corporate takeover, adding to the drivers’ expenses without helping their business. It was assumed that these measures might lead eventually to a medallion system under which cabbies would be required to fork over six figures just for the right to drive a vehicle. In the few years since meters were introduced, the number of cab drivers in the city has already plummeted by around thirty percent.

So much for free markets.

The only markets that Washington politicians truly understand are highly corrupted ones, either by regulation-induced monopolies or campaign financed bribes known as contributions.

And, in fact, as soon as the city began “regulating” the tax industry, the corruption soared. Within two years of the meters, federal authorizes arrested 27 people in a massive bribery case.

DCist reported : “Two indictments released today accuse a total of 39 individuals of conspiring to bribe city officials in order to obtain fraudulent taxi licenses between 2007 and 2009…. The payments involved on the taxicab commission’s end appear to be much larger: first $14,000 in cash, then $8,000, and even a shopping bag filled with $59,880, plus numerous smaller payments of around $3,000, all totaling up to ultimately hundreds of thousands of dollars. “

It is the popular myth that Marion Barry was the king of modern DC corruption. This is far from true. The Washington media won’t admit it, but his first term and a half as mayor did more good for more local citizens than any time since. Which is one reason Barry could get cab drivers to help his voters get to the polls for free.

Barry’s corruption was real, but it was personal and small time by current standards. Today, the whole city political system is corrupt and instead of helping the little guy along the way as traditional corrupt politicians did, it helps only the most powerful interests in the capital. What has happened to the cab system is a striking case in point. Instead of being a valuable form of public transportation, it is increasingly seen as a source of money and power for the few.

How do you push the little guys out of the “free market?” Regulation is a nifty way, and DC now wants cabs to carry expensive credit card machines, According to the Washington Post, the new rules would also:

– “digitize what is now a paper recordkeeping process, mandating devices that send trip data to the commission in real time and ’can record and report all fares and earnings for tax purposes.’”

– A new driver training course envisioned by the law would cover the “geography of the District, with particular emphasis on major streets and avenues”; “public relations skills, including cultural awareness and sensitivity training”; and “driving skills and knowledge of the rules of the road.” Would-be drivers would have to pass an exam of no fewer than 100 questions.

And the bill would require satellite navigation systems plus a single paint color for all city’s 5,000-plus cabs – thus saving a prospective taxi monopoly the cost of repainting the vehicles. Total cost to the cab drivers: in the four figures.

The DC cab industry has been one of the great rare examples of a free market system in a country where the powerful in politics, academia and the media do everything they can to make sure it doesn’t happen. It looks like they’re going to succeed in getting rid of the capital’s rambunctious residue of a system they want to exist only in their speeches and articles, but certainly not in real life.

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