One of the most prevalent and persistent myths about the American economy is that it is based on the free market, or laissez-faire capitalism. True, when compared with much of the rest of the world, the United States appears to have a relatively free economy. The truth, however, is that in some sectors of the American economy, government intervention is actually so substantial that it can be almost impossible to start and maintain a business.
In the 2012 edition of the Index of Economic Freedom, an annual report published by the Heritage Foundation and the Wall Street Journal that analyzes economic-policy developments in 184 countries, the United States is ranked tenth, behind Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Chile, Mauritius, and Ireland. Dead last among countries that are ranked is North Korea. The index grades and ranks countries on the basis of ten measures of economic freedom that evaluate the rule of law, the intrusiveness of government, regulatory efficiency, and the openness of markets. Although the scores of 75 economies improved, 90 countries lost economic freedom. The United States has been in the top ten since the first edition of the Index was published in 1995.
In the World Bank’s 2012 edition of Doing Business, an annual report investigating the business climate in 183 countries that presents quantitative indicators on business regulation and the protection of property rights, the United States is ranked fourth, as it was last year, surpassed only by Singapore, Hong Kong, and New Zealand. Coming in last was the African nation of Chad. Covered in the study are regulations affecting 11 areas of the life of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency, and employing workers. Many countries have made significant progress in streamlining the process of starting a business. For example, in South Korea, entrepreneurs starting a company in the past had to manually fill out more than 30 forms and visit six different agencies. Now they enter information once into an online system that automatically distributes it. Nevertheless, in some countries it can still take three months to start a business.
Tenth place out of 184 in economic freedom and fourth place out of 183 in business climate makes the United States, on paper, look like a free-enterprise paradise. Just don’t talk about how economically free and business-friendly the United States is to those wanting to start a taxi service.
In the United States it is almost impossible. Once in business, you are subject to so much government regulation that you don’t have the economic freedom to set your own prices.
And don’t think about trying to get around the law. Local governments don’t think too highly of unauthorized taxi services — and neither do government-licensed taxi companies.
In Miami Gardens, Florida, a 78-year-old man was given two citations and his vehicle was impounded by the Miami-Dade County’s Consumer Services Department after being entrapped by an undercover sting operation targeting people providing illegal taxi services. The man thought he was just helping a woman in need to get home from the grocery store; he said he never even discussed money until the woman insisted on it.
In Portland, Oregon, regulators waged an aggressive crackdown on car services known as livery drivers, independent drivers with a single car or limo. The city imposed a minimum fare of $50, even if a client is just going a few blocks in the downtown area. Livery vehicles must charge a minimum rate 35 percent higher than that charged by competing taxi companies for rides outside of the city. Livery drivers cannot park in front of hotels. And reservations for livery services must be placed at least an hour in advance of customer pickup. Two livery companies that offered a Groupon promotion for one-time limo or sedan rides for $32 were forced to cancel the promotion, refund the money collected, and pay a $500 fine for advertising services under the minimum fare. A Portland city official acknowledged to the Huffington Post that “the only real purpose of the regulations is to target small and independent businesses, while protecting the city’s taxi monopolies.”
In Houston, Texas, the drivers of a transport company using three electric vehicles and picking up passengers who tip rather than pay a metered fare were ticketed numerous times for offenses such as having no taxicab permit, no taxicab driver’s license, and no fire extinguisher. Of course it was not just city officials who were concerned about this business. The Houston Yellow Cab Company complained to the city about the competing firm as well.
Licensed cab companies don’t want to see new companies receive licenses. In Minneapolis, Minnesota, the city instituted reforms to raise the number of licensed taxis from 343, the limit in effect for years. The Minneapolis Taxicab Owners Association promptly sued the city, arguing that there was no demand for more taxis, that additional taxis would create more traffic congestion, and — the real reason — that a freer taxi market would hurt the resale value of taxi licenses, which could be sold for thousands of dollars. In a rare victory for freedom, the association lost.
Other cities don’t care much for new cab companies either. Like many large cities, New York issues taxi medallions, an emblem of registration that artificially restricts the supply of taxis. The result is a textbook case of a government-created monopoly.
The natural result is the tendency toward higher prices and lower-quality service. In 2008 the New York City Taxi and Limousine Commission determined that the minimum bid price for each of the 43 available lots of two Minifleet (Corporate) Accessible Medallions to be auctioned off would be $700,000. One Individual Accessible Medallion was also made available for a minimum bid price of $189,000, and two Individual Alternative-Fuel Medallions went for $300,000. Because the medallions can be bought and sold, there is a profitable secondary market for them. In 2011 two New York taxi medallions sold for more than $1 million apiece, the highest recorded sale price since the medallion system began. These systems discriminate against anyone who is seeking to get into the taxi business but who lacks the necessary tens or in some cases hundreds of thousands of dollars.
Some cities even regulate the type of cab one can drive and how fares are collected.
The mayor of New York City has announced that the Nissan NV200 minivan will become the official taxi vehicle of the city beginning in 2013. All other models will be phased out over the following five years.
In Washington, D.C., cab drivers went on strike in 2008 to protest the mayor’s decision to require that they use meters (as in other big cities) rather than a fare-zone system. The point here is not the superiority of one system over another but that it is government telling taxi companies how they must collect their fares.
I know of no major city in the United States that doesn’t regulate taxi fares.
Taxi companies begin and maintain their existence only at the whim of local governments. Consider Pensacola, Florida, where I lived for many years and whose city code for taxis I am familiar with.
No one is free to start a taxi business in Pensacola without the permission of the mayor:
No taxicab vehicle permit shall be granted until the person applying for such permit has secured from the mayor that the public convenience and necessity warrants the operation of the additional taxicab or taxicabs for which taxicab vehicle permit is sought.
The cost of the permit is $50 annually, expiring on September 30. No company permits are granted “for operating less than five (5) vehicles.” No company permits “may be sold, assigned, mortgaged, or otherwise transferred without the written consent of the mayor.”
A vehicle permit must also be obtained for each taxicab used. However, “no taxicab vehicle permit shall be issued at any time to any person who has not attained the age of twenty-one (21) years” and “who is not a person of good moral character.” Permits are $15 per vehicle per year. Each vehicle used as a taxi must be “thoroughly examined and inspected by the mayor and found to comply with such reasonable rules and regulations as may be prescribed by the mayor.” Vehicles must then be inspected annually — after owners pay a fee of $10. The lettering on the side of each taxicab must be of a certain size and content.
Each taxi driver must obtain a license from the city. But first, the driver must be 21, pay a $10 fee, be photographed and fingerprinted, reveal much personal information, provide certificates of good character from three people, undergo a background investigation, already have a class “E” state license, and be approved by the chief of police and the mayor. Annual renewals are $6. Once on the job, drivers must “maintain a clean, neat, well-groomed appearance.” Prohibited are T-shirts, tank tops, sandals, flip-flops, cut-offs, and short shorts.
Conducting business is highly regulated. The taxi driver’s “daily manifest” must be “approved by the mayor.” Drivers can’t “solicit passengers for a taxicab except when standing immediately adjacent to the curb side thereof.” Drivers can’t be absent from their cabs for more than ten consecutive minutes. Drivers are prohibited from cruising “in search of passengers except in such areas and at such time as shall be designated by the Pensacola Police Department.” Drivers can’t “solicit business for any hotel, or … attempt to divert patronage from one hotel to another.” No taxicab driver can “refuse or neglect to convey any orderly person or persons, upon request.”
Rates are fixed by the city of Pensacola. No owner or operator of a taxi can “charge a greater or lesser sum for the use of a taxicab than in accordance with the following rates”:
(1) Mileage rates. Two dollars ($2.00) for the first one-ninth (1/9) mile or fraction thereof; twenty-five cents ($0.25) for each additional one-ninth mile or fraction thereof; charge for additional passengers over the age of thirteen (13) years, fifty cents ($0.50) each;
(2) Waiting time. Eighteen dollars ($18.00) per hour;
(3) Airport trips — Minimum fare. Pickups from the airport, eleven dollars ($11.00) minimum per trip (limited to taxicab companies with valid permits to serve the airport). Fares over eleven dollars ($11.00) shall be calculated based upon the meter rate commencing at the airport pickup point.
No flat rates may be charged for any cab ride that starts within the city limits.
Consider for a moment what other industries would look like if they were as controlled by governments as taxi services are. Take, for example, the oranges that are grown all over central and south Florida. If the city and county governments in Florida’s orange-growing regions forbade potential growers from planting orange trees on their property, made growers ask permission to plant a new orange tree, forced growers to pay a steep price for licenses to grow, pick, and sell oranges, and told growers the exact price to charge per orange, most people would think it was not only ludicrous, but totalitarian. But when governments treat taxi companies the same way, they get away with it in the name of “consumer protection.”
Aside from the local governments that rake in millions of dollars from issuing taxi licenses and medallions and collecting taxes to fund consumer-services departments, regulatory agencies, and taxi and limousine commissions, there is only one group that benefits from the taxi tyranny that exists throughout the United States: existing taxi companies.
Whether it is driving taxis or selling oranges, it is ultimately a freedom issue: freedom to start a business, freedom to compete with existing businesses, freedom to hire workers of one’s choosing, freedom to use the equipment of one’s choosing, freedom to set prices and policies, and freedom from government laws that are anti–free enterprise, anti–free market, and anti-freedom.
This article was originally published in the February 2013 edition of Future of Freedom.