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Much of the value in land is based on its location and, in agricultural societies, that meant fertility. Now, places that are easy to get to and from are more valuable because it lowers costs or, more recently, because it encourages the flow of ideas. Usually, that means good roads or good public transit. It can also mean taxis.

Therefore, it is instructive to listen to the debate about how Uber (and others) is forcing the taxi industry to change. Mostly, the media focus on the convenience but that perspective is very short term and is not appropriate for an industry which thinks in terms of decades.

A recent article in the Globe and Mail reveals some lessons about the general problem of government regulation. The article invokes many ideas which are hard to recognize if you think too narrowly. For example,
“Rent-seeking”: the pursuit of profit is generally a good thing, but not when the business tactics emphasize profit-by-redistribution;
• There are also interesting discussions of how to extend monopoly power to extract excess profits (a.k.a. “rents”) from related but seemingly competitive markets and the lengths to which people will go to hide the nature of their involvement;
• The licenses which allow somebody to operate a taxi are expensive to buy but, in an analysis of the social costs and benefit and especially when the policy applies broadly, economics costs such as the cost of time or gas should be treated differently than financial costs which vary with policy. As a simple question, one wonders why the government is not getting the financial benefit by selling more licenses.

The taxi industry has long been discussed as an example of the costs of restrictive government policy: [1] [2] [3] [4] or from a pre-Uber time [5]. The article asks whether applying a similar system to something else, such as corner stores would create value. If not then what makes the taxi industry different?

The article does not discuss the original intent of the policy, whether the policy has achieved that goal and whether new technology changes what the goal should be.  For taxi licensing, the original goal is some assurance of quality or to ensure the uninformed visitors are not ripped off or to guarantee a minimum profit so that drivers will not economize on quality. Most of the Uber debate focuses on the current administration of the policy as a goal for its own sake.

Transportation is more costly than necessary (in downtown Toronto) which affects people’s behaviour. The inconvenience of using taxis encourages people to drive themselves, which may be good for the owners of parking lots but not a lot of other people.

(Uber’s policy of adapting to excess demand is not without its critics, but is a sign of market forces at work. There is also a new concern about whether consumers using Uber benefit from HST tax avoidance.)

This article may have two broader lessons. It may be a cautionary tale about the unintended consequences of interfering with market forces, especially after a technological change. Or, it may reinforce Deep Throat’s advice about trying to expose a mystery involving government: follow the money.

PA

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