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My driver hangs a fast left turn off Vancouver’s Clark Drive and we leave the trembling trucks of the busy port-bound artery and crawl into an industrial lot. He finally flicks the meter on.
“I’ll just tell them I ran out of printer paper for receipts,” he says in a thick Pakistani accent. He asks me to put my SLR camera away and leave the bag in the car.
“And what’s my story?” I ask as we exit the taxi and enter a dingy squat yellow building through the back service doors.
“I don’t know you.”
With that, he disappears around a corner, and I’m left standing in a small empty hallway, face to face with Yellow Cab’s fabled Notice Board. These few small rectangles of green and white paper, tacked to some cork behind a locked glass-wall case in the basement of the company’s East Vancouver headquarters, offer a rare glimpse into our city’s half-billion-dollar transportation monopoly, a place insiders call Taxiland.
“Want to see Vancouver Taxi next?” my fixer says with a grin when I meet him back in the car a few minutes later. He pulls the cab back onto Clark and kills the meter.
At first we just sat around and talked, but once the awkwardness of the first interview was behind us, and 35-year-old Muhammad Khan got passionate about his situation, he insisted we drive around and look at things in person. He speaks freely of his earnings as a Yellow Cab driver (poor), of the company’s shareholders turned his de facto bosses (greedy), and of his days at Yellow Cab (likely numbered). He’s been driving cabs for 10 years, but things haven’t been all that hot at work ever since he took an organizing role in the awkwardly named Pacific Coast Co-op Taxi Association. The PCCTA is a loose group of drivers on a mission to kill the current taxi regulation scheme, a system that, Khan insists, only benefits dozens of owners lucky enough to enjoy the spoils of a protected market while hurting hundreds of drivers and shortchanging thousands of consumers.
It’s Going Up Like the Stock Market
Vancouver city hall issues taxi licences at the behest of the Passenger Transportation Board, an independent provincial tribunal established under the Passenger Transportation Act; there are currently 588 licences in operation in the city. Their cost at city hall, via a vehicles-for-hire licence, is $522 apiece, but their value jumps several orders of magnitude before they ever hit the street.
Here’s how that happens…
The board hands out passenger transportation licences to just four companies: Yellow Cab, Black Top/Checker Cabs, Maclure’s Cabs, and Vancouver Taxi. On the surface, these firms offer dispatch services, but what’s less known is they also act as brokers of the licences, first fusing them to complicated private shareholder structures in their respective companies, then offering each licence as two shares (one 12-hour day shift and one 12-hour night shift) for sale to anyone with a Class 4 driver’s licence, a chauffeur’s permit and the cash to buy into the monopoly. Each share comes with the right to drive a car, but also entitles its holder to dividends in the company. At Yellow, for instance, shareholders also divide among themselves the rental profits from the company’s real estate holdings, which include a car wash, garage, and body shop.
The going rate for a share at Yellow Cab, by far the city’s largest taxi company, is somewhat of a mystery; Khan says $800,000 is a good estimate for a full cab, split roughly down the middle between day and night shifts at some $400,000 apiece. Hoping to verify Khan’s estimate, I placed calls to a lengthy list of sellers (their numbers lifted from the Yellow Cab board), and though very few were willing to talk, those who did gave a large spread of costs, with the cheapest day shift I could find selling for $250,000, and the more lucrative night shifts for as much as $500,000.
Given the staggering jump in value, it’s little surprise that many shareholders choose not to drive the cabs themselves, but instead chop each licence into the two aforementioned 12-hour shifts, then offer up the rights to those shifts as one-year leases to drivers who can’t afford the capital investment to buy their own.
“The real problem is the [monthly] lease. I’m paying a lease of $2,240,” a frustrated Khan tells me, flinging at me a folder of personal documents.
“Things can get much better if a licence is issued directly to the operator, instead of a middleman,” he says. “I had a car lease for during the time of the Olympics and my lease was only $1,100. It’s going up like the stock market, you know.”
Their Income is Big Big Big
A few days later I’m back at the Yellow Cab office, this time entering through the front doors to meet with Carolyn Bauer, a middle-aged brunette in jeans and a black blazer. This grandmother of 10 is general manager at Yellow and the sole spokesperson for the Vancouver Taxi Association, an umbrella group the four taxi firms struck up to further streamline the licencing process. Her ground-floor office is large and messy. An Australian Canned Koala toy sits on her desk surrounded by stacks of papers and business cards. A rack of black suit jackets is parked along the window, in the latest push to class up the company’s drivers.
She calls me “dear” and “sweetie” a lot, and I can’t figure out if it’s grandmotherly or condescending.
“I’d love to be a licence holder,” I fire between the pet names. With a lease income of some $4,500 a month on an $800,000-investment, this seems a better deal than real estate. And that’s saying something in Vancouver. But perhaps more importantly, how the hell can drivers afford these lease amounts?
“It just shows you what their income is, right?” Bauer says, plainly. “Their income is big. Their income is big big big. Some of the guys are making $700 on a Friday night.”
I realize her main job is to keep her monopoly protected, but she’s got a point. Khan shows me his rental statements, which indicated total monthly expenses as high as $4,400 plus another $400 for gas. He needs to bring in that much in fares just to break even every month. Of course, with so much of the business made up of cash transactions, I had to trust Khan’s word when he told me he was barely scraping by.
Sure, demand is so high on weekends that drunk revelers sometimes come to blows while trying to secure a cab, he says. On the other hand, weekday afternoons are so anaemic the dispatch board barely even lights up at all.
“So what about Khan’s calls for a shake-up?” I ask Bauer. “Maybe opening up entry to all interested drivers could bring some fresh entrepreneurial spirit to a tired old system.”
“Tons of licences aren’t the answer,” she tells me with a shrug. “As a manager, regulation is a solution because I’m the one who fields the complaints, the lost articles, the accountability, the insurance coverage.”
You could still regulate and enforce all of those things in an open-entry market, I argue, but Bauer is adamant any move away from the status quo would collapse the taxi industry.
“It’s very dangerous. You’re gonna get people undercutting each other, you’re gonna get violence, credit card fraud, you’re gonna get a lot of issues this way,” she says. “It’s just not the answer. I have no idea what the answer is.”
It turns out the idea of taxi regulation, deregulation, and re-regulation has been a favourite topic of discussion among transportation policy wonks for generations. European examples of taxi monopolies date back to the horse and carriage days of London, England. Here in North America, the big push for taxi regulation started in the post-Depression days of the 1930s. The earliest printed call for regulation I could find dates back to a Washington Post article published on January 25, 1933. Titled “Taxicab Chaos”, it offers a nice summary of the thinking of the day, not unlike Bauer’s arguments above.
“Cut-throat competition in business of this kind always produces chaos. Drivers are working as long as sixteen hours a day, in their desperate effort to eke out a living. Cabs are allowed to go unrepaired… Together with the rise in the accident rate, there has been a sharp and concomitant decline in the financial responsibility of taxicab operators. Too frequently the victims of taxicab accidents must bear the loss because the operator has no resources of his own and no liability insurance. There is no excuse for a city exposing its people to such dangers.”
The article proved influential and ushered in a wave of regulation across the continent, backed by the argument that the taxi industry is different from others in the way it behaves during recessions: because entry into the industry is so easy in the absence of regulation — if you already own a car, all you need is a new paint job, a fare meter and a dispatch arrangement — when a recession drives up unemployment in other industries it causes a spike in the number of people willing to drive taxis, which in turn waters down the profits of individual drivers.
Today, just as it did 80 years ago, capping entry remains the easiest way to save the market from a flood of supply, but it also creates artificial scarcity in the market and, soon enough, gives birth to powerful lobbies of licence holders keen to protect their lucrative monopolies and growing equity. And that makes people forget — or at least pretend to forget — that these licence freezes were only ever meant to be temporary.
They’re Getting Squeezed
City Councilor Geoff Meggs holds the taxi portfolio at the City of Vancouver. He is sympathetic to the plight of the average Vancouver taxi driver when I call him to discuss the inner workings of Taxiland.
“On the drivers’ side, there’s no argument: they’re getting squeezed,” he tells me, before launching into a deeper worry about the current market monopoly.
“Just put aside the question of worker exploitation, which is real, and just say okay, what is produced by this capital? It’s not a pulp mill. If you take the number of taxis out there and assume a half-shift is worth $400,000, you come out with a staggering number, like half a billion dollars worth of equity in the licences and we haven’t even gotten to the car yet,” he says with a laugh. “And it produces zero. It’s straight ascribed value. So to me, that is a dead weight on the back of the industry. If people were not struggling to pay for these licence purchase costs, they could then do lower fares, there could be any number of ways the revenue could be allocated.”
Amazingly, Meggs can say all that and still defend the current system. He says he’s generally happy with taxi service in Vancouver. He takes way more cabs than I do, so I can’t argue with that. But the real reason for his support is this: a politically popular exit from the current system is damn near impossible.
“They’ve been playing by the rules in an existing system, they have equity in the current licensing arrangement in a serious way, and the moment you start adding lots of licences or even deregulating it, you wipe out that equity. That’s the big problem that everybody faces in this whole issue.”
There’s More Money on One Side of the Equation
It’s a problem that consultant Dan Hara has been scrutinizing for the last 20 years. I get him on the phone from his Ottawa office and find him well versed in Vancouver’s closed-market situation, a situation he says is increasingly common across the country’s big cities.
“The most recent ones to close in Canada were Edmonton, Calgary, and Halifax,” he says.
As a man who makes his living advising regulators on how to find that delicate balance between the needs of consumers and those of a vibrant industry, Hara is diplomatic. He says there is a good rationale for limiting entry to the taxi business to protect it from recessions, but finds these limits typically become excessive over time. And Vancouver, he says, could certainly benefit from a different approach.
“You can tell how bad it is by looking at plate value. The higher it is, the worse it is.”
“When you see that number, it means there is a lower meter rate and more taxis that are more optimal for public service. There’s no avoiding that conclusion.”
Another interesting proxy measure is the number of taxis per capita. His consulting firm — Hara Associates — has studied those numbers for years: Montreal has nearly 27 taxis per 10,000 residents. Toronto has 18. The sprawling car owner’s paradise that is Calgary has 13.2. Vancouver has 9.4. For a city whose downtown core is the second-densest on the continent behind Manhattan’s, Vancouver’s number is remarkably low, barely edging out Regina’s 8.6 taxis per 10,000 people.
So is throwing open the gates a good idea in this economy?
“If you throw open the gates, by one means or another, you don’t know what will happen,” Hara says. “Either you better be prepared to enforce like crazy during recessions, or manage entry some other way.”
Hara suggests leaving the current licence holders in place, but also lifting the cap on the number of taxis and instead using an annual entry fee to regulate the market (given how owners now command some $2,200 a month for their leases, $25,000 sounds like a good start). That money could go into city coffers, as the municipality would hold and manage all future licences. It doesn’t help drivers immediately, but as new entrepreneurs enter the game, Hara says it often opens up a hidden market of consumers.
“You have network failure where a whole group of people stops using taxis because they can’t find them,” he says. “What you discover with these revealed markets is that companies start coming forward and you get this expansion and the revenues expand with it. Suddenly there’s more taxis everywhere so people are getting better service.”
Rolling the Dice
That’s not to say deregulation is easy. In the late 1970s and early 1980s, a number of cities in the United States tried it with disastrous results. The failure of Seattle’s taxi deregulation attempts is still highlighted in local literature defending the status quo. But the deregulation of yesteryear was too complete, argue modern economists, in that officials often also abandoned health and safety standards, mechanical inspections, and criminal record checks, the absence of which created predictable problems later solved by, you guessed it, re-regulation.
Some of the most informative papers I discovered on this subject were written by New Zealander David Seymour during his tenure as senior policy analyst at the Frontier Centre for Public Policy in Saskatchewan. Surprisingly, this right-leaning free-market defender wants roughly the same thing as Vancouver’s newly formed drivers’ co-op: in a 2009 paper titled “The Case for Taxi Deregulation”, Seymour argued limits on numbers of licences and prices of fares were a public policy hangover from a bygone era.
“The fact that a licence costs as much as 10 times the price of a car suggests that producers are able to charge a lot more than they would if entry were unrestricted and more drivers entered the market to compete for profits instead of having to service capital costs on exorbitant licences,” he wrote. “When done properly, removing controls on taxi numbers and prices while retaining basic quality requirements regarding driver competence and car safety can lower prices, improve service and create new jobs in the industry.”
I call Frontier to find out more, but am told Seymour has returned to his native New Zealand. Several days later I find him on the phone at his office in downtown Wellington — where he’s now working for the Kiwi federal government — and press him for real-life success stories of open entry taxi markets.
He says he only has to look out the window to see them: New Zealand abolished its taxi monopoly in 1989 via the seemingly despotic strategy of simply opening the industry to everyone, incumbent licence holders be damned. The country had gone bankrupt several years before and the reforming government of the day called the protected taxi market a privilege able to be stripped as easily as it was granted. There was anger, of course, but a more vibrant taxi market emerged within five years, with increased taxi numbers, reduced fares and a wider variety of taxi services, from budget rides to premium sedans with drivers in black ties.
“The government still creates the institutions for a transparent marketplace and they still set minimum standards for safety and so on,” he says. “They just don’t try to control prices and volumes.”
The New Zealand story is not unique. Ireland abolished its taxi cartel in 2000 and saw taxi numbers triple shortly after deregulation. In 2007, the Paris-based Organisation for Economic Co-operation and Development found restrictions on entry to the taxi industry constituted an unjustified restriction on competition that led to “large transfers from consumers to producers, economic distortions and associated deadweight losses.”
Seymour suggests Vancouver also move to an open entry system.
“If it was me in power I would just do it because I know it’s the right thing to do,” he says, before admitting it would be a bitter fight. “A lot of it just comes down to concentrated benefits and dispersed costs. The number of people that benefit in Vancouver from the scheme is probably in the hundreds, perhaps only in the dozens. But those people care a lot.”
But they’re not doing anything wrong, right?
“The model is set up to basically capitalize revenue for the plate holders, who, you’re right, haven’t done anything wrong, but they haven’t done anything to deserve what they’ve got either.”
The Future is Today
The city’s four taxi companies have now filed a joint application to the Passenger Transportation Board asking for 99 part-time special event licences to help with the taxi supply crunch on weekends. There are other applications before the board, including 17 from suburban taxi companies suggesting they be allowed to send a 15-per cent portion of their fleets to pick up customers inside Vancouver city limits on Friday and Saturday nights (while this still happens now and again, the practice is illegal), and another suggesting the board issue 113 new taxi licences directly to the driver-led Pacific Coast Co-op Taxi Association. In the interim, the Vancouver Taxi Association has hired a mediator to sit down with the Pacific Coast Co-op Taxi Association to see if they can possibly get along, but Bauer tells me those talks are going nowhere. A total system overhaul seems unlikely.
“The other possibility is to just wait it out and let technology swamp them,” Seymour says when he calls me back to finish our chat. “The original public policy rationales, even if you accept them, there’s no longer any justification because technology has made the market function differently.”
Seymour says in the next five years everyone is going to have a smartphone with GPS technology. And then the whole market will converge between taxis, co-op cars and private car- and ride-sharing arrangements.
If it sounds like a futurist fantasy, it isn’t. If I need a car in a pinch, an app on my iPhone called “Get2Car” shows me to the nearest car in a car-sharing scheme I belong to. Another called “Go Taxi” already maps my location and calls me the nearest cab. Washington, D.C.’s car-sharing program Avego goes a step further, using GPS technology to facilitate real-time ride-sharing between those who have cars and those who need rides, right down to arranging a digital payment transfer at the end of the trip. And Google, General Motors and Mercedes-Benz are all fine-tuning their experiments into driverless cars via cameras, radar, lasers, and artificial intelligence. Google’s robo-cars are already allowed in Nevada, and earlier this month California’s Senate passed a bill allowing testing of the technology in the most populous U.S. state.
If you like robots, driving around is about to get oh so awesome. And the way things are going, soon there might not be a taxi market left to regulate.
As for my intrepid driver Muhammad Khan, he recently started a driving school as a side business he feels he could spin into a full-time gig if Yellow decides to play rough. He needs a reference letter to renew his chauffeur’s permit, though, and given the trouble he’s caused the company by talking to people like me, he’s not expecting any glowing reviews.
“I will get the punishment,” he says with a strange, desperate smile as he drops me in front of my house.
So why do any of this?
“If I’m not going to drive again, I’m going to find something else, right? It’s not the end of the world,” he says. “There should be a change in the system and someone has to take initiative anyway.”