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The Toronto Uber Controversy: The Real Issues
The Uber controversy has come to Toronto. As most people know, Uber is the smart-phone app that allows people who need a ride to connect to a driver affiliated with Uber. As in other cities, the local taxicab monopoly freaked out at the prospect. If one’s only source of information were the local media, one would get the impression that the taxicab owners’s beef is that Uber’s arrival tilts the playing field against those who comply with City regulations designed to ensure driver safety and car safety.
What the media leaves unmentioned is that a cab license in Toronto costs between $80,000 and $100,000 on the open market, because the number of cabs in Toronto is fixed. In other words, cab owners are paying for the privilege of belonging to a monopoly. This cost has nothing to do with safety regulations.
Another associated but unstated fact is that the financial burden of purchasing a cab license means that the cab owner has less money left over to maintain his car. The more you pay for the license, the less money you have to keep the car in good running order. The result: ratty old cabs.
Another issue is price gouging. This came up a couple of weeks ago when Toronto’s entire subway system abruptly ground to halt in the morning rush hour as a result of a glitch in the communication system. Instead of praising Uber for being there to help transport stranded passengers to their destinations, the media noted that Uber had opportunistically raised its prices — or raised them in response to demand, in other words.
While I’m not so doctrinaire a market liberal as to fail to see that price gouging can have negative effects under certain circumstances, what the media left unstated was that if Uber hadn’t been there, the rides they offered wouldn’t have been available at any price. At least now, there is an option, albeit an expensive one. This for some people may be a bargain — if they have a crucial meeting or an appointment they can’t afford to miss. The Uber representative was asked about this. He gave a confused PR-speak justification citing supply and demand (implying — but not explicitly stating — that peak pricing encourages service providers to come out of the woodworks to meet the increased demand). This was dismissed by the media as spin, as opposed to a core principle of basic economics.
Unstated by all concerned was the unfair existing fare structure for people living in the suburbs. Because taxi fees are optimized for the close distances in downtown areas, taxicabs are a luxury elsewhere. A flexible fare structure would go a long way toward giving the people in outlying areas a viable transportation alternative when they have had a few too many. Of course, such reasoning is entirely beyond a typical newspaper reporter’s understanding of economics.
The real solution for the Uber problem is not to legislate Uber out of existence, but to deal with the taxicab owners’ legitimate concerns without instituting a ban on entrepreneurial efforts to aid Toronto’s transit woes. What’s the answer? Simple. You buy back the existing cab licenses, while requiring everybody, including Uber, to comply with basic, simple, common sense safety rules. No more license limits, so no more monopoly pricing.
Of course, this is the last thing local politicians want to hear. It would cost the City a billion dollars to buy back all 100,000 cab licenses, and it would provide insufficient opportunities for graft. What our shortsighted pols fail to see is that this money would be pumped into precisely those local small businesses that specialize in providing transportation solutions. With Uber and the now newly-enriched existing cab companies in competition, all kinds of new transportation solutions would be possible.
This is the conversation the City of Toronto should be having but isn’t — mostly thanks to blinkered, incompetent local reporting.
Published in Economics, General
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And to think, the mayor of Toronto calls himself a Tory.
Literally, the man’s name is John Tory!
;-)
One problem you have not addressed is congestion.
The taxi medallion system (limiting vehicles that can pick up a hailing passenger) and with the concept of taxi stands both limit the number of vehicles that will be cruising city streets.
That’s often the difference between taxicabs on the one hand and limos on the other. If I had a 20-car limo company (let alone if I was a solo operator), it would be unprofitable for my cars to be cruising waiting for a customer (someone who already knew of my company) to happen to be nearby and call for them.
All of a sudden, Uber made it profitable for non-taxicabs to cruise. Wherever you were, it became likely that someone nearby would use the app and might select you. At my last JFK arrival, the place was totally gummed up with Uber drivers driving around looking for passengers on the theory that while waiting for your bags, or even standing at the curb, you use the app.
Ubers problem is they have yet paid the local politicals as much as the taxi services have. Once they start paying their vig it will all straighten out.
The biggest issue with Uber is not so much a threat to a unionized monopoly but that anti-Uber people are usually completely illiterate about basic economic principles, like you alluded to in the part about “price gouging.” Uber, first and foremost, applies competition to a group that is bloated, slow, and not well maintained, the taxi service. Here in DC the situation is pretty much the same as what you described in Toronto. Licensing fees are large, cabs are ratty, and drivers tend to disregard the path you tell them to go so that they can extend your ride and increase your cost. From what I have heard from those who rely on Uber–I am a rich Republican and thus do not have to use transit–none of that happens to them. Their wait is usually no more than a few minutes, the cars are very clean, and the ride is quick and efficient (well as can be in a city where traffic is non-stop). Uber is the best example we can provide Leftists to demonstrate how our philosophy is superior to theirs.
What would these rules be?
I’ve talked to a number of Uber drivers, and they all say without exception that they monitor surge pricing and will quickly add to the supply to meet the higher prices.
In fact, many have learned that surge pricing is so effective at increasing supply that it may not last long enough for them to benefit from it, so they try to figure out the reasons for the surge pricing before they act.
There is one important question for consumers to ask themselves, do they want the supply of rides for hire to be fixed across the 24 hour day (the medallion model) or do they think the supply should increase during peak demand hours and fall during times of low usage. I know my answer.
The worst Uber I’ve ridden in has been better than the nicest taxi I’ve seen in Chicago.
As for safety, I’m much more likely to be attacked/raped/robbed by a medallion taxi than an Uber driver for reasons that are obvious to the casual observer. If I get attacked, Uber has a record of which driver picked me up and when (and knows that before I get picked up). That simply does not happen with a taxi.
In my own life, I’ve definitely pulled late nights, skipped meals, or cancelled plans when someone paid me a handsome sum of money to do so. There must have been drivers who quickly showered, grabbed a cup of coffee, and fed the cat before dashing out the door to make $60 or $80 an hour – who would have just hung around in their jammies rather than earn $20 an hour.
Perhaps Uber should let the drivers tell their stories – and those drivers are likely very sympathetic figures (college grad with debt, retirees, out of work people, people who have another job) who are already working a lot and need that extra incentive to supply services.
Thus, one possibility is to legalize it but tax it in a way that makes it slightly more expensive than taxicabs in situations that compete with taxicabs. That would largely limit Uber to surge situations and routes that do not significantly compete with true taxicabs.
A side benefit is that it would force the left to admit the folly that is their mantra of “price gouging”.
Aaand, anybody who says they have received worse treatment from Uber drivers than from taxi drivers have the built-in alternative of choosing to take taxis instead of Uber in the future.
I have heard zero tales of taxi companies going out of business, or even having to reduce the price of a taxi ride, when Uber starts up. I’ve only heard tales of the going rate for taxi medallions being reduced.
It’s akin to a corporation arguing for the regulation of a competitor simply because that corporation’s stock price had gone down. That is surely not sufficient justification.
You bring up a reasonable concern, but I would like to see how it plays out before I give in to my urge to regulate the traffic system.
Regarding the airport this could be sorted out with a Taxi line system like the taxi’s currently use. Uber would need to adjust programming so that they limit the number of Ubers available at the airport to a prescribed number at a designated location. This would not be much of a stretch considering they know where the customer is and where the Uber car is. A car cruising through the airport could then be excluded from being chosen until it gets to the correct location.
The rules should be the same as those for current cabs, no? Those are set generally at the municipal level, and I would suppose vary from city to city.
An Uber driver I had went through what he had to do in Houston and he said it took a couple of days to get the required permits and he had to have a fire extinguisher but he indicated the process was not that bad. I know there have been questions about the required level of insurance which I don’t think are the same for Uber and cabs.