Smash The Taxi Cab Cartel

In most cities in America, anyone who wants to pick up and transport passengers in exchange for money must apply for a license called a “taxi medallion.” All taxi cabs in these cities are required to post the medallion in a highly visible location. In New York City, the cost of obtaining one of these “medallions” is on average up to $1.2 million. To purchase a medallion in Boston, you only need to pony up $600,000.

The reason medallions cost so much?

City governments cap the total amount awarded.

The arbitrary limits on the number of taxi cabs allowed to operate in a city has led to a situation where there are far more licensed taxi cab drivers than taxis on the road. For example, in Boston, there are more than 6,200 licensed cabbies in the city and only 1,825 licensed taxis. This artificially limited supply of taxi cabs has contributed to generally poor working conditions and mistreatment of cabbies, who are predominately immigrants and minorities.

Cab drivers are frequently ripped off by their employers and usually work 12-hour shifts. After gas and other expenses, they usually make only $8 or $9 an hour. In addition, bribery is a very common occurrence in the industry. Most of the time, abuses of taxi cab drivers and various acts of misbehavior by taxi medallion owners go unpunished. Why do big city officials – most of whom are liberal Democrats and supposed to be the champion of the little people — turn a blind eye to these abuses? It appears that a very cozy relationship has developed between taxi medallion owners and the people who are supposed to regulate them.

But despite the sorry behavior of some medallion owners, neither [Mark ] Cohen nor other [Boston] hackney officials could recall ever stripping a license from its owner.

“To my knowledge, we have never revoked a medallion,’’ Cohen said.

The special report from the Boston Globe where this quote originated shows the owners of taxi cabs are very politically connected. For example, one medallion is held by a high ranking member of the Massachusetts State Police and another is held by a friend of the mayor of Boston. The taxi medallion system is just another form of crony capitalism.

The way to stop these kinds of abuses and the toxic relationship between regulators and the owners they are supposed to regulate is to abolish the old taxi medallion system and introduce a free market to the taxi cab industry.

There are two factors in play that could help demolish the taxi cab cartel.

First is the excellent work that groups like the libertarian legal organization Institute for Justice is doing on behalf of transportation entrepreneurs all over the country. They have worked to eliminate the arbitrary caps the medallion system imposes by bringing suits all over the country. In Minneapolis, MN, Institute for Justice defended the city from the taxi cab cartel when the latter sued to restore the old medallion system. The taxi entrepreneurs won this critical victory for economic freedom. Just last month, Institute for Justice won a case that successfully smashed Milwaukee’s taxi cartel.

However, it’s not just lawyers who are breaking about these cartel — technology and innovation play a role as well. Over the past couple of years, some companies have created ride sharing apps which allow customers to electronically “hail cabs” via smartphone. An available driver picks up clients and transports them to their destination in exchange for a “donation”. It should be no surprise that the taxi cab cartel is opposed to the use of these services and is trying to regulate them out of existence.

The moral of the story is this: crony capitalism stifles innovation, entrepreneurship and encourages corruption. Conversely, free markets empower and improve the lives of ordinary people, promote innovation, and expand individual liberty.

To truly be concerned about the less fortunate is to support free market capitalism and to oppose cronyism. There is no real alternative to the empowerment that free markets provide. Smashing the taxi cab cartel will go a long way to empower those with an entrepreneurial spirit who are trying to succeed.

Ending the taxicab cartel will make it easier for cabbies who have to rent cabs from unscrupulous owners to own their own cabs and businesses. Finally, the remaining cabbies who do not to or cannot own their cabs will be in a better position to negotiate better pay and benefits their employers because there will be less of a supply of labor.

Only free markets and economic freedom can create win-win situations such as this.