Hailing for Change: Medallions vs. the Marketplace

in #money8 years ago

Now that I am officially "white listed" thanks to my friend @anyx - I can now start reposting some of the work I have done in regards to state and federal policy (hopefully y'all will enjoy it and this isn't too dry of a subject but I will blogging about plenty of other things as well...don't you worry - this is just content I already have that I would love to share with you all). So hear goes my latest and great piece about the sharing-economy. Let me know your thoughts in the comment section! Enjoy!


In the digital age, the monetization of personal assets has become a new phenomenon.  Whether it is renting out the spare bedroom in your house through Airbnb, using your personal vehicle to earn money by transporting people via Uber or Lyft, or even booking a luxury private jet at a fraction of the cost through JetSmarter.

Of course, such disruptive technologies become a target for bureaucrats who seek to erect barriers that dampen the dreams of intrepid entrepreneurs. But the so-called “sharing economy” is nothing new; indeed, the merchants on “Main Street” have always “shared” their inventories and distribution networks with customers for their mutual benefit. The contemporary economy has merely adopted technology to transform centralized commodities into more accessible goods and services.

On the cusp of this new age, it is imperative for policy makers to facilitate and guide the modern economy into unfettered prosperity, rather than relying on outdated regimes.

Ironically, Austin, Texas, a high-tech community that has long prided itself on its progressive vision for the future, is being held hostage by the entrenched interests of the past (in this case, the traditional taxicab companies).  On May 21, 2016, Austinites voted 56 percent to 44 percent against Proposition 1, which would have allowed ride-sharing companies to continue using their own background check systems.  With the defeat of Proposition 1, the city will now impose fingerprint background checks and other burdensome regulations on ride-sharing companies like Uber and Lyft.

After the loss at the ballot box, the two ride-sharing companies announced that they will be pausing operations in Austin until they can reach a reasonable agreement with the City Council.  In other cities, Uber and Lyft have encountered similar regulatory obstacles; they followed through with their threats to leave and returned only when the rules were changed.

The purported sticking point in Austin was the impression that these (non-taxi) drivers were somehow suspect operators, not having been vetted by the same government entity that oversees the licensing of taxi drivers.  This perception failed to account for the fact that the companies themselves performed their own “due diligence” background checks before putting their companies’ imprimatur on the drivers.  Private sector employers have as much incentive, if not more, to ensure that their brand is as free from potential liability as possible.

Moreover, the fingerprint background checks demanded by opponents of the ride-sharing companies are far from infallible themselves.  In 2013, the National Employment Law Project published a report indicating that inaccuracies within the FBI’s databases are blocking some 600,000 Americans annually from “jobs for which they may be perfectly qualified.”  The Department of Justice indicated that roughly half of the FBI’s databases are incomplete or inaccurate, largely because the agency fails to input the final outcomes of arrests.

The conflict in Austin may seem to some like a victory for public safety, but for most consumers, it ultimately limits choice, while protecting legacy taxicab operators from competition.  If more municipalities or even states, begin mirroring the actions in Austin, fights like this are going to become more frequent.  Ride-sharing companies, which have already been sued in San Francisco and Los Angeles, California and have announced plans to leave Houston, Texas, over the same fingerprint requirement.

Consumers love the freedom and convenience to choose when, where, and how they get from point A to B.  Uber and Lyft have loyal consumer bases, which could be a vital lifeline in the battle over burdensome regulations.  All other things being equal, the market should be the deciding factor for a business’s success, not the government.

The anti-competitive narrative that is percolating in cities and states begs the question:  why protect the greedy taxi cartels more than consumers?  The answer lies with the cronies of “big government” mayors and governors, who may be easily influenced by the political power of the taxi cartel, with its infamous medallion system.

During the Great Depression, New York City had between 15,000 to 25,000 cab drivers on the road.  With the amount of cabs outnumbering the number of passengers, cab drivers were forced to work longer hours in order to make the same money they had made before the cab market became so saturated.  In 1937, to resolve the issue, New York City Alderman Lew Haas decided to introduce legislation that would: limit the amount of cab licenses (or “medallions”) to 13,595; make medallions automatically renewable; and allow the owners to treat their medallions as tradeable assets.  The Haas Act was signed into law later that year by Mayor Fiorello LaGuardia, ushering in the era of the medallion system that remains in place today.

Under the current medallion regime, taxi cartels are making millions of dollars.  Medallions were first sold for around $10; now they can sell for over one million dollars.  And this artificial price rigging will not end any time soon.  Medallion owners are very politically active and can be quite generous with their campaign donations to those willing to block reforms that might threaten their financial interests.

Michael Bloomberg, Former New York City Mayor, was a bit skeptical of the Big Apple’s taxi medallion system.  In a 2012 interview, Mayor Bloomberg said, “The cab industry’s a funny industry. I don’t know of any other place in the world where the city gives a license and the people that have that license can then trade it and resell it and the city doesn’t have any interest and any ability to share in the value going up.”

Bloomberg went on to say, “A normal market, you’d say, ‘well, just issue more taxi licenses,’ wrong. Because they have bought the legislatures and stopped the ability to do that. It is one of the great rip-offs of the public any place I’ve ever seen.”

The introduction of Uber and Lyft into the market has cut the average medallion prices by approximately 50 percent, with the highest medallion now costing a little more than $650,000.

This price cut has caused financial problems for some of the largest medallion owners, compelling a few to beg the city for a taxpayer bailout, despite having forced consumers to pay higher prices for fewer options for decades.  Competition and consumer demand will continue to reverse the effects of the onerous medallion system for New Yorkers.  Hopefully, these same market forces will eradicate new regulatory hurdles where state and local governments are trying to stifle ride-sharing companies.

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Right now, we are seeing the same here... but the medallion is a whale upvote.It isnt hard to earn some money, but to get well paid you will need this medalion.

And that is the anti-competitive part of this notion that the government must first grant you an expensive medallion in order to do business within the city. Considering that the taxi demand isnt even close to being met in NYC (thanks to Uber and Lyft this void has been semi-filled), the government should not be dictating who gets into the market - consumers should. Consumers should be able to choose (through competition) the way they would like to best get around. Whether that is uber, a taxi, or a subway - the choice should ultimately be left to the consumer.

Thanks for you insight!

Sounds like Hong Kong taxi have similar system to NYC. It's a complete different economy here though compare to the US. It's quite expensive to keep a car here. The car itself isn't that expensive (unlike Singapore) but we get taxed to high heavens and the revenue gets piped back into public transport (inc taxi).

In effect, UberX drivers are barely making a profit because taxis are already so competitively priced. The only thing Uber had going for them is that their driver tends to have cleaner cars and UberBlack is filling the need in the premium market.

The Hong Kong government is actually responding and plan to develop premium taxi services, so it's good that tech innovation is driving (pun intended) real progress.

http://triptohongkong.com/2015/10/hong-kong-taxi-industry-considering-premium-taxi-service-to-fight-uber/

That is really interesting. I never knew that. I will defintely do some more research on this now. I always pondered how the rest of the world handled the sharing-economy.

But i think the medallion system is pretty popular around the world, for that was the old status quo/standard. The new norm now is the abundance of choice through permissionless innovations like Uber and Lyft. Governments have always had a tough time dealing with new technology. But the way some governments have treated Uber and the sharing-economy is quite odd.

I could imagine that is it very expensive to keep a car there (Hong Kong like Washington DC isnt cheap im sure). But it is interesting that the Hong Kong government is responding and planning to develop premium taxis - theyre literally conceding to the success of UberBlack by trying to develop their own way to do it. i mean i see how that is kind of punning but it is interesting that private companies are forcing governments to innovate and compete rather than regulating the industry out of the Hong Kong altogether (like some american states and cities are doing).

Thank you so much for commenting - your insight is very valuable! Glad to connect my friend!

I think the edge Steem have over Reddit is that it encourages on site content generations by a booming community. It's so much easier to communicate with the author and beyond all the bikini and whales, it's a good place to share thoughts and ideas with some forward-thinking individuals.