Sweden and Ireland deregulated taxis, Toronto should too

Toronto’s City Councillors should take this opportunity to consider deregulating the city’s taxi market.

Deregulation won’t be on the agenda on Thursday when Toronto’s City Council debates whether to introduce a new, revamped license for the city’s taxi market and eliminate the two-tiered system of ownership – a result of rules put in place in the late 1990s – that currently plagues the industry.

But it should be.

Other cities (and countries) that have already moved ahead with deregulated taxi markets have provided thousands of jobs for entrepreneurs who couldn’t afford the hundreds of thousands of dollars needed to buy taxi licenses –a value largely a result of an artificial cap imposed by regulators. Consumers have also benefited, as they now spend less time looking for ride due to more taxis roaming the streets and greater choice, including riding exclusively in environmentally-friendly cabs or other services of their choosing.

Take Sweden, which deregulated its taxi market in 1990 by removing all barriers of entry, regulated fares and restricted areas of operation. In the wake of the deregulation, wait times for customers were greatly reduced, a wider range of cars were made available and specialization increased – with some cabs catering to business clients and others on general fares. Smaller taxis also became increasingly prevalent as it helped keep costs low for operators.

In Ireland, which deregulated its taxi cab industry overnight in 2000, the number of drivers who own the car they drive has dramatically increased – at the expense of wealthy owners who were often the only people able to afford the more than $200,000 for a taxi license when they were limited by regulators and then rented them out to drivers. A study conducted five years after deregulation found that customers were able to find a taxi more quickly, yet quality in service had not been compromised.

In New Zealand, one of the forerunners to deregulation, the number of cabs looking for customers more than tripled in cities across the country after deregulation, while fares decreased in real terms. Like other deregulated markets, greater specialization took hold, with taxi companies catering to different segments of the market.

And in Phoenix, deregulation saw one company transform its fleet into hybrid vehicles – a transformation that its founder says helped it separate itself from its competitors and become the region’s largest taxi operator.

Yet, Toronto’s Licensing and Standards Committee that regulates the industry, is not proposing deregulation. Instead, it plans to slowly eliminate the two types of taxi licenses currently available – one that allows the owner to lease out his vehicle and another where the owner must also be the driver – to one standard license for all drivers.

The result of these rules, according to the agency, will be an increase in the amount of time cabs are on the street and a better livelihood for the drivers behind the wheel. But at the same time it is recommending that both the total number of taxi licenses and the regulated fare charged to users remain the same – thereby eliminating full competition and entrepreneurship to take off. Consumers, then, will still have to rely on regulators to determine what the right number of taxis on the streets of Toronto should be – not actual demand.

Deregulation in the taxi industry has been shown to offer the very benefits that regulators are hoping to achieve with the proposed rule changes. The new rules pale in comparison to the type of competition and deregulation that already occurs in taxi markets around the world – and that has benefited both consumers and drivers alike.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or at (416) 964-9223 ext 236.

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