Matthew Feeney writes on the Cato Institute blog about taxi deregulation. As expected, Feeney comes out in favor of (some) deregulation but also, which should perhaps be equally expected, manages to completely undermine the case for the market.
The post is intended as a response to a rather woolly op-ed in the Washington Post by one Catherine Reampell, who argues that deregulation of the taxi market has already been tried and that it led to higher prices and (!) lower incomes for drivers. This, of course, is interpreted as necessarily being to the detriment of consumers and consequently deregulation should not be attempted again. Feeney’s highly confused response (1) agrees that deregulation didn’t work, but that (2) it is different now because of technology (primarily smartphones and mobile GPS). So: it might be better this time around.
Feeney’s pro-deregulation argument decisively puts the proverbial cart before the horse. A regulated market, he argues, can be deregulated if technological innovation has come so far that it supports market coordination. Indeed, states he, deregulation of the taxi market would be different now and could actually work out
thanks to relatively new changes in technology that allow passengers to overcome knowledge problems that led to price increases in deregulated taxi markets
The conclusion is that they
have the opportunity to develop products that can address the lack of information which contributed to taxi prices rising in deregulated markets. There may well be good arguments against the deregulation of the taxi industry, but such arguments must take into account changes in technology.
This makes no sense whatsoever. The kind of technology Feeney thinks is a prerequisite for market was quite obviously developed by actors outside that realm of regulation - not by the insider companies protected by it. This should be expected: regulation limits supply by providing artificial barriers to entry, higher profits, and therefore lower incentives to innovate. This explains, to use Rampell’s words, “Big Taxi[’s] resistance to innovation.” Uber, Lyft, Sidecar and those other companies acted outside the regulated market and had very strong incentives to innovate - they challenged the protected market.
Had taxi companies had similar incentives (had they been competing with potential entrants) they would probably have come up with similar solutions already, in order to compete for customers. But as actors in a protected guild they had no reason to.
This is not an issue of waiting for technology so that the market can function “better” when deregulated, as Feeney seems to think. It is a matter of letting market actors come up with new technology in order to compete. For this to be the case, the market needs to be unregulated.
Interestingly, and in contrast to both Rampell’s and Feeney’s storyline, there are examples of service-improving innovations in the taxi business - but they happened in relatively deregulated markets. For instance, Taxi Stockholm, the largest taxi company in the Swedish capital, has an automated system for scheduling pickups using the registered address of landline phones. It was introduced years before there even was a smartphone, and it was in contrast to Rampell’s account a great improvement in service and works much like Feeney’s preferred smartphone apps.
It should be no surprise that Taxi Stockholm’s system was developed and introduced as a means to compete in an already deregulated market; it was not a reason for deregulation.
Yet Feeney’s strange belief that technology development precedes markets, rather than is a result of innovation in competitive markets, fades in comparison to the implicit assertion by both Rampell and Feeney: that markets only work well if they are optimally regulated (or, I supposed, perfectly competitive). Both of them seek optimal regulation for the sake of consumers. What separates them is that Feeney seems to think technology now allows for markets in passenger transportation. Finally, in 2014, technology is mature enough to support a deregulated taxi market!
The reason for Feeney’s Cato blog post is that he doesn’t fully agree with Rampell. It would be dishonest to not here note that they in fact have slightly different opinions only on what “optimal regulation” means.
Rampell summarizes her argument by stating that “It’s government’s job to figure out which rules of the game actually serve consumers - and workers - best in the long run.” To her, this of course means a gargantuan regulatory apparatus to create privileged guilds and suffocating rules and taxes. Feeney, judging from his “response,” wouldn’t disagree with this, but also would not agree completely. As a champion for markets, he would likely add something like: “where technological innovation solves the knowledge problem, it makes some regulation superfluous - and then we can afford to deregulate the market.”
Needless to say, the policy-based discussion on how markets and regulations work are out of this world. Literally.
