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Taxi Socialism

January 4, 2000

The great debate between Capitalism and Socialism has been settled, but we continue to experience an ever-expanding management of the U.S. economy, which itself is a form of socialism.

Mises wrote in Socialism: "It is the aim of Socialism to transfer the means of production from private ownership to the ownership of… the State." Socialism, as Mises proved, is an impossibility, owing to the insoluble problems of economic calculation that arise.

A hampered economy or mixed economy, with some mixture of government intervention/ownership and private property more accurately describes the economies of the world today, including the U.S. economy. These interventions lead to subsequently more interventions and ultimately to Socialism unless they are reversed. Fundamental to this change toward Socialism is continued violation of property rights and transfer of ownership to the so-called public sector.

Ownership consists of a "bundle of rights". Applied to material goods, these rights include the right to use a thing, to exclude others from using it, to do to it what you will, to enjoy its benefits and products, and to transfer title of the thing to others. As Mises wrote, "Ownership is power of disposal, and when the power of disposal is divorced from its traditional name and handed to a legal institution which bears a new name, the old terminology is essentially unimportant in the matter. Not the word but the thing must be considered." These rights fundamentally constitute the notion of property rights.

In addition to having a legal and moral aspect, these property rights also play an important role in the economic sphere. Private property is the cornerstone of the market system, since it provides the powerful incentives to deploy capital to satisfy the most urgent wants of the consumers. An entrepreneur who chooses to defy the preferences of the buying public will lose money.

The taxi cab industry in Montgomery County, Maryland, is a good example that illustrates how important property rights are curtailed and how market forces (the buying or abstention from buying) are stifled. I am told that the regulations in Montgomery County are representative of the taxi-cab industry in other jurisdictions around the country.

First, look at the how the industry is governed. Rather than each company managing its own affairs in accordance with the wishes of its customers, a taxicab services advisory committee is created. Members are appointed by the County Executive and confirmed by the County Council. According to the Montgomery County Code, Chapter 53, this committee is charged with the duty of overseeing the industry, carrying out the regulations and evaluating "the performance of the taxicab industry in serving segments of the population with special transportation needs such as the handicapped or the elderly." More important than the general will of the riding public, the industry is to be evaluated by the arbitrary standards of bureaucrats.

More egregious is the composition of the committee. The committee consists of nine members, five of which are "public members" and four of which are representatives of the "taxicab industry." The regulations spell out, in detail, who these people must be. Of the public members one "serves at the pleasure of the County Executive." Of the four taxicab industry members, two must represent management and two must be drivers. One of the drivers must be an owner-operator. Therefore, out of nine possible seats, the so-called "managers" or "owners" get three seats!

Worse still, the County sets the rates that the companies in this industry will charge. They also set the number of cabs that will be allowed to operate in their jurisdiction. The County sets the hours of when these companies must be open, and even determines who the alleged "owner" can sell or transfer his interest in his company to. One taxicab executive conferred to me that his regulators carry more weight with him than the riding public!

I have only scratched the surface of the depth of these regulations. It should be clear, based on the property rights outlined above, that in the taxicab industry the owner is an owner in name only. What we have is de facto public ownership of the taxicab industry. In a word: Socialism. Can the industry really claim to be a private company when they cannot even set their own rates or determine the number of cabs it wants to run? Is it really a free enterprise when the owners are not able to dispose of their interests without approval from government?

Economically, the market incentives are a shell of what they should be. Taxicab owners still run the risk of losses, but prices are no longer the guiding force of capital in this industry. Here, the owner is less inclined to satisfy the wants of the riding public. He has greater incentives to be politically connected and to satisfy his bureaucratic constituents.

The question naturally arises, why does the industry put up with this? Actually, they put up with it rather well. New licenses are only issued to existing carriers, as a practical matter. New entrants are excluded from participating in this industry.

If you wanted to start a taxicab business in Montgomery County, you would have to go through a cumbersome and costly application process that is far from a sure thing. Some of the hurdles are downright capricious, especially when you can be denied for "bad moral character."

As a result of the industry’s relationship with government, the existing players have an effective monopoly on the industry. Moreover, the industry is granted steady annual increases in rates each year. It is the perfect example of those cozy private-public partnerships that statists look at with such affection. The owners of the taxicab industry are less owners than they are stewards of a government run enterprise.

If the taxicab industry were free, then new entrants could come into the market. Rates would fluctuate based on the forces of supply and demand for the service. Owners would be able to freely transfer capital where they felt it would yield the greatest profit. They would have to earn their way by serving the riding public better than their competitors or they will be forced to exit the industry. The benefit for owners is, to the extent that their property rights are secure, that they would be protected from arbitrary authority.

As Tom Bethell wrote in his recent Wall Street Journal editorial, private property is the "perennial antagonist of centralized power." He adds that without private property "justice itself will be a haphazard and occasional thing."

Some regulation would likely be desired, but there is no reason why the public sector must provide it. Given the nature of the service, it is probable that consumers may want some assurance that the cab they are about to enter is safe and reliable. This could be accomplished by brand names. Well-run companies that serve their customers well will develop a trusted name brand that customers will show a preference for. Secondly, private organizations can independently test products and sell the information to consumers. These are just two of the ways the market can correct for information gaps that may exist between customer and service provider.

It is not fruitful to speculate too much about how the taxicab market may look if it were free. I am not a social planner. As Murray Rothbard wrote in For a New Liberty, "No one can predict the number of firms, the size of each firm, the pricing policies, etc., of any future market in any service or commodity. We just know--by economic theory and by historical insight-–that such a free market will do the job infinitely better than the compulsory monopoly of bureaucratic government."

Whatever occurs, it will occur because the consumers are willing to pay the price to reap the benefit. Services will be tailored to meet customer demand, not the demands of some supposedly disinterested bureaucrats.

The taxicab industry is one industry that is essentially "socialized." Whatever the politicians and other advocates choose to call such a policy, it is still a step toward that disastrous state of affairs called Socialism.

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Christopher Mayer is an MBA student at the University of Maryland.


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