In Taxis’ Battle with Uber, Ugly Endgame Looms

The article below was published in the Boston Globe June 1, 2014

Written by Tom Keane, a Globe columnist who writes regularly for the Globe. He was a Boston City Councilor from 1994 to 1999. He is an expert in the politics of the City of Boston.

IT’S EASY to mock the taxicab drivers who encircled Uber’s Boston offices about a week ago, honking horns and protesting the upstart’s presence in their midst. They’re like Luddites trying to stop the spread of machine-made textiles, typewriter manufacturers objecting to personal computers, or travel agents outraged by services such as Travelocity. It seems obvious how this story will end: The taxicab industry, eventually, will be no more.

Or perhaps not. Many people have a lot of money invested in the status quo. They will fight to keep what they can. If the taxicab industry is to die, its death will not be pretty.

“People say this is good old-fashioned American competition,” a spokeswoman for the protesting cabbies said, “but that’s nonsense, because it’s not a level playing field.” She’s right. Right now, and like many other cities around the country, Boston’s hackney carriage unit, part of the city’s police department, dictates the conditions of service, sets prices, and tightly regulates supply. (The number of cabs in Boston is fixed at 1,825.) In effect, the industry is a government-created monopoly. One consequence of the monopoly is that taxi licenses, or medallions, trade for upwards of $600,000. Up to now, individuals and corporations have eagerly paid that price since, by owning a medallion, they and only they could pick up folks looking for a ride.

Then along came Uber, along with other new competitors such as Lyft. They use technology — a smartphone application that summons a car — to create a service that mimics a traditional taxicab but seemingly doesn’t cross the line to being a taxicab itself. You can’t legally hail an Uber car from the street. But from a consumer’s point of view, the difference is inconsequential.

The result has been a better product. Uber isn’t perfect; like any new company, it’s learning, making mistakes along the way. But that’s the nature of competition. And consumers seem to love it, with the result being that business for traditional cabs is down about 35 to 40 percent. Undoubtedly, that means the value of a medallion is falling too. Indeed, should Uber and its ilk continue to grow and succeed, one can imagine a day in the not-too-distant future when a medallion is worth almost nothing.

Which is why, not surprisingly, the industry is so desperate to put a stop to Uber. In San FranciscoChicago, and other cities around the world, cabbies are mounting protests, filing lawsuits, and lobbying local politicians.

When politics and business become enmeshed, the results are unpredictable. Many politicians will be sympathetic to the taxi industry’s arguments about drivers and dispatchers who might lose their jobs. Moreover, they’ll be sensitive to the economic claims of medallion owners, who will argue that they bought their medallions in good faith. If the rules change, they’ll say, shouldn’t they be compensated?

Using tax dollars to pay off medallion owners is almost certainly a nonstarter, however. Faced with this, the alternative will be to try to defend the taxicab industry: Load up the newcomers with stifling regulations; prohibit Uber cars from picking up passengers; impose mandatory pricing schemes.

Others will reject the industry’s argument that it deserves protection, arguing that taxicabs are like any other business, subject to the risks of marketplace changes. Medallions are like any other investment, with no guarantees about their value. There’s a precedent: Radio broadcasting licenses were once a kind of monopoly. But today they are worth far less because of competition from the likes of satellite radio and Spotify.

In the end, I suspect, most politicians will prefer to do nothing, letting the taxicab industry wither away amid ever mounting competition. But that outcome, which would ultimately serve the public good, is hardly certain. The industry is battling for its life, and the Luddites might well have their day.

 

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