In the 1920’s and 1930’s, cities were faced with an issue. As unemployment increased, more people turned to taxi driving to make a living, and the taxi market became flooded with new drivers vying for riders’ business. With free market competition, drivers cut prices in order to attract riders and, subsequently, corners were cut to keep the operating costs low and profit margins high. This meant an increase in unsafe cars and unsafe driving. In New York, the answer to this problem was the Haas Act, which created the medallion system still used in New York and many other large U.S. cities. In cities with this system, the government sells “medallions” which are mandatory to operate a taxi. This allows cities to control the number of taxis, keeping supply low and decreasing competition among drivers. Within this system, the government also has control over the fares a taxi can charge.
Initially, the sale price of a medallion in New York was $10. However, over time as this limited supply of medallions were traded in the secondary market, prices increased exponentially averaging $5,000 by 1950 and selling for up to $1 million as recently as two years ago. How can a taxi driver afford to pay $1 million for the right to drive? Typically, they can’t and must either take out a loan similar to a mortgage to purchase a medallion or rent from a larger conglomerate that owns multiple medallions. The cost in either case is a significant overhead expense for the driver. While the medallion system’s apparent intent was to protect consumers, it also generated revenue for and granted increased powers to the local government while pricing out many individual drivers or forcing them to work for a larger company e.g. Yellow Cab.
In recent years, however, with the advent of technology and the innovation of rideshare companies like Uber and Lyft, people are now able to avoid the medallion costs and use their personal vehicles to provide a service for monetary benefit. While this is good for consumers, who now have more options, and good for Uber and Lyft drivers, who can now monetize their personal vehicles and time, this has not been beneficial for the taxi industry. Taxi usage has been declining significantly: in April 2016, taxis accounted for 65% of trips by hired drivers versus 84% in April of the previous year. This hurts taxi drivers who have already purchased a medallion (for as much as $1 million) but it does benefit individuals currently looking to become taxi drivers as the cost to enter the market (the cost of a medallion) has been decreasing rapidly to as low as $320,000.
This has understandably raised the ire of taxi drivers who are forced to live with upside-down loans on their medallions. Some drivers have brought lawsuits against NYC and taxi regulators for regulating them out of competition with rideshares. Others have written to NY Governor Andrew Cuomo asking for relief plans and a temporary moratorium on medallion foreclosures. Current drivers have already seen help in the way of reduction of regulations; owners of single medallion can now sell to a fleet or independent owner, and are not required to drive their taxi a certain number of hours per year. So again, the competition introduced by rideshare benefits the highly regulated taxi market.
The rideshare movement does, in fact, go against the explicit intent of the Haas Act as it allows for more commercial drivers on the road; increasing competition among paid drivers. One anti-rideshare argument is that this will decrease the safety of the populace, as it did in the 1920’s and 1930’s. So let’s look at existing regulations that protect riders and compare the safety standards of rideshare versus taxis.
As an example, we’ll focus on New York and their regulations impacting for hire vehicles (FHV). To be any form of FHV driver in New York, you require a license from the Taxi and Limousine Commission (TLC). To acquire and keep said license, you must follow their regulations. For both a taxi and a rideshare vehicle this includes three inspections per year for emissions and safety.
So if the safety of the vehicle isn’t a problem, where does the issue with rideshare companies emerge? On a purely moral standing, one would assume someone has the right to offer their driving service to anyone for cash. However, other concerns come to the fore when people are driving an increased amount. Anyone is allowed to drive however much they want, but more time on the road means higher chances of an accident. So let’s look at how drivers and passengers are protected.
The TLC requires vehicles carrying 1-8 passengers to have a minimum coverage of $100,000 per person, $300,000 per occurrence, and $200,000 personal injury protection. Rideshare companies such as Lyft and Uber exceed this regulation, allowing $1 million in liability coverage per incident including for uninsured and underinsured motorists. Both companies also provide contingent collision and comprehensive coverage supplemental to the driver’s personal insurance to protect the owner of the vehicle up to the vehicle’s cost. Furthermore, when a driver’s app is on, their personal insurance is supplemented up to $50,000 per person and $100,000 per accident for bodily injury and up to $25,000 per accident for property damage in the event personal coverage does not cover the costs of damages. In this respect, all parties are equally covered in accordance with the law – drivers, riders, and pedestrians alike.
If taxis and rideshare vehicles both protect riders and drivers, what is the argument against rideshare? This comes back to the difference in costs to enter the market for one versus the other. As you remember, taxi drivers spend a considerable amount of money on a medallion – a barrier to entry of the taxi market. With the advent of any new technology, a market is influenced and irreparably altered. In this case, rideshare companies have devalued the medallion, once viewed as the beacon of safe transportation. It is now upon taxi companies and individuals who have purchased medallions to compete with rideshare companies. In the end, the outlet who provides the best service for the consumer as well as employment satisfaction for the driver will win. No one argues the Pony Express should have been maintained to keep jobs for riders at the sacrifice of convenience. Why then would anyone argue a more accessible program be halted to save a medallion system that prices out many independent drivers and allows larger companies and conglomerates to corner the market?
There will be areas of contention which need to be addressed as rideshare apps develop and change to meet demand. However, there is no reason to prevent technology from improving rider and driver experiences. Ask yourself, why should I, after going through all of the government-mandated hoops to legally drive a car, be forced to pay an exorbitant amount just for the right to be a hired driver? With rideshare markets busting through the government-generated oligopoly, the answer is and should remain: you shouldn’t and you don’t.
By Arianna Rose and Dylan Morgan