Fix Taxi

Admittedly, previous reforms have come to nothing, killing by the violent dissent of the mighty taxi medallion holders - the licence that turns a vehicle into a taxi that can be used in Manhattan and at the airport. The present system included a disastrous mistake when it emerged during the depression, which only worsened as the city's economic system grew and transformed.

However, during the Depression many riders just let their licences expire, so in 1937 only about 12,000 were still in use. This year, under driver squeeze, the municipality adopted a bill restricting the number of locket medals, a border that finally reached 11,787. However, the Act went a decisive further: it allowed the present medal owners to obtain their licences on a permanent basis and allowed them to market the medals.

Later the town permitted individual persons to collect more than one locket and rent it to others. In other words, the municipality established a secure odopoly on the right to offer a taxi ride to an ever-growing municipality. Exactly like the preferred aristocrats and traders to whom the former rulers of Europe gave a sovereign right to valuable goods such as gold and silver, the firm number of medal winners, without ever raising a single hand, was certain that they would shape monetary value from the public's need for the services they control, a value whose offer became less and less likely to fully satisfy demands as the city's economies grew.

Like so often when the authorities restrict rivalry, the new system led to a steep increase in medal prices as the city's economies rebounded from depression and expanded. An original $10 locket recently traded for about $200,000 after sinking from a pre-recession high of $275,000.

Furthermore, the purchase and sale of these licences has become an activity in itself, comprising medaillon agents, taxi advisors and specialised creditors. For years, the tariffs New York drivers have paid have been supporting the whole sector and offering medal holders a high enough ROI to warrant a medal prize of $200,000.

Or in other words, taxi rates in New York are not too low, they are needlessly high. The reindeer category should be eliminated and cabin operators could feed on the present tariff for years. Whilst the system has proven to be a blessing for the fortunate medal holders and the companies that operate it, it has been an increasing drag for driver and taxi driver alike.

Over the past few years, medallists have had cabin fleet and employed pilots to run them for a wage, including driver medicals. Now the riders would be paying the medallist a charge to use the cabin for a 12-hour shifts. By the time a deluge of new arrivals opened up a boundless array of future riders willing to work for very low wages, rental rates increased to about $100 per night or $30,000 per year - which increased the yield of locket medals and their prices.

In the sector, the sturdy, lower middle-class driver squad gave way to a category of unexperienced taxi riders, among whom sales were high. The regulatory authorities responsible for the protection of the general interest were sitting there and watching the New Yorkers complain that this new category of driver did not know the town well, did not speak English well and often rode in a dangerous manner.

This system became an even poorer proposition for these low-wage taxi operators after the September 11 terrorist acts exacerbated the already ongoing downturn, kept tourist and corporate travellers out of the cities and depressed taxi operators for the first in years. Riders could no longer make a livelihood, actually lose cash for a few whole day if the rates did not include the $100 rental charge and the $20 extra fuel surcharge.

As a reaction to this, the medal holders pushed for a price raise which they said would return the riders, and in February Mayor Bloomberg promised his backing for a walk. Immediately, however, the riders resisted themselves. They pointed out that in the past, the owner just hiked the lease payments every times the municipality hiked tickets - and thus took advantage of most of the hikes.

"NYC has more taxi people than any other major town in the nation, but the driver can't make a livelihood because of the rental rates," says Bhairavi Desai, founding member of the New York Taxi Workers Alliance. It also points out that in the present downturn many car buyers have been willing to leave their car inactive instead of lowering their rents to put greater strain on the major.

Though this system is poorly transparent, the mighty medal holders, especially the approximately 20 large fleet holders, and the estate agents and creditors who back the sector, are among the largest policy financiers in mayor and city council racing and have thus frustrated previous reforms. Throughout the years, some of New York's most authoritative leaders have championed the interests of the property owner, from Bronx Democrat leader Stanley Friedman in the 1980s to Noach Dear, Chairman of the City Council's Transport Board and now a major beneficiary of the industry's campaigns.

He refused to submit to political pressures and in 1995 successfully won the city council's law, which raised the number of medals by 400 - the first amendment in 58 years. Subsequently, in response to the increasing flood of taxi crashes, he launched a series of security initiatives and compelled fleets to raise their insufficient third-party cover to a lower level.

However, his activities did little to resolve the fundamental problems of the locket system and its market-distorting effects. Even though most over the years have recognized that the system is broken, few have been able to understand how to repair it because the governments cannot just confiscate the actual medals from those who bought them.

They may be a kind of personal ownership completely fictitious by the goverment out of nowhere, but they are still personal ownership that some contemporary locket wearers have been paying up to $275,000. However, there is a way to end the system that does not include spoliation and would drastically reduce taxi running costs.

The core of a new system would be a new core of licences issued by the municipality to taxi operators only. Licences that would substitute Medaillons would be renewable every year, and if the riders gave them up, the licences would return to the town instead of being bought on the back market at extravagant rates.

In order to introduce this new system, the town would have to buy back all its present lockets, at least at the level of the prices the lockets holders pay for them, ranging from the $275,000 tip to only $35,000 for many lockets bought years ago. A buy-back of this kind would costs tens of million US dollar, perhaps more than $1 billion, but the town could find the resources it needed without paying taxes on the cash of the town by using the charges generated by the new licence system.

This is how the transaction could work: Under the new system, New York would bill taxi operators a substantial license fee of between $5,000 and $10,000 per year. Whilst the prize may seem precipitous, it is much less than the $30,000 or so a year that riders currently have to foot in lease charges to medal holders.

It would also increase the number of taxis allocated by lots to skilled candidates to around 25,000 to reflect the fact that business medals are currently rented to two layers of driver per diem. The license system would generate between $125 million and $250 million per year.

Then, the town would issue a loan supported by these special royalties to fund the repurchase of Medaillons. Finally, once the municipality has repaid the loans, the funds from the royalties would flow to the municipality, which currently does not derive any benefits from its taxi licences on an yearly basis. A step like this is certainly a better suggestion than simply increasing the tariffs again and handing over the next tariff rise to the medal holders.

In fact, under a new system that eliminates medalists - whose annual average of the industry's $1.3 billion is $750 million - the town would not have to increase tariffs for at least a decade. However, the city's tariffs would not be increased for at least a year. Medal winners would strongly oppose this reforms, both in court and in the town council.

However, what makes this occasion a singular occasion for changes is that the owner is more vulnerable than ever before. The temporary nature of the agreement has introduced a large number of new members to the City Council who are not traditionally followers of taxi drivers and have little debt to them. Simultaneously, the billion-dollar mayor Bloomberg, who funded his own electoral process, does not have anything to pay to the medal holders who have been buying their way into other politicians' minds for years with electoral donations.

Regardless of how fiercely the owner struggled, a resolute Bloomberg would see that he was holding the high card in this fight. It could - and should - stop offering increased fares to car holders, as in reality they only add to further medallion price bubbles. Also, the burgomaster and council could spend new lockets to dilute the value of the actual lockets until the owner realised they had no option but to buy the town.

A number of innovators have argued that the town should go further and fully de-regulate the economy so that anyone with a passenger auto can take it. On the one hand, before the system of medallions the roads of Manhattan were often overcrowded with taxi cabs, and there is little excitement for further traffic jams. In addition, tariffs that are subject to regulation save travellers from having to bargain the cost of each journey.

However, there are a number of marketing changes that the municipality could implement in this new system. Another, suggested by Edward Rogoff, a Baruch College senior manager who has long campaigned to end the system of medallions, would be that the city's tariffs would be the highest allowed, but allow riders to demand less and promote what they want.

Indeed, this is similar to the system that New York has today, with its 30,000 licenced paint trucks serving the city's areas outside the main commercial neighborhoods and highways. New York also adds 8,000 so-called blacks to the 12,000 amber taxis that drive in its downtown neighborhoods, providing higher-priced luxury services (see "New York's Unsung Taxi Triumph," Fall 1999).

The end of the old system should be a blessing for all except the medal holders and the hangars supported by this government-created mart. Taxidrivers are confronted with a much lower cost which enables them to live a dignified life at actual prices. Like in London, riders would become small bourgeois entrepreneurs, like today's Livreans, and not just real, exploited and available peons.

Taxis are one of the few companies in which it makes good business sense to regulate.