Saturday, May 21, 2016

Hamilton's War on the Cab Driver

Introduction

In order to put the current Uber controversy into some perspective, it is worthwhile examining some of the history of Hamilton's taxi business, going back over the last twenty-five or so years. I will be going largely by memory here, so if anyone disagrees, has better data, or any additions to my report, please feel free to include them in the comments section below.

I intend to demonstrate that the government of the City of Hamilton has steadfastly pursued policies which have had the effect of turning a once viable local industry into a weak, divided, angry, dysfunctional mess that was on the verge of collapse long before Uber Cab Inc. was given de facto free-reign to administer the final death blow. Most importantly, it is my aim to show that the people most hurt by government policy are the people whom politicians most sincerely and, in my view, nauseatingly, claim to care about, I.E. the poor, are the ones they harm the most with their hubristic interventions.

Whether the City's taxicab regulatory agenda was deliberately designed to crush the Hamilton taxi drivers, or whether it came about as a result of mere typical government negligence and incompetence is hard to discern. I will never forget the words of Doug Rose, Hamilton's licensing manager at the time, when he told me during a short private conversation, "What we intend to do is issue so many taxi owners licenses that the market value goes to zero." One thing is beyond dispute, the city has embarked on a wild campaign to flood the city with taxicabs over the next twenty-five or so years. The number of taxi licenses increased from about 303 in 1989 to 447 today.

1989

I had left the taxi business in 1983 to pursue a safer, more secure line of work. For the next five years, I never looked back. Then, in late 1988 I received a registered letter from the City of Hamilton, inviting me to obtain a copy of the taxicab license owners priority list. In those days, anyone could add their name to the list and there was no charge for doing so. Consequently, it contained many names of people who were not engaged in the taxi business, nor had any intention of ever doing so. I knew several of the people on that list and the thought that they would ever drive a cab was laughable. Nevertheless, it was legal to sign the list with the knowledge that, if they ever really did want to obtain a Corporation of the City of Hamilton taxicab owner's franchise, they would need to satisfy one condition in advance of being issued an owners permit (A.K.A - "plate.") They would need to be "actively engaged" in the Hamilton taxi trade for at least TWO YEARS in advance of becoming eligible. For a driver, "actively engaged" was defined as working at least two, twelve-hour shifts per week.

At the time, my name was at position 152. Due to the number of people ahead of me on the list whom I knew were unlikely to meet the requirements of obtaining their own plate, it was obvious that my real position was much closer to the top.

Unhappy with my corporate job at the time, I decided to test the waters by re-applying for my taxi driver's license and driving part-time. Business was fantastic. In the winter, traditionally Hamilton's busy time for cabs, I was able to complete about 70 trips in a twelve-hour shift. The economy was good. I decided to take the plunge and quit my corporate job.

I had one reservation about making such a critical decision. I asked myself, "But what if there is a libertarian revolution and Canada transforms itself into a totally free-market country and the taxi industry is totally deregulated?" My read on Canada's political/economic future told me that would never happen. Twenty-seven years later I can confidently say I was 100% correct.

Early Years

For the first three years following my re-entry things went well. The same old predictable pattern of slow summers followed by busy winters continued. Even though, as a libertarian, skeptical of the ability of government to regulate any industry with competence, there did seem to be some actual brain power manifest in the city's regulations. Supply and demand seemed to be well balanced. The cabs were busy, and the customers rarely had to wait more than five or ten minutes for their rides.

Then the recession of the early 1990's hit. It hit the cab business hard.

That is when my confidence in the intelligence, or motives, of Hamilton's taxicab regulators took its first hit.

Over the next few years, as the cab business experienced declining demand, the city regulators began to behave in the most inexplicable manner. They began to adopt policies that made ZERO ECONOMIC SENSE.

One thing they did was mandate higher fares. My limited understanding of economics tells me that increasing prices in a soft market is economic suicide, provided that the individual raising the prices, the guy who owns the business, is the one who suffers when demand falls off of a cliff. The key lesson here is that, in this case, the people raising the prices (I'll call it Gov. Inc.) were not the ones who would suffer from the reduction in business, and thus cannot be accused of committing suicide. It's more like murder.

Point #1: You don't raise your prices when demand for your product declines in a recession.

The next thing the city did was to issue about TWENTY-FIVE plates into this depressed market. Part of the impetus for this spasm of plate issuance was attributed to the histrionics of a city council member who had to wait too long for a taxi during a New Year's Eve bar rush. (Such is the manner in which human lives and fortunes are disposed of by the political classes.) The rank and file drivers were the ones who suffered the most from this new glut of taxis.

Point #2: You don't increase your capacity when demand for your product declines in a recession.

These two policies wrought incredible havoc on the Hamilton taxi business. Over the next few years half of the drivers left the business.

Years went by and the demand for taxis in Hamilton never rebounded to its former glory. Yet the city continued to issue more taxi plates.

Then in 2003 as a result of amalgamation, the city converted 75 worthless taxi plates formerly held in Dundas, Ancaster and Stoney Creek into standard Hamilton taxi plates. The value of those worthless plates sky-rocked to about $140,000. This whole process reeked of insider corruption given that many of the owners of these worthless plates earned instant windfalls. And many of these new plate owners had acquired multiple worthless plates before they were transmuted into gold. (The smart ones sold these plates to immigrants before Uber showed up.)

The rank and file drivers, on the other hand, faced with a sudden 25% increase in the number of cabs immediately lost much more than 25% of their earnings. Perhaps as much as 50%. (It's simple arithmetic.)

Also, concurrent with the 75 suburban plates, the city continued to issue more plates to the people on the priority list. (I was one of them.)

Doug Rose told me they were going to flood the market with plates to bring the prices down.

They did flood the market with plates. That much was true. But plate values continued to defy gravity. This phenomenon seemed to contradict economic theory. It had me scratching my head for a few years. What on earth could have been forcing plate prices up in spite of flaccid or declining demand for taxi services?

I don't know when the realization hit me, but when it did, it was one of those rare, "OF COURSE!!!" moments. How could I not have seen it sooner?

Immigration

As the 1990's wore on, I started noticing a dramatic change in the demographic composition of the taxi workforce. It was aptly demonstrated in that movie, I forget the name of it, where black detective Denzel Washington responds to the complaint from a Sikh witness about the violation of his human rights by saying, "I bet you never had a problem flagging a cab, though?"

Yes! Immigration is well known to have a "disruptive" impact on economic circumstances.

One of the major complaints about immigration is that it tends to depress wage rates in the host country. While more in-depth analysis of that claim may be controversial, there is absolutely no doubt that the immigration factor has had a major depressing impact upon the earnings of taxi drivers, aided and abetted by the concurrent activities of taxicab regulators.

The average immigrant who finds himself in the taxi business soon learns about the government run taxi plate franchise system. To that person, not encumbered by political ideology, the taxi plate is a form of property as real and legitimate as a house or a copyright. And coming, often from countries that are reputedly riddled with corruption, they believe that one of the greatest benefits of moving to the west is the so-called rule of law.

Hence, the artificial, government created market in taxicab owners franchises is as real to them as real estate or stocks and bonds.

The market value of Hamilton taxi plates was thus heavily skewed by two seemingly opposing factors. The first was the willingness of immigrants to work for much lower wages than the host population was willing to accept. The second was the intense competition amongst those immigrants to get their foot in the door in the Canadian Dream, which meant, becoming taxi plate owners, thus driving plate values UP.

The City of Hamilton's plan to decimate plate values had backfired spectacularly due to their failure to understand the impact immigration would have.

This short history covers only about twenty-five or so years. One must understand that the current crop of decision makers at city hall are blissfully ignorant of it. Yet the ghosts of Doug Rose's proclamation still seem to be guiding their policies.

Despite the failure of the agenda Doug Rose revealed to me, it seems the City's desire to drive plate values down to zero has found a new savior.

The Final Chapter: Uber Cab

I am not going to allow myself to get bogged down into explaining why Uber is just another cab company far from being an industry that "didn't exist a decade ago." To those who believe that the sudden explosion in taxicab supply on the streets of Hamilton can be attributed to "disruptive technology," I doubt I can change your minds. The sudden influx of this immigrant corporation, called Uber, has clearly shown that the "rule of law," that so many taxi owners counted upon when making critical, life impacting choices, does not, in fact, exist in Hamilton.

One thing I think we can all agree on is that the sudden withdrawal of the legal protection of taxicab owner's franchises will, undoubtedly, lead to the fruition of the agenda Doug Rose revealed to me. Taxi plate values will reach the intrinsic value of the U.S. dollar: Zero.

It will also lead to a doubling and tripling and .... ? of the number of taxicabs on Hamilton streets along with a doubling and tripling of human and physical resources made idle by distorted legal and economic factors.

Before Uber, the growing collection of cab drivers in Hamilton could have, at least, allocated their time by driving the 447 licensed taxis in the city. Now we will have an unlimited number of idle taxis all competing for a small piece of a finite pie, as unnecessary resource dollars are spent on redundant vehicles, insurance premiums, gasoline, and cars.

Who wins from this scenario?

1 - the brokers. The more cabs there are, the more they collect in dispatch fees. (currently about 6% of the gross revenue per cab.)

2 - the insurers. The more cabs there are on the streets, the more they collect in premiums. An added plus is that the more cabs there are, the less likely they will actually be moving.

3 - Uber. The more cabs there are, the more they collect in dispatch fees. (currently about 20% to 28% of the gross revenue per cab.)

4 - The politicians. Especially guys like Tim Hudak, who's ambitious promotion of one cab company over the rest is highly suspicious, to say the least. John Tory also seems to have a conspicuous role in all of this. Perhaps that is why he has blocked me from seeing or replying to any of his "tweets" on Twitter.

And even if the politicians gain nothing from their failure to adhere to their former "rule of law" convictions, they will still collect their salaries. Nor do they need to fear losing their seats since Gov. Inc. Taxicab regulatory issues are not a priority in the public mind.

Who loses from this scenario?

The drivers. Thousands of them, in a skewed global economy, all scrambling for a crumb of what is left over, tapping their fingers on the dashboard, or an iPhone, as they wait for that increasingly elusive, "ping."

Finally, I am often criticized for my liberal use of profanity in my broadcasts to the universe.

Not wishing to tarnish my reputation I will end my story with this:

Fuck!

Saturday, May 7, 2016

Toronto Sells Out to a Taxi Company: A Lesson in Crony Capitalism

First, let's start with the definition of crony capitalism from Wikepedia:

Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.

To continue this exploration, let's imagine there is a new taxi brokerage in town. Let's call it, "Crony International Taxi."

The other Toronto taxi brokerages will be called Taxi A-n. (n = 1, 2, 3, 4, etc.)

Next, we will consult the new taxi brokerage's driver's FAQ, to use Crony International Taxi's own words in describing the tilted playing field John Crony (not his real name,) promised to deliver when he said he was working to "level the playing field," between locally owned and operated taxi brokerages and the aforenamed corporate behemoth. Remember, when a politician says something, reverse the meaning to interpret his actual intent. Using this tried and true technique you will see that Mr. Crony made his intentions clear from the very beginning.

From the new Crony International Taxi broker's website:

1)

Toronto Regulations: FAQs May 4, 2016

When will the regulations take effect?

The regulations do not take effect immediately. The implementation date is likely to be months away. Until then, operations will continue in Toronto in order to provide riders with reliable and affordable transportation. We’ll notify you of any important dates as the implementation draws closer.

Unlike Taxi A-n, Crony International Taxi is able to operate in defiance of the regulations that apply to all other brokerages. If Taxi A-2, for example, were to dispatch taxi rides to individuals without taxi licenses, using their own personal vehicles to carry paying passengers, Taxi A-2 would be immediately fined and ordered to bring its operations into compliance with existing laws. Failure to comply would result in escalating threats and fines. Continued non-compliance would eventually result in a heavy crackdown by law enforcement personnel until Taxi A-2 either complied or was driven out of business.

What makes Crony International Taxi different from Taxi A-n when it comes to law enforcement?

Cronyism.

2)

Will drivers need a special license to operate?

Drivers will not need a special driver’s license to operate. Crony International Taxi will be licensed as a Private Transportation Company (PTC) and we will supply a list of active drivers to the City on a frequent basis. Drivers who pass Crony International Taxi’s screening process (unrestricted G license, clear background screening and passed vehicle inspection) will be granted a City license to operate as a PTC driver.

All of the other brokerages will be required to use taxi drivers that have been licenced and approved by the City of Toronto, and who have paid an expensive fee (currently $329.43 per year.) Cab drivers for the Crony International Taxi brokerage will be exempt from that requirement.

3)

Will the City impose fees?

Crony International Taxi driver-partners will not have to pay any licensing fees directly to Crony International Taxi or the City. However, there will be a fee of 30 cents per ride that will be added to the total fare and paid by your riders. Crony International Taxi will collect and remit this fee to the City.

This could actually add up. In the Toronto area, Crony International Taxi is reported to provide about six million rides per year. That would result in about $1.8 million dollars in fees for Toronto, about half the amount paid by the other Toronto taxi brokerages.

This is likely to change over time with the new two-tiered taxi bylaw. Crony International Taxi will continue to grow as the rest go out of business. Surprisingly, this scenario gets a lot of applause from libertarians who equate crony capitalism with free-market capitalism.

5)

Will there be mandatory training for drivers?

There is no mandatory, City-administered training for drivers, but Crony International Taxi will continue to offer educational videos online.

"Educational videos online."

The City of Toronto has decided to scrap its mandatory 17-day training program for drivers hired by the other brokerages in order to make it look like they are actually levelling the playing field between Crony International Taxi and the rest. In truth, the city is finally admitting that its 17-day training program was a fraud from the start.

According to Sunil Johal, policy director at the University of Toronto's Mowat Centre School of Public Policy and Governance,

"A lot of people felt they weren't getting good service from drivers who were going through that training service anyway."

Taxi driving isn't rocket science. There should never have been such a course in the first place. Even so, before Crony International Taxi blew into the Toronto taxi market it would have been impossible to convince Toronto city council to abolish it.

What made the difference?

Cronyism.

6)

How will vehicle insurance work?

We have been working closely with Intact Financial to develop a new and innovative insurance plan for ridesharing that will meet the City’s new requirement. This insurance plan is undergoing regulatory approvals by the provincial insurance regulator. If approved, this insurance program will be held by Crony International and provide commercial insurance coverage on all Crony International trips. In the interim, every Crony International ride in Canada continues to be covered by auto liability insurance with Crony International’s current insurance provider.Crony International maintains insurance for bodily injury and property damage to third parties and we also have a well-established claim notification process.

In other words, Crony International Taxi can have the best of both worlds. It can continue to operate while claiming it has "insurance for bodily injury and property damage to third parties" at the same time as it wheels and deals with Intact Financial to develop a new insurance product to do .... to do what?

8)

Will my car qualify?

The City will impose a vehicle age cap of 7 years, which will not take effect immediately. For now, all vehicles 10 years or newer remain eligible for Crony International. We will send more information this summer to anybody with a vehicle older than 7 years old.

Well, Crony International Taxi drivers have already figured out how to get around the vehicle age requirement. You don't have to be a brain surgeon, or a Pakistani medical doctor, to drive a cab.

This is what I would do if I were to sign up as a cab driver with the Crony International Taxi brokerage. I would register my 2010, Crown Victoria. Then I would buy a used taxi from one of the many dying non-Crony International Taxi operators for about $500 and use that car for running my taxi business.

"Niagara police say they also learned that one driver is “currently charged with a criminal offence,” one was not the advertised Uber driver of record, one vehicle did not have provincial registration, and three drivers were from outside Niagara Region and “did not know the area.” -- see "Niagara police charge 20 Uber drivers"

9)

Will my vehicle require another inspection?

All vehicles must undergo an inspection based on criteria to be laid out by the City. We will provide details (potential dates, locations, costs) in coming weeks. We’ll work hard to make this process efficient and affordable!

If the "criteria to be laid out by the City," are anything like the rest of the special rules for Crony International they will probably resemble the following:

  1. Does it have four wheels? Check.
  2. Does it have an accelerator? Check.
  3. Does is have a steering wheel? Check.
  4. Windows and seats? Check.

And if it happens to include more onerous standards, like tire wear, Crony International cab owners will soon figure out ways to get around this, as taxi owners in the past have done.

Step 1: find a willing garage.

Step 2: before the inspection, put the vehicle on the hoist and replace the old tires with a brand new set of borrowed tires.

Step 3: take the vehicle to the designated inspection station and receive a pass.

Step 4: return to the garage and get them to put the old tires back on.

If you don't think Crony International cab owners will resort to this tactic then you probably also believe that Crony International cabbies won't be negotiating off-app trips for cash.

Which finally brings us to,

10)

Will vehicles require cameras?

There will be no requirement for cameras in vehicles.

All of the other taxi brokerages will require the expensive cameras. So much for levelling the playing field by placing expensive burdens upon all but the favoured (crony) brokerage.

One clueless Toronto politician is reported to have opined that Crony International cabs should not require cameras because all of their trips are paid for by credit cards.

Anyone who actually works in the business knows this claim is laughable. Of course, Crony International drivers are accepting cash payments for their services. Why wouldn't they? They save on Crony International's 25% brokerage fee as well as other enticements.

Conclusion:

Meet your new taxi broker, same as the old taxi broker.

Meet your new taxi driver, same as the old taxi driver.

I have almost forty years experience in a business that has, at least, a four hundred year history. Human nature, and political/market forces, never change whether they are manifest in a welfare state or an idealized laissez-faire system.


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