Licensing and the Poor

Are government licensing laws and regulations really an unmitigated good? They are supposed to maintain standards for the industry so consumers can get value for money. But does this happen? Judging by experiences around the world the answer is, no.

As in so many cases, government intrusion ends up hurting the poor and disadvantaged the most. Economist Henry Ergas points to the exorbitant pricing of taxis licenses in Victoria:

With returns so high, licences are naturally extremely valuable. Had licences been valued in line with a normal, inflation-adjusted, return, they would now be worth $60,000; in fact, they trade for $500,000.

Underlying those valuations are hidden taxes on consumers. Their extent is chilling: on my estimates, the accumulated transfer from 1985 to today is equivalent to taking $1000 from each of Melbourne's 4,130,000 inhabitants and giving it to the 3500 owners of taxi licences.

These sorts of prices, which are really just a government produced bubble, are really only good for those who already own a license. But whilst this protects the incumbent, it prevents competition from coming into the market and thus hits the consumer with higher prices and crappy service - after all, with little competition there is no incentive to please customers - and blocks any opportunities for the poor who can't afford the license.

But can't the poor just get jobs at the major monopoly company, Cabcharge? Well yes they can, but they get paid a pittance because the standards are so low it doesn't matter if those looking for a job are new immigrants and can barely speak English, or hardly know their job properly. Remember, there is little competition so there is no incentive to pay more to attract more competent drivers (another reason the free market is better at setting wages).

In Melbourne, the cab industry involves thousands of poorly-trained Indian migrants or students who have long protested they are paid well below the minimum wage.

Taxi driver Mukesh Kumah says some drivers only make about $8 an hour.

"They make around $200 on the meter. So, out of $200, they get $100. Divide by 12 hours. It's nearly $8 an hour," he said.

Another driver, Michael Jewels, says working in the industry can amount to "slavery".

(This also takes away the market's powerful assimilating effect where new immigrants would have to learn proper English and customer service)

Government produced monopolies like this usually come about because lobbies or big businesses are contributors to political parties or else hold some sort of concentrated power over the government. In this case its hardly surprising that Cabcharge contributes to Labor and Liberal state political coffers:

There has been a steady flow of donations by Cabcharge to both major parties in New South Wales, on top of a parallel flow of funds from the NSW Taxi Council.

Cabcharge has donated $137,100 to NSW Labor and $63,853 to the NSW Liberals, while the Taxi Council has given $152,400 to NSW Labor and $162,711 to the NSW Liberals.

This is nothing unique to Australia, economist Walter Williams has pointed to the absurd cost of a taxi license in New York City (over $700,000 and climbing) preventing blacks from getting those jobs, as opposed to the cost in Washington DC which is a few hundred dollars but where lots of taxi drivers are black. Its also unsurprising to see (ex)politicians directly involved in the companies benefiting the most from government favours - polies are often the first with their snouts in the trough:

Former Labor NSW premier Neville Wran has served for 10 years on the Cabcharge board and is still a director of ComfortDelgro Cabcharge.

Bizarrely enough, in this case, we have the Greens Senator - traditionally the party that loves big government programs - Lee Rhiannon calling them to account on this:

Senator Rhiannon says its appears Cabcharge have "an enormous influence" over the NSW Taxi Council.

"We're also aware in Queensland, South Australia and Victoria, political donations have been made by the taxi industry to Labor and the Coalition parties," she said.

If the Greens can make the right noises about this then surely the NSW and Vic Liberal governments can.