Complaining about taxi cabs has been a national pastime since horses were dragging them down Sydney’s George Street. So it’s no surprise that everyone is talking about Uber — the Google-backed taxi booking app that’s disrupting the ancient regimes of the cab industry, promising cheaper fares and better service.
Customers are raving about everything from the price to fare splitting and emailed receipts, while the industry is having a collective stroke about the upstart newcomer.
The taxi industry has seen off mini-cabs, restricted the trade of hire cars, limited the entry of credit cards with arbitrary fees and shut down private-booking networks. The old money in the taxi industry has been masterful at manipulating regulation in its favour. So, on the face of it, resistance to change is just the usual whining of oligopolists who have realised the jig is finally up. But this view merely blames the regulated while letting the regulators get off scot-free.
As is often the case when an industry has the benefit of government “protection”, a few people at the top have been getting rich off the deal while a growing burden has fallen on those lower down. It’s these poorly paid, hard-working people at the bottom who will feel the brunt of change.
The people who own the networks to which all cabs must belong make money, people who fit out and insure cabs make money, people who own Cabcharge make money. The guys who drive the cabs make about $11 an hour, which is less than the minimum wage. The reason a taxi ride is expensive for customers but still barely enough for drivers to live on is because the government sets a made-up price for the taxi licence. In NSW it’s about $400,000, in Victoria $250,000 and in Queensland $500,000. Which means the first $50,000 a cab earns every year simply covers the cost of the piece of paper. The licence fee is set high to restrict competition. This is justified by the need to protect the incomes of people in the industry. But people in the industry are not taking much home because the cost of servicing the licence is high. Yes, it’s that circular. For those who already own their licence the high fees protect the capital value of their asset. But unlike, say, a factory or a farm, the principle asset in a taxi business is just a piece of paper made valuable by government.
National competition policy was supposed to address this. Competition policy had two main purposes: to provide cheaper goods and services to consumers; and to encourage businesses to become more competitive so that they could thrive in a modern economy. The failure of successive Labor and Liberal governments to apply competition policy reforms to the taxi industry has left it stagnant, unresponsive to customers and utterly unprepared for disruptive technology.
The industry may see off Uber with lawsuits or lobbying but it or something like it will eventually take off. Too many customers want something better and the government is running out of excuses not to let them have it.
The losers will be those who invested in taxi licences believing it would buy them a job for life, people who thought something the government priced at half a million dollars must actually be valuable.
National competition policy was premised on some compensation for the affected industries. Dairy farmers, for instance, went through a rough period of adjustment with some help to restructure. While life was tough for those who got reformed, it’s turned out tougher for those that didn’t. The industries which were notionally let off the hook in the 1990s are now in a worse situation than if they had been reformed a generation ago. Pharmacists will lose customers to the internet or supermarkets eventually. Newsagents have been protecting their trade in a product that almost doesn’t exist any more.
The Abbott government went to the election promising to revive national competition reforms under its Create Jobs by Boosting Productivity policy. The arrival of Uber is a timely reminder for the government to start this overdue work. Governments should never shirk from reform. In an increasingly complex and dynamic economy, protectionism simply engenders a false and increasingly temporary sense of security.
Cassandra Wilkinson works at The Centre for Independent Studies.
Home > Commentary > Opinion > Rank case of vested interests protecting their turf
Rank case of vested interests protecting their turf
Complaining about taxi cabs has been a national pastime since horses were dragging them down Sydney’s George Street. So it’s no surprise that everyone is talking about Uber — the Google-backed taxi booking app that’s disrupting the ancient regimes of the cab industry, promising cheaper fares and better service.
Customers are raving about everything from the price to fare splitting and emailed receipts, while the industry is having a collective stroke about the upstart newcomer.
The taxi industry has seen off mini-cabs, restricted the trade of hire cars, limited the entry of credit cards with arbitrary fees and shut down private-booking networks. The old money in the taxi industry has been masterful at manipulating regulation in its favour. So, on the face of it, resistance to change is just the usual whining of oligopolists who have realised the jig is finally up. But this view merely blames the regulated while letting the regulators get off scot-free.
As is often the case when an industry has the benefit of government “protection”, a few people at the top have been getting rich off the deal while a growing burden has fallen on those lower down. It’s these poorly paid, hard-working people at the bottom who will feel the brunt of change.
The people who own the networks to which all cabs must belong make money, people who fit out and insure cabs make money, people who own Cabcharge make money. The guys who drive the cabs make about $11 an hour, which is less than the minimum wage. The reason a taxi ride is expensive for customers but still barely enough for drivers to live on is because the government sets a made-up price for the taxi licence. In NSW it’s about $400,000, in Victoria $250,000 and in Queensland $500,000. Which means the first $50,000 a cab earns every year simply covers the cost of the piece of paper. The licence fee is set high to restrict competition. This is justified by the need to protect the incomes of people in the industry. But people in the industry are not taking much home because the cost of servicing the licence is high. Yes, it’s that circular. For those who already own their licence the high fees protect the capital value of their asset. But unlike, say, a factory or a farm, the principle asset in a taxi business is just a piece of paper made valuable by government.
National competition policy was supposed to address this. Competition policy had two main purposes: to provide cheaper goods and services to consumers; and to encourage businesses to become more competitive so that they could thrive in a modern economy. The failure of successive Labor and Liberal governments to apply competition policy reforms to the taxi industry has left it stagnant, unresponsive to customers and utterly unprepared for disruptive technology.
The industry may see off Uber with lawsuits or lobbying but it or something like it will eventually take off. Too many customers want something better and the government is running out of excuses not to let them have it.
The losers will be those who invested in taxi licences believing it would buy them a job for life, people who thought something the government priced at half a million dollars must actually be valuable.
National competition policy was premised on some compensation for the affected industries. Dairy farmers, for instance, went through a rough period of adjustment with some help to restructure. While life was tough for those who got reformed, it’s turned out tougher for those that didn’t. The industries which were notionally let off the hook in the 1990s are now in a worse situation than if they had been reformed a generation ago. Pharmacists will lose customers to the internet or supermarkets eventually. Newsagents have been protecting their trade in a product that almost doesn’t exist any more.
The Abbott government went to the election promising to revive national competition reforms under its Create Jobs by Boosting Productivity policy. The arrival of Uber is a timely reminder for the government to start this overdue work. Governments should never shirk from reform. In an increasingly complex and dynamic economy, protectionism simply engenders a false and increasingly temporary sense of security.
Cassandra Wilkinson works at The Centre for Independent Studies.
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