Presentation to Metro Licensing Commission

Lawrence Solomon

June 6, 1997

Thank you for giving me the opportunity to address you this morning.

I am Lawrence Solomon, Executive Director of Consumer Policy Institute, a division of Energy Probe Research Foundation. Our foundation is a federally registered charity with some 40,000 supporters, a quarter of them in Metro. We receive no funds from any interests associated with the taxi industry; the bulk of our funding comes from our supporters and other charitable grant-giving bodies.

This commission finds itself in a very difficult position. The actions of previous commissions have created a system in which the public suffers because there are too few taxis on the road, and those that do exist are often in poor repair and able to charge customers the same amount as a well maintained taxi.

In this system, taxi drivers also suffer because the shortage of vehicles creates a relative surplus of taxi drivers. This artificial surplus drives down the compensation that taxi drivers earn.

Under the current system, even the plate holders suffer — not so much from immediate hardships but from insecurity. Owners know they’re living on borrowed time, that they’re operating in a grey area of the law, and that their business could come crashing down on them.

They also know that your decision to tighten or relax the number of plates in circulation can cause large swings in the value of a plate, and those who bought high and sold low have been burned.

The Metro Toronto Taxi Drivers Association believes that the owners are profiting unfairly from the current system, and it points to the very large return on capital that the owners get for their investment in plates.

But I disagree with the claim that the owners’ return is unfair. For the same reason that an investor in a very risky bond demands a high return to compensate him for the risk that the bond may be devalued or even become worthless, plate holders require a very high return because the plate may be devalued or even become worthless. Plate holders are high risk players with a large upside and a large downside. This commission is the source both of their potential upside and of their potential downside.

The commission can take several steps to change the game by reducing the costly risks involved. The beneficiaries of doing so will ultimately be not just the public but the entire taxi industry, although companies that are not competitive may well be losers in the transition.

The commission should adopt a firm and transparent policy of greatly expanding the number of taxis in Metro, perhaps at the rate of 5 to 10 per cent per year for 5 years, following which the commission should grant, as of right, a taxi license to any qualified driver. At the same time, the commission should encourage taxis to advertise fares other than the posted fare, to foster competition within the taxi business on the basis of price and service.

If these recommendations are adopted, the public will be an immediate winner through the availability of more cabs on the road, and through a better choice of services delivered at differing prices.

Drivers will also be immediate winners. Because there will be extra cabs on the road, the cost to rent a cab will drop. And because consumers will have additional options, including lower fares, people will take cabs more often, greatly increasing the volume of business in the taxi industry.

Under our proposal, owners would have 5 years to adjust to change, during which the value of plates would steadily drop and then become worthless. To soften the transition for them, I recommend that all, or virtually all new licenses go to the existing plate holders.

I also recommend that the MLC establish a compensation fund to be used in cases involving hardship or inequity. Our study, which I believe you all have, describes the inefficiencies caused by taxi stands. To reduce these inefficiencies and further help owners adjust, the MLC could meter taxi stands over the next five years, and then after this transition period sell the taxi stands. All proceeds from the metering and the sale could help compensate owners.

But no one should assume that the taxi companies operating in Metro today will necessarily lose out once the taxi industry becomes fully deregulated. I have studied the history of many regulated industries, including electricity, gas, water, and public transit, and in every instance, following deregulation the industry expanded dramatically, with the newly deregulated companies often prospering to a much greater extent than before.

Toronto has a serious problem today in the taxi business, and any transition to an open taxi system will be thorny. But for the benefit of all the stakeholders in the taxi industry, not least of all the consumers, the sooner that clear and unambiguous rules are laid out, and the sooner the industry deregulates, the better.

Thank you.

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