G. Joseph McLiney: Crony capitalism that protects taxis hurts consumers

06/13/2014 5:03 PM

06/13/2014 5:48 PM

All too often we hear about the failure of capitalism. The real culprit isn’t the free market but in most cases crony capitalism.

This is when our government grants special privileges to a select few, while barring others from competing. The reason given for limiting market participation is almost always to protect the consumer from a fictional villain.

The reality is that crony capitalism restricts access to opportunities to all but the well connected and reduces consumer choices. A homegrown brand of crony capitalism was recently highlighted in a lawsuit filed on behalf of 250 independent cabdrivers against Kansas City.

It aptly demonstrated that 545 cab licenses were granted to only nine cab companies, Yellow Cab holding the lion’s share at 300. No new licenses will be offered for the foreseeable future. The annual cost of each cab license is $300.

What does Yellow Cab do with their permits? The company rents the licenses to independent drivers for $280 a week. Yellow Cab grosses more than $4 million annually to act as the city’s top appointed gatekeeper. No driving required.

In addition to independent cabbies forking over roughly $14,000 annually to work, they receive no benefits and pay for their gas. That’s a tough road considering that the Bureau of Labor Statistics (2012) states that the median income for taxi drivers is $22,820.

The drivers lost their court battle, but it appears with the help of true capitalism they may win the war. The arrival of the free market, in the from of ridesharing programs like Uber, Lyft and zTrip, has freed these once captive drivers.

They now have a method to start their own businesses; beginning with the thousands of extra dollars they won’t have to pay annually to one of our city’s chosen nine cab companies for the privilege of working. The results in other major cities point to success.

The San Francisco Cab Drivers Association reported that one-third of its drivers dropped their registered cabs to drive for these new tech-driven services over a 12-month period.

The predictable response from City Hall came moments after Lyft launched its service. Mayor Sly James wrote on his blog May 6 “…the City will not allow any firm to waltz into town with a business model that does not ensure public safety without taking measures to keep riders safe.”

Had our leaders bothered to check the companies’ websites, they’d discover that driver’s vehicles are inspected. They’re required to have adequate insurance and undergo extensive driving and criminal background checks. These companies also provide $1 million per driver in additional coverage.

Unlike the cab experience, these companies instantly provide a picture of your driver and car, its plate number, and you can track the driver in real time on your smartphone. In terms of comfort, customer services and safety, I personally found them to be equal to, if not superior, to traditional cabs.

It’s nearly impossible to believe that our leaders are truly worried about our safety with ridesharing services when almost in the same breath they announce the closure of the Westport Fire Station for budgetary reasons and continue their $472 million, zero-revenue-producing streetcar expansion project. If this is an example of City Hall keeping us safe, my only question is, who’s protecting us from our politicians and their chosen cronies?

G. Joseph McLiney of Kansas City runs a private investment firm specializing in public finance. To reach him, send email to oped@kcstar.com.

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