Where's Justin Timberlake to sing "Cry me a river" when you need him?
Image: Chris Helgren, Reuters
Among many things notable things in 2015, one thing that stood out is a "debate"that boiled over which I have followed for a long time, the ongoing "taxis vs uber" controversy. But really, the only people for whom I believe this is a "debate" or a "controversy" is taxi drivers. The debate has been falsely framed as an either/or proposition (people used to take taxis, now they take Uber) when it is anything but. Individuals make transportation choices based on cost, convenience, and speed, and when we examine the success of Uber and the inability of the taxi industry to do anything in response to it other than promote its own vested interests, it is a societal debate worth diving into in greater detail, because it is one in which information and context matters a great deal.
The reason information and context matter so much is that the issue is somewhat complex. But the service at the heart of it is not. A person does not debate the merits of regulated taxis vs. the sharing economy when they are trying to get from point A to point B. A person weighs all of their options and chooses the most logical option. And taking a taxi is not just a luxury, it is literally highway robbery. If you have ever sat in a cab on the highway while the meter is climbing so fast that you are nervously watching the exits fly past with trepidation, figuring out how many you have to go while this is costing you several dollars per minute, you know what I am talking about. A short distance of a few kilometres will cost upwards of $15-20; anything over 10 km involving highway driving can easily set you back $50-$60, and that's not factoring for traffic, which we know is horrible in Canada's three biggest cities. Couple that with long and uncertain waits for rides, mostly crappy service (more on that in a minute), the awkward exchange of money/refusal of credit cards/expectation of tip, the $4-5 just to sit down, and you can understand why, even before uber, taking a taxi was something I avoided doing at all costs. Maybe once or twice a year if I absolutely had to.
In fact, the last time I took a taxi was a few nights ago. In the midst of a holiday travel, delayed plane snafu dignified of comparison to Home Alone, I had to take a taxi from the Calgary airport to a nearby hotel where I was put up for all of three hours to sleep. It was after midnight, -19 C, and the shuttle had stopped running. I sat in the back of a heavily used car with no functioning seat-belts in the back seat (I had my 4 year old son with me), and paid $16 to be driven, by my estimate, about 4 km in 5 minutes. And despite being exhausted, frustrated, and barley coherent, am I really going to not tip this guy on Christmas?
Uber, on the other hand? Let's count the steps I go through as a passenger, which have been 100% consistent in my experience on multiple rides in 3 different cities 1) Push a button on my phone 2) Person shows up in immaculate new or nearly new car in less than 5 minutes 3) I know their name, what they look like, and what they're driving in advance of their arrival 4) Drive to destination, having a pleasant conversation about life and where we are on the way. 5) Get out at destination without exchanging money, costing almost always under $15. In fact, to illustrate the difference in cost between taxis and Uber, consider the example of one night when I went to visit a friend in a far flung suburb about 30 km from my house, had a bit too much to drink, and the highway was closed for construction overnight. I sat in an Uber for over an hour to get home. In a taxi this idling over that distance would run up well over $80-$100. The uber was $31.
These two paragraphs explain why there is no "debate" for people like me and millions of others who are looking for efficient and convenient ways to get from point A to point B. This is where meddlesome municipal politicians really need to listen up. We don't take Uber because the service is better; we do not care about "customer service". We do not want you to regulate the taxi industry even more, compelling drivers to follow a dress code and accept credit card payments. We don't care if taxi companies have apps. These developments are the result of trying to solve problems with a typical bureaucratic mentality which is "Oh, interest group feels threatened by x, and x is doing y. Therefore interest group needs to start doing y too, so we can legislate x out of existence." But the "y" is not the issue. Uber is not competing with the taxi industry, because, as I have just shown, I never took taxis to begin with. That is a choice I make as a consumer in a free market; if everyone was like me, the taxi industry could not survive due to lack of demand. If, on the other hand, Driver A wants to drive his car around and Passenger B needs a ride and Driver A is willing to take him, why do these six figure earning bureaucrats at City Hall think they are on some do-gooding crusade trying to stifle this legitimate transaction between two willing parties?
Some of issues with Uber that the taxi industry often cites can be hammered out relatively simply because they are, in fact, issues between individual drivers and their governments/insurance companies. One major argument is that Uber is illegal because its drivers don't carry commercial insurance. Well, if you are putting 100,000 km on your car a year driving Uber, you might want to make sure you are covered, but again, this is a discussion a private individual needs to have with their insurer. Same thing for uninformed people that claim they are paying no taxes; since Uber does not involve cash, all transactions are on record at Canadian financial institutions, and good luck arguing with Revenue Canada that the $40,000 you earned driving Uber should be tax-free. Other writers have brought up important points. Jon Kay's long form piece on Uber basically concludes that it is way better and the taxi industry's days are numbered, but because he trained to do both as research for the piece he made the important (and mostly overlooked) observation that taxis provide an important service to people with limited mobility and there is no compelling reason for Uber to do this. Other people have taken the social justice angle, wondering what kind of job security and retirement Uber driving can provide. Unfortunately this lament is related to the omnipresent one about increasing precariousness in the job market, inequality, and the ultimately unproductive discussion about the "good ol' days" when Ward Cleaver supported his family of four's comfortable upper middle-class lifestyle on his middle manager salary. Sad? A bit, but that ship has sailed and there's no going back, so why don't we focus on all the ways the world is better compared to the 1950s?
There is a profound lack of knowledge around the way taxi ownership works and how drivers are compensated which makes this simplistic debate wholly unproductive. The taxi industry has an interest in making you think that taxi drivers are legitimate hardworking business owners providing a vital and irreplaceable service and Uber are just a bunch law-breaking cowboys from the Wild West aiming to take that away from them. In fact, the taxi industry is home to a little-known extremely privileged group of rentiers who are able to exploit a vast pool of cheap labour year round, regardless of economic or market conditions. It is necessary to explain the concept of yield to illustrate just how disingenuous it is for these people to try and make you think that Uber are the bad guys for encroaching on their monopoly.
Let's say that you bought shares of the grocery store chain Metro in 1998. You paid around $4 per share and the dividend was 1 cent per quarter which is an annual yield of 4 cents or 1% return on your intial investment. Metro stock has split several times since then and they have raised their dividend on multiple occasions as well. So today if you buy the shares at $39 today your yield would be around 1.34%, but your yield from when you bought in the late 1990s is now up to 8%, because you got in for cheap at the beginning. That's not even counting the massive capital gain you still have not realized. Ergo, you have been hugely rewarded for your patience because would you sell an investment that consistently and safely yields 8%? (And pay the tax bill)? Probably not. But would you want to tie up a much greater amount of capital today to earn 1.34% from the same investment? Only if you expect it to keep doing the same thing.
Real estate in expensive cities works the same way. A triplex at Dufferin and College in Toronto, once a working class neighbourhood, would today fetch upwards of $1.75 million. The three apartments could be rented for perhaps $1,500-$2,000 each. But this is scarcely enough to cover the landlords costs even in this era of record low interest rates, PLUS the huge amount of capital he would have to tie up to even buy the property. If it is a long term landlord however, who has let's say owned the building for 15-20 years, he should be making a tidy return on his initial investment of let's say 375,000-450,000 in the late 1990s. If there is no mortgage left the income from the apartments is basically enough to live off of.
Thank you for bearing with me. Now understand that licences to operate taxis (sometimes called "medallions") function much the same way as the investments in the examples I have just described. People who bought medallions back in the day for let's say $5,000 or $10,000 now have people driving taxi for them, earning perhaps $200 profit every day the taxi is on the road. Someone who made an initial investment of $60,000 in 1980 owns today $1,200,000 worth of medallions. That's just on the medallions. Now the initial owner is not going to drive the taxis and make 300-400$ a day (which would be nearly pure profit), they are going to pay someone to drive who is going to earn $100-150 a day working 14 hours 6 days a week while they (the owner) collect $200-$300 a day pure profit from each taxi for doing nothing. Now you see how owning a taxi, for a long time, has been a licence to print money, because cities have limited the number of medallions for sale, creating a distorted market.
Now that poor bastard from Pakistan or Morocco or Bangladesh who is the face of taxi driving you see in Canada is working 12-14 hour days, 6 days a week, and can scarcely support himself and his family on the $650-$800 a week salary he is earning in Canada's large urban centres, so what does he think. He thinks, I'm going to borrow the money to own this taxi so I can be an owner operator rather than an employee. This way eventually I'll own the taxi and all the driving revenue will flow straight to me. But here's the rub. Today a medallion goes for around $200,000. So, the guy is going to have a mortgage on the taxi medallion plus a bunch of insurance and licensing fees and business licence and inspection and bullshit from city hall to own the taxi outright in 20 years. And remember the car has to be new-ish and replaced every few years. So these are the guys protesting and blocking streets in downtown Toronto and assaulting people at the Ottawa airport, and no wonder. They've been sold a bill of goods, and the medallions they have been working like dogs to payoff have already lost in some cases 30% of their resale value as the dark cloud of Uber hangs over the future demand of the taxi industry like the sword of Damocles.
Taxis are just like Metro shares or Toronto real estate. In the past, a long term investment would have been extremely lucrative but today, you are going to pay a hefty price for the promise of future earnings. And even though nothing is guaranteed in the investment world, people buying groceries and living in high-demand, centrally located areas seems like a safe enough bet today to demand a huge premium on those future revenues, even though there is no guarantee that today's investor will enjoy that immense run-up of capital appreciation an investor would have had up to now. Taxis were in the same boat, until Uber came along. This is why these Uber and companies like it are sometimes called "disruptors", and deservedly so.
We have, therefore, the vagaries of the free market which have created the predicament taxi owner/operators find themselves in today. There is yet another wrinkle which is the fact itself that they are owner/operators. It is never mentioned that at one time, someone could earn a middle-class salary driving cab for a taxi. In smaller communities, this possibility still exists today. My friend was earning $1200-$1300 a week driving a taxi in Belleville, Ontario, and he had none of the headaches or BS he would have had to deal with owning the taxi. In the big cities, however, demand is such that greedy municipal politicians legislated away such arrangements long ago, so that today all taxis on the road must be owner operated though they can then, of course, be driving by a driver other than the owner for a slave's wage. Bureaucratic overreach and municipal incompetence are of course never protested by cab drivers because monopolies tend to be accepted as unbreakable, but as soon as a new force that they don't understand emerges that people like way better, it is derided as a threat to humanity.
Humans tend to have short memories, especially when it comes to market history and the evolution of supply and demand. Did the thousands of workers who poured their life savings into Nortel stock in the 1990s block downtown Toronto when it was a penny stock just a few years later? Was there a bailout in the 1920s for people who were deep in the horse and buggy whip business in 1915? Are we going to setup a federal assistance program now for people who paid $800,000 for trailers in Fort McMurray when oil was $115 a barrel? It is imperative that politicians understand that taxis' fate must be decided by the market and they are there to defend the public interest, not prop up those of special interest groups which in this case they have done for too long already. We are not even protecting good middle class jobs by intervening in this industry as was successfully argued during the 2009 bailout of the auto industry; we are merely protecting a class of rentier-elite's ability to squeeze all the more cheap labour out of an all-too-willing, mostly immigrant underclass.
Unfortunately, as with all jobs, no one is entitled to make a living doing them indefinitely. Driving a taxi is not a human right. Drivers, you are not going to convince me or anyone else with your protests. And government, don't you dare take away Uber.
Happy New Year
*This blog will be undergoing a much-needed, long overdue re-think and re-vamp very shortly. Thank you for reading, and see you in 2016