Chicago taxi reforms don’t make up for lack of business freedom

On Sep. 30, Chicago Mayor Rahm Emanuel’s office announced the “2014 Taxi Driver Fairness Reforms,” which purport to be major improvements that “[put] thousands of dollars back into [Chicago taxi drivers’] pockets” and “[cut] bureaucratic red tape” these drivers have to navigate. The reforms, some of which will need to be passed in a new...

On Sep. 30, Chicago Mayor Rahm Emanuel’s office announced the “2014 Taxi Driver Fairness Reforms,” which purport to be major improvements that “[put] thousands of dollars back into [Chicago taxi drivers’] pockets” and “[cut] bureaucratic red tape” these drivers have to navigate. The reforms, some of which will need to be passed in a new ordinance to become law, will lower the maximum leasing fees taxi companies charge their drivers, streamline driver training, and will form a working group to “identify additional opportunities for reform.”

But for all the noise the city made announcing the plan, the reforms do little to nothing to fix the real challenges facing the taxi industry.

Many drivers had been pushing the city government, which controls how much taxis can charge for rides, for a fare increase. Chicago froze fares in 2005, and has comparatively low cab rates for a major U.S. city, even while it has some of the highest gas prices in the country. An advisory ballot in 2013 asked Chicago voters whether taxi fares should be raised, to which voters responded with a resounding “No.” Of course, consumers won’t volunteer to pay more for a service.

But why exactly should taxi drivers, unlike people in most other businesses, have to ask the city’s permission for change their prices? This disparity is exemplified in the departure of one major company from the U.S. altogether.

London-based Hailo, maker of a smartphone app that allows users to hail and pay for a taxi, announced this week that it’s completely shutting down operations in North America, citing a lack of profitability. It’s difficult to feel too bad about this, however. A Hailo executive testified in favor of burdensome restrictions on its competitors – ridesharing companies such as Uber and Lyft – at the Chicago City Council earlier this year. Perhaps it would have done better if Hailo had focused more on competing and less on lobbying the government to hobble its competitors.

Still, Hailo was one of the more forward-looking companies operating in Chicago’s taxi market. Like Uber, it didn’t offer a taxi service itself, but it allowed riders to use their smartphones to request taxis to pick them up anywhere in the city. Within minutes, a taxi would arrive and take them to their destination. All payments were handled electronically through the app, including driver tips.

But since Hailo connected its users with taxis instead of rideshare cars, all of its customers paid taxi prices set by Chicago. And so when given the option of taking a cheaper ride via UberX in what’s often a nicer car, it’s unsurprising that consumers preferred ridesharing.

A fare increase alone would almost certainly be disastrous for taxis competing with ridesharing firms, which already charge less. But the freedom to alter your business model and set alternative pricing arrangements is necessary for any business to successfully compete in the market. And as taxis face more market competition, they’ll have an ever-greater need to innovate if they expect to remain competitive.

Taxi drivers don’t need marginal reforms handed down to them by city officials. What they need is the freedom to make their own business decisions.