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John Hyde, “Regulation exacts a price,”
The Weekend Australian, January 11-12, 1986, p. 27.

Picked up with a blood alcohol only just short of proof spirit behind the wheel of a car during the festive season, a reveller tried this defence:

Your Honour, I would have gone home by taxi. I wanted to go home by taxi. I got drunk waiting to go home by taxi. It is the government’s doing that I didn’t go home by taxi. For the government to now punish me for not going home by taxi is not just.

My information did not record that the defence was successful, but the defendant had a point.

Taxis are often difficult to find — particularly so at Christmas and New Year — and it is the various governments which cause them to be difficult to find.

It is impossible to say how many drink-driving cases come before the courts, how many road deaths are caused, how many aircraft are missed, how many appointments are missed, and how many tourists offended, by government interference with a free market in road transport, but we can say with confidence that there are many of each.

Although it adds its two pennyworth to our troubles, the industry is not big enough to be justly blamed for the state of our economy.

The importance of taxis to the debate about living standards is that they provide a simple, uncluttered example of the evils of regulation that all but the wilfully blind can see and understand.

The Centre for Independent Studies (CIS) published a paper by David Williams and Michael Aitken looking at the history of taxi regulation in Melbourne.

(It is one of a collection titled Occupational Regulation and the Public Interest.)

In 1848 the Melbourne City Council (MCC) regulated hackney coaches and other vehicles available for hire.

Although the authors of the CIS paper could find no evidence of public demand for the regulation, it is possible, as there were no attempts to limit entry and the fares specified were maximum fares, that the law was intended to help the customer.

Seven years later the MCC set a full schedule of maximum fares.

By 1905 motorised taxi cabs were licensed and in 1911 these were brought under legislation similar to that for horse-drawn vehicles.

The fares specified were still maximums and barriers to entry were confined to driver and vehicle standards.

Taxi metres were made mandatory in 1924.

The big change came shortly thereafter, not from the authorities but from competition by Yellow Cabs.

They charged a set fee, cut prices by abolishing return fares and eliminating extra charges for extra passengers, and offering concessions for round trips and Sunday morning trade.

In their first year they carried two million Melbourne and Sydney passengers.

To compete with individual owner drivers, Red Cabs and Checker Cabs, and later Yellow Cabs, started hiring their cabs to the drivers, paying them on a commission basis.

Such was the still minimal level of regulation that during the depression many car-owning unemployed were able to earn a living by driving for hire.

Relative to earnings in other industries, cab drivers’ earnings fell, but the industry prospered because taxis were able to reduce costs.

Taxis may be contrasted with other industries where the regulated conditions of employment prevented adjustment to the depression and caused unnecessary misery.

Until 1932 the taxi industry had been relatively free, flexible and efficient.

Then the Yellow Cab Co, which had been able to enter the industry because there were no important barriers to entry, was able to induce the State Government and the City Council to limit the number of taxi cabs to 630. The number stayed at 630 until 1936.

To placate an organised group with votes for sale — the taxi owners and drivers — the government and city council discriminated against the disorganised unemployed.

In 1937 Yellow Cabs, which had entered the industry by price cutting, combined with the union to induce the City Council to make the maximum fare a fixed fare.

This time the discrimination was against the customer but it too must have reduced demand and ultimate employment.

Since 1848 hire cars (carriages and cars which did not ply for hire in the streets) had escaped regulation. As taxis became regulated these flourished.

By 1939 they were charging 6 pence (6d) a mile compared with the taxis’ 9d. Of course hire cars were regulated.

After the war 100 new cab licences and 75 new hire car licences were issued by ballot to the queue of applicants.

At this point Brisbane boasted more cabs than Melbourne and the MCC was under public pressure to increase licence numbers, but this was stoutly resisted by licence holders.

In 1951 the MCC issued 250 more licences and then the State Government gave taxi control to — you guessed it — a statutory board.

The board has rearranged the licences and eliminated the special driving test, but the number of vehicles has remained constant.

Would-be taxi owners bid up the price of licences until money invested in a taxi returns about the same as anything else.

A taxi plate now costs around $80,000. Interest on the $80,000 is built into costs and fares.

The real cost is borne by people who suffer the high fares and inconvenience of a deficient service.

If more plates were issued, plate owners would suffer a capital loss. If their equity was low, they could be in trouble.

Unfortunately, most of those who gained most from regulation have sold their plates and are now driving hansom cabs in heaven.

When taxis are deregulated, should today’s taxi owners be compensated for loss of the artificial value of a taxi plate?

They will benefit from the deregulation of other industries and the government did not promise to maintain the inefficient discriminatory legislation for ever.