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todd hirsch

Todd Hirsch

It's an economic tale told time and again. Camera film makers. Video stores. The music recording industry. Perhaps most famously, the Luddites – those textile labourers in 19th century England who protested against the introduction of mechanized looms by smashing them. Many of them failed to adapt to new, disruptive technologies and went extinct.

Next on the list may be the taxi industry. Having enjoyed a regulated monopoly on intracity car transportation for decades, the industry is now on the defence. They're pushing against a wave of technology-driven cab alternatives that threaten their traditional model.

The source of the taxi industry's worry is, of course, Uber. Already active in cities around the world, it offers to connect riders with drivers through the use of GPS technology and easy-to-use apps that are downloaded onto smartphones. The drivers use their own personal cars, sidestepping the requirement to attain a taxi license. It's the perfect example of a disruptive technology that threatens to wipe out an industry unable to adapt.

Taking out half-page ads in newspapers across the country, the Canadian Taxicab Operators Group made their case for maintaining a strong, protected and regulated industry. But the best argument they could muster is that they offer "safe, secure service"– and by implication, they argue that any competitor would be unsafe and unsecure.

How does the industry believe that they alone are able to offer safety and security? This is the equivalent of the restaurant industry claiming that food trucks are unsafe, or the hotel association asserting that if you use Airbnb, you will surely be murdered in your sleep. (No doubt the restaurant and hotel industries are also displeased with the competition, but at least they don't play the "safe-and-secure" card in the fight against them). Requiring new competitors to carry the same commercial carrier insurance would be an easy legislative step.

The public is usually unhappy with the regulated taxi monopoly because cabs are often hard to get, particularly on weekend nights and during Christmas party season. But municipal governments have been slow to enact any real change. Adding more cabs isn't the solution. The problem is the bottlenecking that occurs on the dispatch desk. This is precisely the problem solved with the GPS and app technology.

To their credit, taxi companies are at least trying to stay competitive with their own downloadable apps to connect riders with cabs. But why did this take so long? Had the taxi industry seen the writing on the wall years ago, it would have been the first to develop the app. Instead, they're in catch-up mode. And judging by the tone of the newspaper ads, it doesn't seem to be working out for them.

My suspicion is that the taxi industry is less concerned about safety and security than it is about protecting itself. They basically say as much in their newspaper ad. Regulation of the industry is in place so that "the hard-working men and women who drive taxicabs can earn a fair wage." This self-preservation argument isn't surprising, but it's doomed to fail.

Canadians are less interested in preserving jobs for taxi drivers than they are about easily accessible transportation options. This is increasingly important from a public policy perspective because of societal intolerance of drinking and driving. No one wants to see any intoxicated drivers on the road, but that means governments have a responsibility to facilitate better options. Placing someone on hold for more than an hour to get a cab isn't the way to reduce impaired driving.

There are plenty of examples of natural monopolies in which regulating price and supply are in society's best, such as power utilities. How the taxi industry has been able to convince governments (and the public) that they too should receive regulated monopoly status is astounding.

Disruptive technologies are the driving force behind economic progress. And adaptability is the key to success when faced with the unwelcomed change. An inability to adapt spells extinction. If the taxi industry's only strategy to deal with the disruptive technology is to stubbornly argue about safety and security, there may not be much hope for it.

Todd Hirsch is the Calgary-based chief economist of ATB Financial, and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.