Shopping for milk and hailing a cab are two everyday activities that do not seem to have much in common. Yet, they are more alike than appears at first glance.
Dairy products (along with eggs and poultry) are managed by a complicated system whereby the amount to be produced is predetermined. The system provides a healthy price for farmers, but this comes directly out of the pocketbooks of consumers. Each family pays an estimated $276 a year more for dairy products under this system than if farmers could produce freely, according to the Organization for Economic Co-operation and Development.
Taxis are organized much the same way. Local governments, in Toronto and most other cities, have the authority to restrict the number cabs allowed on the streets. And, as in the dairy and poultry industries, taxicab customers don't appear to have much say in how the industry operates. The result: They pay more.
The cab driver frequently has to split the fare with someone else: the owner of the taxi licence. The cost of owning the licence adds to the price of the fare. The Conference Board of Canada estimates that this system costs cab riders in Toronto an extra roughly $5 per trip. In cities where the supply of licences is more heavily restricted, the cost is even higher.
That's something to keep in mind as the City of Toronto tables a reform package for the taxicab industry (where most of the attention paid so far has been on proposed $25 "vomit fees" and fare-evading charges). A recent Conference Board of Canada report, "We Have Been Here Before: Supply Management in Transportation", estimated that taxi licences across 10 of Canada's largest cities had accumulated a value of $2.2-billion by 2007, and that number is almost certainly higher today. In Toronto alone, the total value of taxicab licences has increased by nearly $400-million since 2007. And Toronto licences are neither the most nor the least expensive in major cities across the country.
Under existing rules, a driver who owns a standard licence in Toronto effectively earns $20,000 a year more than one who doesn't – money that the owner either collects from other drivers, or simply doesn't have to pay in order to drive a cab.
Because the annual cost of leasing a licence is so high, the big dollars at stake in the reform package are actually tied to licence owners. Like dairy and poultry farmers, licence owners have much to lose if the rules change suddenly to increase the number of licences issued.
To its credit, Toronto undertook taxi reform more than a decade ago, which had a measurable impact. In 1998, each licence had an estimated resale value of about $80,000. The next year, the city introduced Ambassador licences, which require the plate owner to be the only cab driver. As additional Ambassador licences were issued over the next six years, the value of standard taxi licences rose only modestly, reaching about $96,000 by 2005.
Since 2005, when Toronto stopped issuing new licences of any kind, the average licence value more than doubled, to more than $210,000 in 2011. While the impact on fares during this period can only be estimated, it can easily be assumed that the cab fare becomes more expensive to cover the rising cost of just being in the taxi business.
There are almost 5,000 taxicabs licensed in Toronto, but when the city grows and the number of taxis doesn't, it becomes harder to find a cab. As a new reform package is debated, serving customers – rather than the drivers or the owners – needs to take priority. The central question ought to be how to ensure that cab customers across Toronto can find a taxi when they need one, while paying a fair price for the service.
Vijay Gill is director of policy research at the Conference Board of Canada and author of "We Have Been Here Before: Supply Management in Transportation".