Statewide regulation best for taxis, ride sharing

Jefferson Parish correctly gave official legalization to ride share services (or, if you prefer, “transportation network companies”), but the debate over it has spawned a new one, over the issue of at which level government should the regulation occur.

After a couple of years of batting around the issue, the Parish Council approved a set of regulations that include nationwide criminal background checks and the possibility of random drug tests every three months and applied these to taxi services as well, and also standards for vehicle registration, and guidelines for drivers to identify publicly their cars as ride sharing providers. These largely mirror actions taken by other Louisiana local governments in which national ride share companies have started operations, all in the southern part of the state, except for St. Tammany Parish where its governments just wink and nod at provision of the service.

State law presently mandates entirely regulation of endpoint-to-endpoint for-hire transportation within a parish and ten miles surrounding it by local governments, hence the necessity of enabling ordinances for such services to operate legally. However, a number of states – 20 according to Public Service Commissioner Eric Skrmetta and 34 according to the leading ride share outfit Uber – have statewide regulation of services like Uber. The only Louisiana statewide standards come in the area of insurance for these drivers and their vehicles, passed last year.

Skrmetta asked for postponement of Jefferson’s ordinance, saying the PSC would forward recommended statewide regulation to the Legislature for next year’s regular session. But that unrealistically would have kept ride sharing technically illegal in the unincorporated parts of the parish, denying consumers use of it legally. Still, nothing prevents the state from usurping this power by a statute next year.

The question is whether that makes sense to do so. Understand that taxi services came under regulation out of concerns for safety and consumer fairness, but in submitting to this won barriers to entry that often create chokepoints on supply, opportunities to charge protected above-market rates, and reduced incentive to deliver quality. Ride sharing challenges this model because its relatively fewer regulations permit undercutting taxis on price with the possibility of better quality service.

Note that the two qualitatively differ in what they do. Taxis provide transportation (even if they often lease out the driving aspect), but ride share companies do not; instead, they deal with information in matching rider to passenger. Thus, regulation of this model must concentrate on the drivers who contract their vehicles used to transport, which should require less in the way of regulation.

Ownership structures also vary. Because of the relatively heavy capital investment that the medallion system commonly used encourages, taxi services typically have local ownership and physical facilities. By contrast, ride share companies who do not have capital needs and whose product scales geographically far and extremely inexpensively, typically operate in many jurisdictions with non-concentrated ownership and contractors.

Thus, political power asymmetries appear at lower levels of government on this issue. Localized entities such as taxis best exert power on local governments and can use that to maintain monopoly conditions – as many taxi companies have worldwide in trying to snuff out ride sharing through legal actions or increasing the regulatory burden on this competition. Particularly as the local government may derive revenues and its elected officials campaign donations from taxi operators, these may become reluctant to allow in competition that threatens the symbiotic relationship. They have much greater capacity to influence than do ride share companies, who only can threaten not to operate in that area to the disappointment of citizens, which sometimes gets governments to back off, and sometimes doesn’t.

Therefore, state-level regulation of both ride sharing and taxi services occurs optimally at the state level. It overcomes anti-competitive sentiments among local politicians fueled by relationship with the taxi monopolies they create, their ideology, or both. For now, Louisiana’s local governments should allow ride sharing to exist. But come 2017, the Legislature needs to step in to make uniform standards for both that place free market competition ahead of rent-seeking.