Taxi Drivers Protest Franchise Policy in Los Angeles

Los Angeles taxi drivers, many of them immigrants, are protesting the city’s reform efforts, arguing there should have been a public hearing before granting a contract to an outside consultant. The consultant is tasked with researching and making recommendations for reform.

On one level, the taxi drivers are right to be suspicous of outside consultants on taxi reform. Most consultants tend to favor the status quo and a tightly regulated taxi industry that inherently limits opportunities for drivers. Thus, many of these reports end up supporting caps on taxis, heavy regulation of companies, and regulating fares.

And Los Angeles has a particularly onerous regulatory process, significantly limiting competition and the ability to start a business and build equity. We highlighted this in a Reason Foundation study on “boostrap entrepreneurship” and economic opportunity in several U.S. cities (including LA). We devoted an entire chapter of the report to taxi regulation.

The current LA taxi driver protest is a bit different, however. I suspect the contract itself is not the real issue. Rather, its the fact the taxi drivers don’t have a voice in the process. In particular, they see the city’s franchise system as limiting their ability to make a decent living and wage.

But taxi drivers fear the whole process may now be “compromised,” said Hamid Khan of the Los Angeles Taxi Workers Alliance, an activist group.

Under the current city-regulated system, protesters say, most of L.A.’s 2,300 cabbies barely clear the minimum wage, even after working up to 16 hours a day, sometimes seven days a week. Many cabbies suffer work-related health problems and stress, the drivers say.

Still, the drivers said, most of the millions of dollars generated annually in fare revenue ends up in the hands of nine cab companies awarded franchises by the city.

Activists liken the “exploitation” of cabbies, who are mostly immigrants, to the plight of janitors, carwash employees and other low-wage workers whose predicaments have triggered highly publicized labor campaigns in recent years.

The Taxi Workers alliance is putting pressure on the city to revise the current franchise system, which is scheduled to expire at the end of next year. Critics call the system rife with opportunities for corruption and fraud, including few protections for drivers. The shortcomings were identified in a 2006 UCLA study.

Based on my research and experience working with cities on taxi deregulation, I think the taxi drivers have a point. The key, however, is not to go toward a medallion system, but to adopt a permitting process that grants licenses to drivers and companies based on performance. Performance criteria would center on issues such as fraud, abuse, and customer complaints, and be quantified with clear consequences based on findings of fact.

An example of how this might work in the real world can be found in my report to the Village of Port Chester, New York.