Tuesday, July 18, 2006

Pork Medallions, or The Taxi Cab Kingdom From Hell

Oligopoly: A situation in which a particular market is controlled by a small group of firms. Much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market. (Definition From The Columbia Encyclopedia, Sixth Edition, 2005.)

By Marvin Destin, Guest Columnist

"I lease a medallion from a guy for $2,400 a month who only works four months a year, and the other eight months he is in Bangladesh with his wife," said Ehsan Wadood, 53, while waiting in the taxi queue at the San Francisco International Airport. "The people who drive cabs should get the medallions, and they should not be privately owned."

Before I begin, I feel compelled to disclose that I love taxicabs. I like the concept to begin with. You call a number and your personal limo (ok, stretching it somewhat) complete with knowledgeable (also stretching it somewhat) driver arrives, and you get taken to the location of your wish, anywhere for miles around, relax (still stretching it) and get dropped off and rid of your need to pay for parking or fear the ticket monster.

For over ten years I didn't even possess a car while living here so I took cabs, not just to the airport, but as my primary source of vehicular transportation, even to softball games I played in. Entire dates conducted with multiple cab stops at the dinner, the show and the after party, whatever that might be. From depending on cabs while in my best duds, trusting I won't get soaked going to the Symphony on rainy nights, to frantic afternoon sorties for emergency pizzas at halftime or mom's mothers day bouquet or needed cold remedies, or extension chords, saw me take cabs. And while I will admit to being concerned at the time about availability in a time of crisis, my wife and I literally, not figuratively, took a cab with her in labor to the Hospital the night our first child was born; such faith have I exhibited in the SF taxi system. Triumphantly delivered the baby home in a cab as well.

However, I have not always voted for every measure supported by taxicab drivers, though I will say that what the people in the trenches, er, cabs, tell me about such measures does in fact influence my views when the measure comes up. I listen to them because they are the hands-on people. Through countless conversations from my back seat redoubt, over the decades, as well as the actual numbers provided to me by two cabbies from alleged secret meetings, I have studied and researched the economics as well. I know economics, balance sheets, and I run a business. So I'm in a unique position as a commentator. I'm not someone analyzing and writing about something I don't actually do as much as I'm commenting as an experienced and informed user.

This article is not about specifically analyzing or number crunching the economics of the cab business in San Francisco. Nor is it about the politics of the cab business per se. Instead the objective of this article is to leave all those consistently useless things to the purported experts who will trot out for the tenth time the outcome oriented studies and political agenda posing as white papers. Ferreting through the issues involving the taxi business, the political establishment should, I repeat, should, start with the premise of making the system work in a most efficient manner for the benefit of the most people; so that it augments the other transportation elements like Muni and the shuttles. But that isn't where the consideration in this area ever starts, at all. Any time you find discussion or debate about the cab business in this City, that is never where you start. Here you always start with medallions: the license required to operate each taxicab. And once you start there you will be unable to resolve anything. It's seemingly designed that way.

This is one of those issues that has a history and an evolution. The medallion is something that was invented in another time and worked well then because it was basically organizing something small with only a few moving parts. But as the area has grown and the transportation systems and needs have mutated, the medallion is looking like the knight in the Twilight Zone episode, transported accidentally into the future, who now stands in full armor, with his sword and lance on the Bay Bridge, at rush hour. It's an amusing oddity, but it is now blocking traffic.

I have known something for some time that both goes against my capitalist worldview as well as with what the powers that be in SF consider the proper way to conduct a taxicab business. The free market system in this case doesn't work, and it will never work, as long as any and every attempt to make the system better has to start in the very place that has an element that serves to thwart any attempt to make the cab business work here. Work defined as for everyone's benefit (as opposed to an oligopoly) or even for the sake of what the heck cabs are here for in the first place, which is not to enrich a few, but to convey the many.

Two forces conspire to this end. The first is that the medallion system has created a situation not unlike that which involves seats on the New York Stock exchange. By limiting the very license to operate (access to revenue flow from an existing and extensive market) you imbue monetary value to the medallion over and above its intrinsic costs. Unless you have one, you are not allowed to operate. The second force is the gravitational pull of the oligopoly. The small clique-like assemblage of the few who have the power to control the mechanism that impacts its operation and status quo via political influence, coercion, and threats.

Try to increase the numbers (of medallions, and therefore of cabs) and you immediately hear squeals of pain from the existing taxicab industry that will claim that "you can't make a living" or "it's already hard to make a living". That's a funny statement from someone who collects a daily gate fee from the driver that is doing all the work (who we never seem to hear from by the way). And if you try to let in more cab operators and intensify competition, then you hear "no one wins and everybody loses". Except, of course, for the city's cab customers, who would see costs plummet -- but that's another story.

This is analogous to a law being passed that's says that all people who physically move furniture must now also wear a 20 pound hat and the guy who owns the furniture moving company, his feet upon the desk, claims HIS back will suffer from the horrible strain.

Nevertheless, this is where the argument for scarcity comes from, and it leads inevitably to increasing the cost for service and to further and perpetual increases. In other words, those who currently control the racket want to remain unfettered by competition, so that they can perpetuate indefinitely. And as such, they get to determine the potential earning capacity (or lack thereof) of drivers, and the efficiency of service to consumers, forevermore.

Taxicabs used to have the whole lucrative airport business all to themselves. There simply were no other practical ways to get to the airport besides driving oneself if you didn't want to pack suitcases from the Millbrae train station. Then to induce "competition" into carrying people to the airport, the City saw the entrance of the "Airporter" bus shuttle. Like an elephant ride at Marine World, it was cumbersome and slow, but cheap. It cost some ridiculously low amount of money in the beginning (4 bucks?) but after taking the Airporter a few times and seeing myself and one other person alone on this huge bus, it didn't seem like it would take long for the cost of this service was going to go up a lot or forget it. Now everybody knows that with the exception of places like Venezuela and India, bus solutions never fix anything, never are the answer to anything, except more employment positions in some niche of the macro transportation system. But this kind of system always gets a vote and support by political establishments in socialist realms like modern American cities.

In the wake of buses came the Super Shuttle vans. Again, indisputably cheap to take, when given the initial right to operate ($7), (which is WHY they got the initial right to provide services to the airport) it didn't take long for the lie, er, claim, of the cheap fares to be revealed and replaced with higher fees for service. Today , a van shuttle ride for two people is almost the cost of a cab ride. Three people and it's even more costly.

And while the rules began to be changed to favor the bus shuttles and then to favor the van shuttles, taxicabs found themselves limited again and again in terms of their access. The penalties against them for transgressions against the maze of rules are swift, sure, and heavy. Because of those limitations, the costs (mostly waiting for the next rider) increased dramatically. And predictably, a labyrinth of rules had to be erected to control all the interests ins and outs, local drop offs versus longer drop-offs (for which a multi million dollar teeny booth had to be fitted into the entire airport building plan) shuttles versus vans versus cabs.

Lastly we now have BART to the airport. And as predictable as corn in Iowa and potatoes in Idaho it's losing many millions in record time. Surprise! I've tried this way to get to the airport and the problem is you either spend two hours getting to the airport (MUNI bus then BART) or you get (ta da!) a taxi to the BART which will cost you $15 plus the $4+ BART fare. So you are defaulted back to taxis or the shuttle vans. A brain dead monkey could have figured this out.

All this brings us back to the original story, for it is airport fares that remain critical in the world of the cab driver. Without airport fares to make up for the other far less profitable rides one gets, such as waiting for 45 minutes in the cabbie queue outside a hotel downtown only to have the unknowing tourist request a ride two blocks to their destination, it's almost impossible to make any sort of decent living over the long haul.

Again, one runs straight into the medallion issue all over again. Medallion holders tend to fall into two classes: those who own them and get free money by letting other people do all the work under its auspices, and those who own it and actually drive the cars and do all the dirty and dangerous work. And that, plus the artificial scarcity limiting cab service, comprises the problem, including the current problem engulfing the relevant parties: most especially Heidi Machen, the recently dumped head of the Taxi Commission.

You see, in the way in which the cab business issues fluctuate between being considered a "free market" enterprise and, at other times, a virtual Oligopolistic Monopoly, you end up with goal posts for all parties involved constantly moving.

On one issue the justifications and considerations will hail and salute the concept of the free market ("competition is best"), then on a dime it will turn and all forms of discussion and argument will traipse around in the realm of the controlled state managed and run bureaucracy-saturated economic system. But such aspects are confined to the discussion of the better part of the systems components. But one way or the other, the discussion, when reaching resolution, will always run up against the medallions.

And since the biggest holders of medallions are the very parties who want to limit their own competition, guess which way they always argue? Keep the status quo. Sound like you want change, make noise like you are all for "reform", but fight any true reform tooth and nail. And if someone is actually successful at combating you, run them off.

As you can see, just from this brief overview, it has all the characteristics of a Gordian knot.

Let me stop here and speculate on the unspeculateable. What would happen if the medallions were eliminated? I think one could easily predict the following things.

A group of people who have depended on the medallion for income, in some cases for vital needed income, would lose. Their number is small. The old lady or man who "built the cab business" or labored "with sweat and blood" for fifty yada yada years, would no longer own that equivalent of a meal ticket. The cab companies who own a ton of them would lose as it became worthless or was purchased via eminent domain from the holders for substantially less than its ongoing cash flow would produce. Litigation would ensue, as certain as sharks chase chum, but when did cities, especially THIS City, ever worry about that, especially here?

No medallions and free entry would mean that many more people would suddenly be free to "own their own cabs" and enter the transportation business, and this dramatically enhanced competition would crush prices for that service. The daily gate fee, that people who drive cabs must pay just to exist, vaporizes. It no longer costs a tribute paid to a third party just to be allowed to drive someone from a downtown hotel to a destination. People who would like to drive cars for fares would rush into the fray and enter the industry in fairly rapid time frame. There would be a period of wrenching competition. The new yet inevitable price wars would throw all the budgets of the van and bus services into a cocked hat. They might not make it. There would be widespread weeping and gnashing of teeth. It would suddenly make sense to take BART however, because 4 plus 5 is less than half of 20.

The customers on the other hand would pay closer to peanuts compared to now for a ride either to or from the airport.

Now we would all have the obligatory senile widow of "Old Frank Peters" (note: never a real name like Muhammad, Yevgeny, Mahesh, or Skycaptain Rainforest like real cabbies), the dedicated cabbie who, for 70 years, gave rides to fares. "His widow would starve," we will be informed, should the system ever change. "Those $350,000 per year people who would pay half price to get to the airport should all feel good about widow Peters living in the manner to which she had become accustomed."

We would be informed by the City Weird Bipolar Step-Uncles (as opposed to Fathers) that a massive outbreak of crimes and robberies committed against passengers from "rogue" cabbies was sure to occur, and that "rip off" fare gouging would occur; should we ever consider opening up the cab business to all out competition. We would also be informed that "the best" cab companies are all going out of business (You know, the ones that charge $60 (tip included) for a one-way trip to the airport so medallion holders can work two months and spend the rest of the year in Bangladesh).

In other words, if we allow the free market to inflict itself upon this economic cog in the transportation market all the current benighted and blessed beneficiaries of the oligopoly would lose. Everybody else would win. Drivers currently paying the gate and scraping by hand to mouth could now pool together and share the cost of a vehicle and get what they can from the people who need rides. The only thing mandated will be that a cab has to be painted like one. A medallion will be required but there will be no limit on them just as there is no limit on area parking permits. As such entry will be easy. Exit will also. You can't make it economically, you go poof just like in every other business that the City supervisors have proven over and over they could care less about.

So on the one hand we will have "prospectors" (just like in the gold rush) who will enter the business seeking their fortune and finding less than expected go out of the business without any sort of transaction or buy out or medallion inheritance or successor interest transfer that needs a lawyer or DOT hearing. They will flood the market and collapse pricing. Then a number of them will fall by the wayside. Those who remain will be those who figured out some way to make it and prices will raise somewhat from its trough. The public throughout all this will benefit to the tune of many millions of dollars saved via lower fares.

After the liberation, "gold rush", and subsequent weeding out, the situation would stabilize at exactly the right number given the real demand. If demand rises then more will enter, as demand falls the numbers would dwindle until it would expand again. The City could post demand, supply, volume, and pricing numbers on a website or general access location and the reaction could be quite swift to any supply/demand spike. You would have a core of consistent vendors and a pool of part time vendors. What you wouldn't have is an oligopoly.

Then there is the other aspect of this: Distribution. Most of the customers are downtown. Most of the hotels are downtown. Most of the rides to the airport are downtown. What can be done to distribute just the right amount of cabs to the outer zones of the City?

The easiest way for this need to be addressed is for the person who needs a cab to post his availability at a central command center and have ALL the people operating at that moment, who have available cabs, to all be informed at once and then the cabs whether by queue or by first come first serve they race to the waiting riders location. The "bingo" race is on. The City could even make money by allowing off track betting on the winner of the race. Don't laugh. Who would win; the Yellow at Haight and Market or the Veterans at Bay and Hyde for the fare at 33rd and California? Place your bets. I'm only half kidding. Anyone think ride wait times would increase if we did that?

You see the problem now is that a person generally can only call one cab company unless your aim is to purposely stiff one or two others who arrive after the winner. As it stands now, after contact you are at the mercy of that company. The doughnut batch with ten minutes left to bake could cause your cabbie to be a little late. Other cab companies might have three waiting cabs doing nothing but they don't have the rider’s order. Just the company, the rider called. Open up that ride to all companies simultaneously and that cabbie currently sitting in a line of cabs smoking his cig and doing his crossword as opposed to transporting anyone anywhere can remain in the line of cabs or high tail it to the waiting riders location and hope he gets the fare. Its Darwinian but it works. Again, who benefits? The rider. The customer.

What about poor widow Peters? Well tell me the last time the Government ever had a molecule of heart for the person whose property they just eminent domained for political reasons. Family farms, third generation body shop or sheet metal shop? "Screw 'em. We need 'low income' half million dollar condos". I could suggest something simple such as eminent domain-ing every last medallion permit and then putting every person in the position of the widow on the City pension system -- and the problem is gone. What about those who would lose money due to making medallions suddenly worthless? Tell me the last time the Government of this City cared a whit about "speculators" and "profiteers" except to legislate against them?

The only other possible course would be to eminent domain the entire industry and totally absorb it into the City MUNI. Stop laughing, please. I know, I know, bad economic bet, but so what. At least we would have semi dependable cab service for the whole City instead of just Downtown. It may lose money like everything else the City endeavors to do but everyone would be assured of cab service everywhere. At least until the next strike.

Perhaps the downtown should be total free enterprise and the outer regions, like the Sunset and outer Richmond, City managed. Worth pursuing if not trying.

The last area I want to dwell on for a minute is, in fact, the current dust up over Heidi Machen. Naturally there are a million rumors why this has happened, including a letter to the newspapers and posts on the Wall board, but even reading between the lines, the statements by avowed enemies of her, the ultimate reason why she had to go was simple: the public voted on and passed laws designed to insure that whoever owned a permit had to work to keep it. He who owns and operates clearly takes better care of both vehicles and customers. That was precisely something the profiteers (medallion owners) did not want to hear. The law said they MUST work the cab a grand total of 800 hours per year (two whole days a week). No can do, say medallion holders. That starving widow, clutching her medallion, is rolled out onto the stage drooling so we all get the message. Ms. Machen sealed her own fate, simply by forcing them to obey the law: by saying that the person who owns the medallion can't freeload and ride the back of someone else, and charge them for the privilege.

In other words, the only controlling legal authority we can impose on this living breathing and thriving racket, is utterly subverted by medallion holders.

Now, indeed, there could be many other aspects to this matter, but that is all I had to know to understand the whole issue. Like virtually every other political and or governmental system in this City, it has the appearance of being real but that facade is only for the consumption and for the benefit of outsiders so they think we are like them, like an English language protest sign at a Palestinian street demonstration. Taxi laws will always be made to look real, but behind the scenes the termites and the saboteurs abound. From all accounts, bad letters to the editor notwithstanding, it was Machen's insistence on upholding the law that got her removed. The Mayor, who could have stood by her, was busy at the time in surgery having another go at replacing the wet noodle he has for a spinal column with actual vertebrae. A ski jump on Fillmore Street he'll stand by; upholding the law, well -- that depends.

Yes indeed, the one deduced revelation of the whole core issue to ooze out of the fog is that the medallion holders -- who comprise the oligopoly -- don't want to work, they just want to collect the money. And in so doing they make the thing everyone needs far more expensive than it would be if Government simply refused to allow conduct within the operation primarily for the benefit of a few. Yet that injustice is the one being maintained by the political establishment, for the mere sake of political stability.