Milwaukee's Taxi Monopoly Comes Crashing Down
As taxi and limo owners confront the reality that the cozy regulatory cocoon they've spun over the past several decades won't protect them from the twin elements of consumer preference and technological progress, their entreaties smack of desperation.
To hear the cabbie interests tell it, the arrival of services such as Uber and Lyft, which use smartphone apps to match willing drivers with ride seekers, will lead to all manner of fraud, assault, and carnage against unsuspecting passengers. A less shrill critique -- articulated in a July 18 Washington Post commentary by two members of the D.C. Taxi Operators Association's leadership council -- holds that these new competitors aren't following "the same rules and regulations" that govern existing cab and limo companies.
Of course, driver misconduct isn't unique to ride-sharing outfits. And it is far from clear in many jurisdictions that the regulatory apparatus governing taxis -- designed in large part to ensure the viability of existing operators and discourage new entrants -- applies to these modern business models.
But as these arguments fail to sway many riders searching for more convenient options, opponents of transportation freedom have unveiled another approach: In Milwaukee, they argue that they have a legal right to be shielded from competition at the expense of taxpayers, consumers, and entrepreneurs. The city offers an instructive case on the stifling effects of overzealous regulation -- and the lengths to which the taxi cartel will go to preserve it.
In 1991, Milwaukee imposed strict limits on the number of cabs allowed to operate within its boundaries. Those seeking to enter the market were out of luck unless they could purchase a permit from somebody who already held one. Earlier this year, Milwaukee had only 320 cabs, one for every 1,850 residents. Just 90 miles down Interstate 94, Chicago had one cab for every 424 residents. Denver and Phoenix had similar ratios -- 480 and 319 people per cab, respectively.
This dearth of taxis in Milwaukee did not reflect a lack of demand. In little more than two decades, the price for a Milwaukee permit on the secondary market had skyrocketed from $85 to $150,000, an indication that the arbitrary limit on supply had created a boon for cab companies at the expense of customers.
Enter Ghaleb Ibrahim and two other taxi drivers, who sought to own and operate cabs without paying six figures for a license. Represented by the Institute for Justice -- a public-interest law firm and my employer -- the three men filed suit in 2011. In 2013 a Milwaukee judge ruled in their favor, finding that the cap had no rational basis and violated the Wisconsin constitution.
The Milwaukee Common Council responded in July of this year by voting unanimously to abolish the cap on licenses and simply require that drivers meet basic guidelines on insurance and other health and safety standards. The move, effective September 1, also opened the door for Uber, Lyft, and others to enter the market.
But the industry has kept swinging, filing suit in federal court on August 25 seeking to block implementation of the ordinance or, failing that, to secure financial damages. Among other claims, the cab companies contend that, by dismantling the barriers protecting them from competition, Milwaukee has violated the federal Constitution's Takings Clause, which prohibits the government from seizing private property without just compensation. They argue that the value of their cab permits will be "destroyed" under the new system, so the city -- or, more accurately, the taxpayer -- owes them millions of dollars to make them whole.
The argument, while imaginative, ignores the inconvenient fact that the taxi permits were not a property right. Rather, the system was a gift from lawmakers at the expense of consumers -- and one that violated the Wisconsin constitution, a court has found. The lawsuit is akin to "the last gasp of the gaslight industry trying to hold off electricity 100 years ago," Milwaukee alderman Bob Bauman told the Milwaukee Journal Sentinel.
For too long, the cab and limo industries have employed political cronyism and protectionist regulation to fend off competitors -- all at the expense of innovation, efficiency, and service. Whether clearing the way for men and women such as Ghaleb Ibrahim to earn an honest living, allowing upstart endeavors to test the market, or awakening the entrenched interests to the realities of an evolving economy, Milwaukee's approach represents a victory for liberation over subjugation and holds the promise of increased choice for consumers.
The city's ordinance deserves to go forward.
John Kerr is a communications fellow with the Institute for Justice, a public-interest law firm in Arlington, Va., and a former editorial-page editor of the Las Vegas Review-Journal.