Toronto’s taxi industry is hemorrhaging business to Uber, which has prompted debate about whether cab drivers deserve our sympathy and support. If we’re not going to ban Uber, Jonathan Kay writes elsewhere, we owe them a “lump-sum payment to make them whole.”
Certainly there’s reason to feel sympathetic for their situation. Cab owners invested in licences and the value of those licenses, as well as the income earned by cab drivers, has diminished since the city permitted Uber to disrupt the cabbies’ government-sanctioned cartel. The city is therefore responsible, at least in part, for their losses. But this does not mean it’s responsible for providing compensation for them.
This point becomes clear if we look at cab owners and cab drivers separately. Cab owners are investors. Cab drivers are labourers. Although there is some overlap between the two (about one-quarter of standard taxi licences are owned by individuals who also drive cabs), they are distinct groups, and the case for compensating either fails on different grounds.
A cab owner’s taxi licence constitutes property. It grants the owner an exclusive right to operate a cab and is generally capable of being transferred, leased or sold. A majority of “standard” licence owners arrange for drivers to lease their licences, at an average monthly cost of $1,700. This yields the owner $20,400 a year.
Last year, Toronto amended its bylaws to provide that, by 2025, all licences must be owned by drivers (excepting current licence owners, who get to enjoy their existing benefits). If drivers are also owners, the rationale goes, they will provide better service and will be better able to compete with Uber.
In limiting the market of future licence-buyers, this amendment furthered the decline in licence values, which had already been falling since Uber set up shop in Toronto in 2012. Then, standard licences sold for $360,000. In 2014, they went for $118,000. For both law and policy reasons, cab owners are not entitled to recover the losses that result from this regulatory change.
Regulatory changes produce losers all the time. It cannot be the government’s responsibility to compensate all of them
The law of “regulatory takings” provides that the government may only be obligated to compensate someone if a law renders a person’s property useless and the government effectively acquires the property as a result. Neither requirement could be satisfied here. A licence still enables its owner to operate a cab. And the city does not acquire anything from the amendment.
There are also compelling policy reasons for not compensating the owners. Regulatory changes produce losers all the time. It cannot be the government’s responsibility to compensate all of them. To do so would subject it to untold costs and distort private decision-making.
Consider, for example, an investor who buys stock in a company that is protected by tariff barriers. Most people would agree that the government should not compensate the investor for the stocks’ depreciation if it reduced or eliminated the tariff barrier, which caused the company to suffer losses.
Or take a homebuyer who buys a condo with an unobstructed lake view. Few would want the government to provide compensation for a slide in the condo’s value if the city amended its zoning laws and a high-rise subsequently went up next door.
The situation cab owners are in is no different. They invested in property, expecting it to appreciate in value and generate returns. The property’s value was affected by the regulatory backdrop at that time. They knew the property risked losing value if the rules or market conditions changed. It would send a perverse message if the government compensated them at the point that their investments ceased to be profitable.
Cab drivers are also without grounds for compensation. Their decline in earnings reflects a market correction. Their previous earnings were based on extracting surpluses from consumers in an uncompetitive market. We know this because Uber offers much lower rates and still generates a profit.
In any industry, workers will earn less or become unemployed if they cease to be competitive. The government’s role is not to compensate or protect workers that lose out in a competitive market. It’s to assist them in transitioning into other productive roles. It does this by providing a social safety net and subsidizing jobs and skills training.
We generally accept that the government should not backstop private losses. Adhering to this principle is difficult when the losses are large, or the circumstances seem unfair. But principles are only principles if they’re applied consistently in like circumstances. The taxi industry’s circumstances do not warrant straying from them.