Jul 24, 2011

Taxi cartels, ctd

My thinking on the taxi issue here in South Africa has been shaped a lot by Yglesias' posts on taxi medallions and barber licensing.  I know he catches a lot of flak for being a sellout on those issues, but I think it might be illustrative to consider the different situations here and back home, because (and I suspect Yglesias would agree) the solutions are exactly the opposite.

Via Wikipedia
The standard "neoliberal" story about taxi medallions goes like this: taxi drivers try to get the government to erect barriers to entry, to restrict competition and drive up prices.  The solution is to not grant medallions and instead allow as many taxis as the market will bear, subject to some more basic regulation about vehicle safety, driver's licenses, and so forth.  However, so far as I can tell, in South Africa there are no legal grants of association status for taxi organizations.  Instead there is market failure driven by insufficient government regulation (most obviously in law enforcement), leading to endogenous monopolies that then restrict competition and fix prices.  Now, obviously the details would vary a lot between each ideal situation, especially since the most obvious problems with South African taxis have to do with crime and basic safety.  More particularly, since South African taxis (really share taxis) are performing a much more complicated task than US-style one-passenger taxis, government might have to help coordinate between cities and ranks. 

But the underlying story here is clear: the government should be on the side of the weaker party, in both cases here the taxi passengers, and lean against the natural tendency of businessmen best encapsulated by that great Adam Smith quote: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."


  1. I've heard some terrible things about those taxis. Do you feel unsafe riding in them?

  2. Sometimes. The rural taxis in particular can be pretty decrepit—I remember one time going to visit another volunteer where we had to stop about every 50k and air up one of the tires with a bike pump. In the cities, though, they tend to be in relatively good shape, sometimes even late-model Volkswagen vans in excellent shape.

    I'd say the biggest safety issue with taxis (and with driving in SA generally) is that no one wears seatbelts. Most taxis don't even have them.