A taxi-ing tale of handling industry disruption badly

As of tomorrow the Government will levy $1.20 on every taxi and ride-share trip in NSW. That money goes into a fund to compensate taxi plate owners for the fact that their industry has been disrupted by ride-sharing from Uber and it’s competitors. Does that make any sense?

For years taxi plates were seen as a gold-plated (!) investment. A plate would change hands for half a million dollars and getting hold of one was a solid earner. For that reason many were held by investors rather than actual owner-drivers. The industry bumped along in this way for decades with very little in the way of innovation. The fact that taxis were a government mandated closed industry worked both for and against the plate owners. Returns on investment were high and there was little inventive to change anything. On the other hand when Uber arrived and simply ignored the rules, the monopoly situation broke and taxi plate values halved. The government’s response when it realised that ride-sharing was (a) a welcome revolution and (b)  here to stay was to make ride-sharing legal and to compensate the taxi plate owners.

The taxi owners association did a masterful job a couple of years ago of pitching taxi plate owners as returned service men who had sunk their life savings into an investment that was being destroyed by rapacious foreign start-ups. At best that was disingenuous; but, even if it wasn’t, the question remains – are we going to compensate every industry that fails to innovate and so gets over-taken by start-ups who bring welcome change to consumers? Is that a sensible way for the government to operate?

I can sympathise with those who are losing out because their investment value is falling. But that sympathy is tempered by the realisation that they did nothing but milk the investment for decades. Taxis could have picked the eyes out of the Uber system with an effective app, tracking trips, centralised payments, clean cars, and so on. Instead they were happy with maximising returns. And now when someone comes along and does a better job – we’re all paying the price. That doesn’t seem like a market economy in action.

Are we compensating the printers who will no longer make money out of printing phone books? Are we compensating the manufacturers of wired phones? Are we compensating bookshops and movie theatres? It is a struggle to see that the government, and by government I mean us the taxpayers, can provide a safety net to every business that fails to innovate or is just over-taken by the waves of disruption our economy is going through. Those waves are going to come faster and faster, and it’s a simply unsustainable model to think we can be paying for every loss created by innovative change.

Taxi plate owners can argue that theirs is an unusual situation in that it was never a market economy in action. The supply was limited by the government and investors relied on that government control. All true, but that’s also why they made so much money in the golden-years. it was the shield to competition that made plates so profitable. And what if the value of the plates goes back up – there is still a plates system because taxis retain significant market advantages? Will the compensation get repaid?

And while we’re on specific issues with this policy, it’s also worth noting that – at a time when we as a society ought to be encouraging taxis and ride-sharing for the sake of the environment – the effect of this government policy is to make a shared service more expensive.

Look, the taxi industry and the rise of ride-sharing provide an interesting example; but the particular rights or wrongs of providing plate-owners with compensation will fade into history. Disruption, however, is here to stay and there’s a general point to be made. At some point disruption is going to cause pain. We shouldn’t ignore that. For example, providing opportunities for re-training seems like a reasonable government level approach. Providing tax breaks to encourage innovation seems like a good idea. Providing compensation just because the industry failed to keep up doesn’t seem so sensible.