On the Portland Cab Protests

A recent series of events in Portland Oregon encapsulates much of what is wrong with the taxi industry in the United States (and much of the rest of the world) today.  Some cab drivers in Portland Oregon are restless.  And they are angry about three things.  First, some cab drivers in town have been giving money to hotel bellmen and valets in exchange for calling them directly when the hotel needs a cab.  Second, the city government of Portland wants to increase the taxi fleet size in Portland by 132 taxis; an increase of nearly one third.  Last, cab drivers are making “below minimum wage”.

 And the cab drivers have begun to protest by driving their taxis slowly around the Embassy Hotel in down town Portland, tying up traffic and making a hash of things.  Several of the cabs bear signs decrying “cheating” and “unfair practices” by the hotels.  But is it really cheating? Is there really a need for 132 more cabs in Portland? Are the drivers really impoverished?

 The first complaint revolves around some cab drivers “tipping” hotel staff to call them directly, instead of going through a company dispatch, for guests at the hotels who need cabs.

 "This kickback scheme causes lost revenue to honest drivers, delays to unsuspecting customers, and outright fraud as unscrupulous drivers cheat passengers to make up for the payoff," said Red Diamond of the Cabdrivers Alliance of Portland.

Really?  First of all, it is not “unfair”.  No one particular cab driver has any advantage over any other except for two things:  He is willing to give a tip to the hotel staff, and he is on call for that hotel.  That’s it.  Any cab driver can go to any hotel and talk to the staff there, and tell them, “Hey, I work this area.  Here is my card.  One hand washes the other.”

 The hotel valets make a large portion of their income through tips.  And cab drivers need the passengers.  There is no reason that the hotel guy shouldn’t receive a gratuity from the cab driver for passing him the business.  It’s not just the cab business that does this, either.  Many businesses offer a “finder’s fee” for business referrals. The local “gentlemen’s clubs” here in Phoenix pay the cab drivers $5 for every paying customer they drop off. And just the other day, I was talking to a used car lot manager.  He told me that if I ever brought him a customer who purchased a car from him, he would pay me a finder’s fee of $50.  This is not some sort of a crime.  It isn’t “unfair” by any stretch of the imagination.  It isn’t even unethical.  Why shouldn’t someone get paid for linking together a customer with a service provider?

Red Diamond says that a hotel calling a particular driver results in “delays to unsuspecting customers and outright fraud as unscrupulous drivers cheat passengers to make up for the payoff.”  This is the exact polar opposite of the truth.  If a driver tells a hotel valet “Tell the passenger I will be there in ten minutes,” then shows up in 30, causing a “delay to an unsuspecting customer”, the hotel valet won’t call that driver ever again.  Why?  Because hotel valets do not want to fade any heat from an antsy guest waiting for a cab.  A driver might be able to get away with “stretching his hood” once or twice.  But after that, all his efforts to gain the good graces of the hotel go out the window.  The same is true for cab drivers who cheat passengers to make up for the tip.  If news gets back to the hotel, that driver will be gone in a New York minute.

The next so called “problem” revolves around the city of Portland’s government allowing 132 new taxi licenses. But the people in the city government who propose the limits on the number of taxis on the streets have no clue about the taxi industry. They’ve never driven a cab.  They’ve never owned a cab company. They have never dispatched.  Essentially, they are operating in the dark. So, they "consult" with experts. And who might these experts be? Why the owners of the largest cab companies of course!  And these cab company owners suggest things that would be very beneficial to themselves (like limiting the amount of taxis on the road). Why wouldn’t they?  This is why the regulations get crafted in such a manner as to favor the big companies and shut out competition.  It's called "regulatory capture" and it happens all the time.

The last issue the cab drivers are protesting is their low pay. As to the comment that cab drivers "make less than minimum wage", this is just not a fair comparison. Yes, drivers do make about $100 per day. Yes, they do work 12 to 14 hours a day. But unlike almost any other industry, profits in cab driving depend to a large degree on the "hustle" of the driver. A driver's income, more often than not, is directly dependent upon how good he is at gaining his own personal business. A good driver knows where to be and when to be there to get the best fares. He reads the entertainment section of the newspapers to know where concerts are. He owns a cell phone, and passes out his own business cards to everyone he meets to generate calls. He calls upon the managers of grocery stores, and bars. He talks to mechanics, and the owners of car rental outfits. He even tips hotel staff for cab runs. These are not  "unfair" practices since any cab driver with motivation can do it (and does do it). Yes, the average cab driver makes about $100 per day. But the above average ones, the ones who take their jobs seriously, the ones who value their customers as their bread and butter, the ones who are polite and have clean taxis, make far more than that. 

The solution isn't to complain about "low pay". The solution is to treat cab driving as a career and not just another job. I have NO sympathy for guys who sit on a cab stand all day, reject job offers on the computer because they are grocery runs or short hops, do nothing to improve their own lot in life, and then cry poverty at every opportunity. If a cab driver is making "less than minimum wage" it is often his own fault. He should move on to a job at McDonald's or Walmart. No one is putting a gun in his ear and saying "You must drive a taxi". I've been in this business for nearly 20 years, and there is an old joke told around here: "What's the difference between a puppy and a cab driver? Puppies stop whining after 6 months."

In their infinite wisdom, the city of Portland is holding a number of meetings to decide what to do about these “problems”.  They are discussing the possibility of adding cabs, and the outlawing of hotels accepting tips from drivers.  God help the cab industry of Portland if these self-appointed Problem Solvers attempt to address the issue of low driver pay.  Ban hotels from tipping, and guests will end up waiting for whatever cab they can get; not one that will show up on time and in good condition. Add too many cabs, and the market will be flooded.  Add too few, and passengers will wait far too long for taxis.

The solution to all of these problems is  for the city of Portland to back off and stop interfering in the taxi industry. Only a free market will provide a solution to these issues.  A free market allows for companies to decide for themselves how many cabs to field.  A company that adds too many or too few will suffer the consequences themselves.  A free market allows cab drivers to tip hotels (or not tip, and base their sales on better service alone) as they see fit.  A free market rewards hustle and punishes laziness in the drivers.  A free market offers the ONLY solution.

But an understanding of how the taxi industry is being abused by city councils, not just in  Portland, but in most cities around the globe from Adelaide to New York City, will lead to a greater understanding of why and how government s operate. 

Like the city council members, members of State and Federal governments know very little about the industries they are trying to regulate. Yet, they sincerely want to solve problems. This forces them to seek experts in their fields, and leads to the creation of lobbyists, and ultimately results in regulatory capture. 

Like city council members trying to ban tipping at hotels, State and Federal governments attempt to ban financial rewards for the communication of vital business information (insider trading laws, etc.). They want this unfair world of ours to somehow be fair. But this kind of regulation leads to poorer performance in industry as opportunities are missed. 

Like city councils interfering in the pay structure for cab drivers, so too State and Federal governments often interfere in the compensation of employees.  This results in laziness, a lack of innovation, and a much poorer business climate, not to mention a loss of jobs.

Real problem solving is not that hard.  Keep the ignorant Problem Solvers completely out of the marketplace.  Freedom will take care of the rest.



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