Why Los Angeles Is Liberating Its Cabs

by Reihan Salam

Something very unusual is happening in Los Angeles. Instead of fighting innovative new businesses in service to deep-pocketed incumbents, local taxi regulators are very tentatively moving towards deregulation. No, they’re not putting themselves out of business outright, but they’re trying to help traditional cab companies change how they do business. Though taxi service is only one small slice of L.A.’s sclerotic economy, the fact that local regulators are adjusting their tactics at all offers lessons for how we might revitalize urban America.

The rise of ride-sharing companies like Uber, Lyft, and Sidecar has greatly improved the quality of local taxi service in L.A. Before the emergence of these smartphone-enabled services, it was often extremely difficult to get a cab, not to mention expensive. Like most large cities, L.A. tightly restricts the number of licensed taxi cabs, and this artificial scarcity shielded incumbent cab companies from competition. But now riders have a wide range of options from services that have effectively lifted the cab on drivers able to accept money in exchange for rides, and they’ve come to find the incumbents wanting.

So why have the traditional cab companies allowed this to happen? One quirk of California’s taxi regulations, as Laura J. Nelson of the Los Angeles Times reports, is that while a local Board of Taxicab Commissioners regulates the traditional licensed cab companies, Uber, Lyft, and Sidecar are regulated by the statewide California Public Utility Commission. The political influence of the cab companies thus counts for less than it might if these services were regulated at the local level, as it has to contend with other powerful interests as well, including a technology sector that keeps California’s state government afloat.

And so, according to Nelson, Eric Garcetii, Los Angeles’s liberal mayor, is pressing the Board of Taxicab Commissioners to take a different approach. Rather than impose new restrictions on the likes Uber, which they can’t do, the Board is being asked to relax rigid regulations that have kept the traditional cab companies from competing effectively. For example, while Uber et al. make use of variable pricing, to attract more drivers during periods of peak demand, traditional cab companies are forced to charge fixed rates and to operate under a cap of 2,300 cabs, parceled out across several different companies. Recognizing that the California Public Utility Commission is not about to clamp down on the ride-sharing companies, L.A.’s local taxi lobby seems to have reconciled itself to the fact that the traditional cab companies will have to evolve.

At the risk of stating the obvious, taxi regulation seems to be one area where it’s good to keep power in the hands of the state government rather than local governments, as the state government is accountable to a more diverse array of constituencies, which in turn makes it less vulnerable to capture by a single interest group. But cabs aren’t the only area where this is true.

Take local land-use regulation, the most important issue that no one in national politics cares about. Cities like Tokyo and Toronto that have seen big increases in housing construction empower higher levels of government — the national government in Japan and the provincial government in Ontario, respectively — to make decisions about land use while in the United States, land use decisions are generally made by cities and towns. That might be appropriate in the case of small communities that want to preserve their character. Large cities are another matter entirely, as large cities are America’s engines of productivity growth and upward mobility. When local voters impose stringent development restrictions in the cities where entrepreneurs gather and build businesses, and where young adults go to make their way in the world, they effectively put the brakes on the entire American economy.

Local control has its virtues. In some areas, however, you need state governments to give local entrepreneurs room to breathe. Just as California’s Public Utility Commission has enabled innovative new ride-sharing services to take hold, and to compete with incumbent cab companies, we need state governments to prise open dysfunctional real estate markets in cities like New York and San Francisco, and to enable aggressive outsiders to take on insider developers who have an interest in keeping housing prices high.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.