If You Can’t Beat Them, Tax Them: Why Boston Cronyism Won’t Save Cabbies

Taxi drivers have a special way of dealing with Uber in Kenya, Malaysia, Mexico and some developed countries, such as France and Belgium. They ambush contract workers who use the ride-hailing app and assault them.

One Uber driver in Costa Rica had his car smashed with a baseball bat. Protesters in my native India threw rocks at Uber vehicles in June. Sticks and stones deliver a stern warning, but taxi lobbyists in the United States prefer a different weapon to ward off anyone threatening the old guard: government force.

New York Mayor Bill de Blasio tried to cap the number of Uber drivers allowed in his city, while police in Columbia, Mo., launched a 2015 “sting” ticketing Uber drivers caught within the jurisdiction. That’s nothing compared to Finland, where Uber drivers have faced criminal prosecution.

The latest shakedown comes in Massachusetts, where lawmakers have imposed a tax on every trip brokered through Uber, Lyft and similar services. The tax includes 5 cents per ride that will go directly to the taxi industry to support “technologies and advanced service, safety and operational capabilities.”

In other words we’ll never know what happens to the money, which is expected to be millions of dollars per year. It certainly won’t reach the drivers themselves. That’s not how cronyism works.

Poor people lack access to backroom deals, where loot gets divided, so they rarely come out ahead when regulators give up the pretense of neutrality. What happens instead is pure redistribution of wealth from the have-nots to the haves.

As Bloomberg columnist Megan McArdle writes, “This is a shamelessly unjustifiable giveaway to a special interest, paid for by taxing a competitor.”

The taxi industry can’t beat Uber in terms of value creation. But instead of joining them, as the maxim goes, the strategy has been to tax, sue and regulate them to “level the playing field.”

Around the turn of the previous century, this would be akin to taking money from automakers to subsidize the horse and buggy industry — something much different than using public funds to build bridges and roads for everyone.

Creative destruction caused by innovation can be painful for the companies left behind. But this is what drives upward mobility for the masses, including the Uber driver I met during a recent New York City trip.

He had struggled with his rigid schedule as a taxi driver and hated the taxi medallion owners for taking advantage of him. So he switched to the smartphone model. Now he chooses when he works and has a car that he can use for family purposes during off hours. Creative destruction has made his life better, not worse.

The impact is even more obvious when comparisons are stretched over time. Average Americans today have access to better health care, transportation and telecommunications than the richest people of previous generations.

Just within the past 30 years, the United Nations estimates that more than one billion people have climbed out of poverty as China, India and other countries move toward economies that let market forces — not cronies — pick winners and losers.

Does the United States really want to move in the opposite direction by propping up industries that let technology pass them by? Ten thousand years of history shows why this would be a mistake.


Rajshree Agarwal is the director of the Ed Snider Center for Enterprise and Markets at the University of Maryland’s Robert H. Smith School of Business and a Cato adjunct scholar.

Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Submission guidelines can be found here.

Morning Consult