Saturday, May 27, 2017, 12:22 PM CST – China

Commentary

Doesn’t Matter If You’re Black Or White

Improving service quality, not shoring up a pointless monopoly, is the way to save China’s official taxicabs

Not long after the inspiring news that the city of Yiwu was to abolish its quota-based taxi regulation system even as Shanghai incorporated taxi-hailing app Didi Taxi into its transportation system, the inevitable backlash began.

Just when the odds seemed in favor of China’s cities deregulating the taxi market and fully legalizing Internet-based car-sharing services like Uber and its local competitors, traffic enforcement units in several major cities began another round of detaining “unlicensed” drivers using ride-sharing apps. This development has again blurred the lines of a formerly brightening picture of reform in China’s government-controlled taxi market, proving that the ghost of the planned economy lingers on in the minds of some officials.

 Taxi regulation dates all the way back to 17th century Britain, when Charles I allowed 50 horse-drawn cabs to provide transport services to the population of London. As this market developed, with horse-drawn cabs replaced by motorized transport, regulation of the price, volume and service quality of the world’s taxicab fleets remained solid up until the emergence of mobile Internet.

Now, due to information asymmetry and the unique market position occupied by taxicabs, the Chinese government attempted to ensure safety, trade fairness, and accountability with the creation of a quota-based license system. For a while, it worked, but at a price – the emergence of a de facto government monopoly over what is technically a private transport network.

The introduction of car-hailing apps like Didi and Uber, which record detailed information of customer identities, journeys taken and transactions made, looked like the perfect solution to many of the problems plaguing China’s taxi services. The theoretical grounds for the current system of quota-based regulation, therefore, are gone, and so there is no reason to maintain the government monopoly – that is, unless you’re one of the companies that benefit from it.

We need to ensure the quality of urban taxi services, but we don’t need a government monopoly to do what the market is capable of doing much better. If the license is the only thing that distinguishes a “black car,” which is how unofficial private cars employed as taxis are referred to in China, from a “white car,” then it really doesn’t matter to a customer or a driver if they go black or white.

When we try to comprehend the politics of the street fight between traditional taxi services and new app-based services, we need to be clear on one thing – an official taxi license bears no relation to a driver’s ability to provide a decent level of service. What matters is whether the service is black or white. The main puzzle the government needs to solve is how to assure quality – it is not only price that is driving customers away from licensed cabs and towards Uber vehicles.

To achieve this means establishing clear service standards; strict enforcement of laws and regulations and the punishment of violators; as well as rigorous training for drivers. It absolutely does not mean, however, strong-arm enforcement of regulations that are simply designed to safeguard the government’s current monopoly on taxi services.

 

The author is an economist with the Comprehensive Transportation Research Institute of the China Center for Urban Development.

 

We need to be clear on one thing – an official taxi license bears no relation to a driver’s ability to provide a decent level of service

 

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