Boston's Broken Cabs

Change is coming, and it’s with smartphone apps

Driving people someplace in exchange for a fee should be the classic small business, the perfect way for ambitious and hard-working folks to become entrepreneurs. It’s a low-cost enterprise to start up — all you need is a decent vehicle — and one that doesn’t require any exceptional training. If you drive competently, know the streets, and can interact well with customers, you can make a decent living and perhaps even more.

Not in Boston, though. To own a taxicab in the city requires one more thing: over $600,000. That’s the going rate for a medallion, the license every cab needs. That cost turns what should be an entry-level business into one dominated by a privileged few.

As documented in a compelling Globe series last week, Boston’s taxicab system is dysfunctional and corrupt. But, as much as they may be welcomed, the solution is not some new mix of stronger rules and tougher regulations. Rather, the system itself needs to be blown apart.

The right thing to do would be to get rid of medallions. There are just 1,825 of them in Boston, and the result is an oligopoly that gains fabulous riches for owners while hurting consumers and drivers alike.

But it’s an easy bet that the city won’t abolish medallions outright; too many people with too much influence are invested in keeping them in place. That may not matter. Disruptive change is coming to the industry, propelled (as it has been in so many other industries) by the Internet. That change comes in the form of a variety of smartphone apps such as Uber, Sidecar, and Tickengo. All of them are innovative end runs around a broken system, perfect examples of the creativity that can be unleashed when we let free markets work. As long as we don’t quash the apps through new regulations and new prohibitions, the taxicab problem will fix itself.

The basic idea of the apps is the same. Instead of hailing a cab on the street, you hail a car by smartphone. Punch in where you are and where you’d like to go. Most of the apps will immediately tell you how far away a vehicle is, when it will show up, and what your cost will be. Payments are handled electronically, via credit card, PayPal, or direct bank debit.

Uber is the granddaddy of the new smartphone apps, and works with mostly professional drivers. Its typical car is a high-end black sedan, and the fare is usually more than a traditional taxicab. But Uber has recently broadened its offerings to include more conventional vehicles for a lesser price as well as larger SUVs. Meanwhile, Sidecar and Tickengo bill themselves as ridesharing services and are potentially even more revolutionary than Uber. Anyone can drive for either Sidecar or Tickengo, and drivers aren’t allowed to charge a fee. Instead, payment is voluntary. In the case of Sidecar, riders make a donation at the end of the ride. Tickengo is like an auction: riders post in advance the amount they wish to pay, drivers decide whether to accept it or not.

The taxicab industry claims the apps put consumers at risk. Far from it. Drivers and riders need to sign up in advance and then rate each other after each trip, creating a pool of information that in effect becomes a self-enforcing form of consumer protection — far better than that now provided by the Hackney Division, the city’s regulator. Bad drivers (or bad riders) get the boot. And the companies themselves compete fiercely with each other. If either drivers or riders are unhappy, business will go elsewhere. Customer satisfaction becomes paramount.

Medallion owners hate these new apps, and the industry has been fighting back, pushing localities to ban them outright or impose severe restrictions. These are the frantic tactics of the oligopolists trying to hold on to their power, desperately afraid of competition.

They’re right to be afraid. Let the apps flourish and the medallion system, now teetering, will fall.

This column originally appeared in The Boston Sunday Globe on April 7, 2013.