License to Work: Over-Regulation Sidebar
Nashville limousine entrepreneur and IJ client Ali Bokhari
For new entrepreneurs, the transportation sector could be one of the most viable options for economic mobility and growth, but onerous regulations continually put the brakes on individual enterprise.
The attraction of many transportation occupations is the potential for those with low-to-modest skills to enter the business world with a small or moderate investment in the equipment necessary to work. Absent licensure and regulatory schemes, one need only a method of conveyance (a car, truck or boat, for instance) to begin earning a living. But regulatory schemes are anything but absent.
This report notes that 11 states and the District of Columbia require special licenses for taxi drivers or chauffeurs, but because most transportation occupations are regulated by cities, the actual barriers faced by those wishing to break into this market, particularly as business owners, are far more widespread. They also typically involve different types of licensing regimes than those described in this report, in addition to a host of other kinds of regulations.
The taxi industry, for example, suffers from a morass of licensing and other regulatory requirements. The most profound comes in the form of caps on the number of taxis allowed to operate in a city. Because cities rarely increase the capped amount of cabs—Milwaukee, for example, has not raised its cap since 1991—aspiring owners are either shut out of the industry or they must purchase a license from a current owner once it becomes available.
Because of the cap, Milwaukee taxi licenses have developed into a valued commodity costing around $150,000—more than the median home price in the city.1 In New York City’s lucrative taxi market, the going price of a “medallion,” or one of a limited number of licenses to operate a cab, is now more than $1 million.2
Prices like these, inflated by an artificially limited supply of licenses, crush any hope of being an independent cab entrepreneur for many. But the license is just the beginning. Cities also regulate fares, vehicle age and condition, dispatching, insurance, record keeping, meters, and even whether the driver has a map present in the car.
As if protecting existing taxi businesses through licensure and regulation is not enough, some cities also try to create protective shelters around the industry by imposing regulations on competing limousine and sedan car businesses.
The most clearly anti-consumer rules are minimum fares. For example, Nashville, Tenn., will not allow limo or sedan companies to charge less than $45, outlawing the $25 fares that made the sedans an affordable alternative to taxis and cut into the taxi market.3 Portland, Ore., makes its protection explicit by demanding that limos and sedans charge no less than 35 percent above the prevailing taxicab rate.4 Combined with other burdensome and senseless rules, minimum fares make it difficult to start a small transportation business and impossible to stay competitive once in it. The effect of minimum fares is to make transportation consumers pay more for taxicab, limousine and sedan service.
However, the most blatantly protectionist scheme in many transportation fields is the certificate of Public Convenience and Necessity (PCN). Whether in the limousine,5 water ferry,6 or household goods movers7 industries, the PCN erects a nearly insurmountable obstacle for aspiring entrepreneurs. In essence, the would-be entrepreneur almost always bears the burden of proving to the satisfaction of government bureaucrats (a) that his proposed business is “necessary” for the good of the public and (b) that the new operation will not harm existing businesses in the same industry.
The PCN certificate is a different kind of license than those studied in this report, and in many ways it is even more burdensome. In the construction or cosmetology trades or other occupations we studied, if applicants meet objective criteria—however onerous they may be—they get a license. But the granting of PCN certificates is subject to bureaucratic whim, as well as the direct opposition of future competitors.
First, the aspirant must complete a lengthy application that collects a voluminous amount of information about the would-be business owner, the proposed business, financial records, projected activities, qualifications of employees and proof of insurance. The application comes with fees, of course, but what makes the process most overwhelming—and usually an impossible barrier to overcome—is that once an application is filed, existing business owners are invited to intervene. They may, and typically do, object to the application on the grounds that the new service would adversely affect their business by directly competing with them. It is as if McDonalds had the legal power to veto the opening of a new Burger King.
In an occupational sector that has the potential to be a model of Yankee ingenuity, licensure and other regulation has in many cities created a statist slough.
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4 Portland, Ore. Code § 16-40-480(C).
7 Milnikel, E., & Satterthwaite, E. (2010). Regulatory fields: Home of Chicago laws. Arlington, VA: Institute for Justice; Dranias, N. (2006). The land of 10,000 lakes drowns entrepreneurs in regulations. Arlington, VA: Institute for Justice.