The Ousting of the Milwaukee Taxi Cartel

By Joseph Diedrich
Special Guest Perspective for the MacIver Institute

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Milwaukee’s economy just became a bit freer.

For two decades, the taxi industry in Milwaukee had been controlled by a government licensing system that restricted entry and was a de facto cartel.

Then, last Tuesday, Judge Jane Carroll of the Milwaukee County Circuit Court struck down the city’s taxi licensing law.

In 1992, the number of cabbie licenses available was capped by the city. These licenses, which at one time cost less than $100, have since sold for as much as $150,000. That’s simple supply and demand.

The licensing law strongly favored existing, entrenched cab companies, while putting potential new drivers at a crippling disadvantage. Like in many other cities, competition in the cab market was effectively outlawed. By restricting free entry, the system also resulted in higher prices for consumers.

The Milwaukee Journal Sentinel reported prior to the ruling that, “There are 321 permits now, fewer than the number of permits in 1991. Documents in the case indicated there is just one taxi for every 1,850 residents in Milwaukee, compared with other cities where each cab serves far fewer residents.”

Indeed, Milwaukee has historically been one of the most expensive cities as far as taxi transportation is concerned. A review by the city’s Legislative Reference Bureau revealed that the average cost of an eight-mile cab ride in Milwaukee was $22, a price $2.66 higher than the average of the other cities studied.

Similarly, The Washington Post found that among forty of the largest cities in America, Milwaukee had the ninth-highest taxi fares.

Three local taxi drivers, represented by attorneys of the Institute for Justice, brought a lawsuit against the City of Milwaukee, challenging the constitutionality of the licensing system.

Ghaleb Ibrahim, one of the taxi drivers involved in the lawsuit, said, “During the course of this lawsuit, I was fired because the owner of my cab did not like me standing up for my rights. Thanks to today’s ruling, I now have the freedom to own my own taxicab. That’s exactly what I’m going to do.”

Nobody can be sure what will emerge in place of the system purged by Judge Carroll. Aldermen are already scrambling about to draft intricate plans, all the while operating under the assumption that the government must manage taxi transportation.

But this assumption is arrogant and na├»ve. What’s wrong with the freedom?

Anthony Sanders, an attorney with the Institute for Justice, favors a free market alternative. “Lift the cap,” he said. “You will not have a threat to public health and safety. Your [the city aldermen’s] job is not to pick winners and losers in the marketplace.”

If too many drivers operate taxis, the least efficient ones–those who aren’t making enough money–will leave the taxi industry and turn to more lucrative undertakings.

Likewise, if too few drivers operate taxis, their profits will be high; as a result, more drivers will be attracted to the taxi market, thus increasing the number of taxis.

Over time, the taxi market will reach equilibrium. The forces of competition and the free market will foster an increase in quality and a reduction in price: drivers will be forced to provide high quality service with low fares, lest they perish. Both the producers and consumers of taxi transportation will benefit.

Economist Walter Block also supports a completely free taxi market, arguing that the only way increase taxi efficiency is “to destroy the system of restrictive cab licenses.”

Moreover, he adds, “In terms of the everyday workings of the market, it [a free market] would mean that any qualified driver with a valid chauffeur’s license could use any vehicle that has passed the certification examination to pick up and deliver fares to any street of their mutual choosing, for any mutually agreeable price.”

Wisconsin and its municipalities have a penchant for regulation: boards, commissions, and licensing systems control nearly every productive human enterprise and occupation, from cosmetology to medicine to accountancy to construction. We would do well to extrapolate the lessons learned from the taxi triumph and apply them to our entire economy.

Let’s set Wisconsin free.