Is Uber the real villain here?

The New York Times this morning published this article – “Taxi Medallions, Once a Safe Investment, Now Drag Owners Into Debt – asserting that Uber, Lyft, and other ride-hailing apps are hurting yellow taxi drivers.

This article is of particular importance to me. Why? I run a leadership network of Internet companies, which includes firms like Lyft and others – and in this network we help leaders help each other develop better, more customer (and employee) friendly products and services. So, given my day job, and given the popularity of ride-hailing services like Lyft and Uber, I have been following the taxi industry and the nascent ride-hailing mobile apps. And since I live in New York City, I’ve also been taking yellow cabs in New York since the 1980s.

Because of the serious problems with Uber’s internal culture – including their sexual harassment and arrogance, it’s understandably popular to criticize them these days.

However, Uber is not the primary villain hurting individual yellow taxi drivers. No. Individual cab drivers have been hurt for decades by an artificial monopoly that has benefitted corporate interests and politicians – and hurt individual cab drivers and consumers.

In fact, the reason Uber, Lyft, Via, and others have been so successful in New York is because this artificial monopoly created a huge unmet consumer need for more cabs, which are inexpensive and better-run.

So how does the New York Times article distort the facts?

By focusing on individual taxi drivers who own ‘medallions’ and by citing how the value of medallions has dropped because of ride-hailing apps, the article shows how Uber is hurting medallion-owning yellow cab drivers.

But, the article omits one key fact.

The key fact?

80% of medallions are owned by corporate interests not by individual drivers.

OK. So what are medallions again?

Medallions are licenses that New York City grants allowing the owner to operate a yellow cab on the streets of New York.

Only 13,000 medallions are granted – so there’s an artificially limited supply.

And until the ride-hailing apps showed up, yellow cabs were the only option for drivers and consumers (other than private car services). So, because of that regulated monopoly, medallions were quite valuable. In fact, up until a few years ago, medallions were worth more than $1 million. Today, they are worth *much* less (somewhere in the $150K – $300K range).

The New York Times article correctly points to the declining value of medallions and that the declining value does come from the presence of Uber, Lyft, Via, and others who are destroying the artificial medallion monopoly.

Ok. So, again, how does the article get it wrong? It sounds like it got it right.

As referenced above, the article omits the fact that fully 80% of medallions are owned by corporate interests.

It says nothing about those interests – it just tells some stories of a few immigrant cab drivers who own their own medallions. It also omits the role of politicians who had been bankrolled by those corporate medallion owners to keep their monopoly safe (and fares artificially high). Finally, the article says nothing about how consumers were hurt by this whole rigged system.

Here’s what you need to know – easily summarized – about the New York City now-crumbling artificial yellow cab monopoly:

  • 80% of medallions are owned by brokers, fleets, and corporate entities. These corporate interests who – along with politicians they bankrolled – have primarily benefitted from artificially high medallion prices. (see reference note 2 below – the Yale Journal of Regulation – for most of the key facts I share).
  • Because of high medallion prices, these corporate entities have charged individual drivers artificially high prices to lease their cabs. What does this mean? For decades most yellow cab drivers have made *less* money due to high medallion prices because they have to pay more of their earnings to medallion owners.
  • Fares have been set by the politicians (and their appointed regulators) and the politicians receive major donations from the corporate medallion owners. As a result, politicians drove up regulated fares making those faces more expensive than they would have been had there been no monopoly.
  • By having to pay higher fares, consumers have also been hurt by this artificial monopoly. And it’s important to know that historically most yellow cab hails – 71% – are by residents of New York City not by tourists whom some politicians and corporate interests argue can afford those higher fares.
  • Consumers were also hurt by the terrible customer experience of riding in a yellow cab. Because yellow cab drivers did not make enough money (because of the high medallion prices), those drivers had to drive longer in bad conditions and were therefore overly-aggressive (causing many accidents) and famously rude creating a famously terrible customer experience.
  • But, wait there’s more. By limiting the number of medallions and therefore limiting the number of cabs, the monopoly also hurt consumers because it was often very hard to find and hail a taxi on the streets of NY – especially during rush hour.
  • The high prices of medallions were sustained by a political monopoly enabled by the donations that the monopolistic corporate brokers/owners made to the campaigns of city council candidates and mayoral candidates who supported them (like Bill de Blasio who immediately tried to artificially limit ride-hailing services when he got into the mayor’s office a few years back. He was defeated by a consumer backlash).

[Much of the data above comes from: Problematic Private Property: The Case of New York Taxicab Medallions, Yale Journal of Regulation, Volume 30, 2013]

So medallion values were artificially high and that hurt most drivers. And fares were artificially high because supply was artificially low thereby hurting all consumers. And those unhappy drivers were rude and their unhappy passengers frustrated.

In short, the whole system sucked for everyone except a few corporate interests and politicians.

The arrogance – especially of Uber – and it’s illegal internal (and external) practices deserve scrutiny and must be changed.

However, there are multiple ride-hailing apps in NYC (at least five), four of which do not share these problems with Uber. While it’s true that a few individual drivers who bought their medallions for $1M have been hurt, and it’s true that those are tough situations for those drivers, we should definitely not return to the days of the artificial yellow cab monopoly in New York City, which hurt almost all drivers and certainly all consumers.