In previous posts, I attempted to explain how the elimination of the
medallion system in Hawaii was not the end of the taxi world here;
in fact, to the contrary, it led to a much more driver friendly and
profitable taxi industry and produced a higher level of customer
service. The death of medallions in Hawaii was the beginning of a
more prosperous taxi industry for drivers, taxi owners, and taxi
dispatch companies. It took some time for it to work but It worked!
I see no reason it won’t work in other cities (like Chicago).

III. The Medallion System Does not Benefit Driver.

The medallion party line is “without medallions the streets would be
flooded with taxis and drivers couldn’t make money.” First, driving
a taxi is not an easy job. It’s dangerous and it is long hours.
Second, it is not as easy as you think to put a taxi on the road and
make it pay for itself. Even with $50 licenses (plates or tins)
there is a significant start up cost and much of that cost is what
business people call “sunk” or unrecoverable cost. You need to
invest in a meter, dome, radio, signage, insurance, and of course the
vehicle not to mention the time spent acquiring all these things and
the time getting all the paperwork together. Most of this equipment
will not be able to be resold at anywhere near the cost of
acquisition if you don’t succeed in the taxi business and your time
is a complete loss.

When medallions were discontinued here, there was not a flood of new
taxis on the road. In fact, taxi owners no longer had any incentive
to keep unneeded taxis on the road just because they couldn’t afford
to let an expensive medallion sit idle. There wasn’t a flood of new
drivers either. Why would there be? It really is a tough job. Cities
like Chicago, NYC, SF and Boston have nowhere near 100% rental of the
taxis they now have. Just because a taxi business license costs $50
instead of $140,000 makes no difference to how many people choose to
be taxi drivers. Nor will it encourage taxi companies to put an
oversupply of rental taxis on the market. They can’t rent what they
have now, what is the sense of putting more on the lot just because
the business license is cheap?

Regardless of what purpose medallions may once have served 70 years
ago when politicians came up with the idea, today there is only one
purpose that medallions serve. They are an investment instrument
like stocks and bonds. Medallions are trading chits and authority
for the holder to be a tax collector of taxi drivers.

Investors who buy a medallion hope to be able to sell it later at a
higher price. For 70 years, medallion values in NYC have increased
15% a year. Chicago medallion traders are a little late in reaching
the trading table but they are wasting no time in catching up. In
2005, Chicago medallions sold privately for $45,000. In 2006 the
city auctioned them off at an average price of $78,000. Today they
are at least $140,000 and headed upward by the day.

The capital gain an investor realizes from a medallion is not enough
for them. Medallion owners also expect to receive at least 10% of
the market value of the medallion every year from the driver who must
have it so he can drive cab 12 hours a day to earn a modest wage. In
Chicago this amounts to at least $14,000 each year. For NOTHING!
Furthermore, each year the medallion becomes more valuable and of
course the amount of 10% of its value increases also.

Medallions destroy the incentive of taxi companies to be
competitive. No one can take their business away by providing better
service or providing service for less. There are only so many
medallions and only so much business. If you own or lease a
medallion you are guaranteed a certain portion of the market. Why
try to be better at business than other medallion holders? Medallion
holders are a limited and closed club, a monopoly. Like any
monopoly, the incentive to excel is dulled. Medallion holders have
their share of the pie and it won’t get any bigger with hard work.

Also, like any monopoly, the power that comes with an exclusive hold
on the market, corrupts. Because efficiency and competition is not
the way for taxi companies to prosper under the medallion system,
corruption and cutting corners become the roads most traveled. As a
medallion holder you quickly get use to power and have no reason not
to abuse it.

Drivers become no more than slaves for medallion taxi fleet
operators, they are under the absolute control of the medallion
operated taxi industry – after all, what are they going to do? start
their own business? Sadly, in what may be akin to what shrinks call
the Stockholm Syndrome, many drivers under the medallion system
defend medallion holders even as they take food off the driver’s
table. They can’t explain why they support the system that bleeds
them except to recite a common mantra; “Without medallions there
would be too much competition. ”

Is there any one who can believably defend the medallion system. I
doubt if there is but I’m willing to listen with respect to a fact
based explanation of how the medallion system benefits drivers in a
way equal to what it costs drivers. That is, can anyone provide a
rational cost benefit analysis that favors the medallion system?

The Medallion System Does not Benefit Driver