Cut costs, do not raise fees
The recent taxi drivers’ strike in Hangzhou, Zhejiang province, calls for attention. Like other strikes by cabbies in some Chinese cities in recent years, taxi drivers in Hangzhou resorted to take action to protest high oil prices, low earnings, and the high fees charged by taxi companies.
To deal with the issue, the local government has given taxi drivers two promises: to weigh the pros and cons of increasing fares by the end of October, and to grant a temporary 1-yuan ($0.155) subsidy for every passenger (or set of passengers) the cabbies take.
But the two plans, announced by the local government in a rush, are questionable. The first plan should have undergone public hearing and the second should have been examined and passed by the local people’s congress before being announced because the funds for the subsidy will come from taxpayers’ money.
It would have been better if the government had announced a possible cut in fuel prices for cabbies and asked taxi companies to reduce their fees. But reciprocally, drivers wouldn’t have gone on a strike if taking such measures was possible. The reason: monopoly profit rules. The core of the problem lies in the government’s restriction on the number of cab licenses, which makes taxi companies’ business highly profitable because of lack of competition.
There was fierce competition, however, to get cab licenses. But as was expected, taxi companies with larger fleets, and thus more bargaining power than individual drivers, won the competition for licenses. These companies have established a monopoly (or rather oligopoly) since the 1990s, and began hiring drivers or renting out cabs to individuals for a monthly fees.
The monthly fees were always high but when they became exorbitant, rendered more unbearable because of other factors such as violation of drivers’ rights, a strike was inevitable.
The direct cause of the latest Hangzhou taxi drivers’ strike was the exorbitant monthly fees that cabbies are forced to pay. The city today has about 8,000 cabs, of which only a few are owned by individual cabbies. Typically, one car has two drivers, one for the day shift and the other for the night, each of whom can earn about 500 yuan a day. But a cabbie has to pay 220 yuan as fees to the cab company and another 200 yuan for gas out of the money he or she earns. A part of the remainder then goes to pay for the vehicle’s maintenance and repair.
So any solution to the strike should first consider a reduction in the fees that taxi drivers are forced to pay. The next step should be to carry out fundamental reform, including the lifting of the administrative restriction on the entry of individuals into the sector.
However, one cannot help but ask why the local administration finds it so difficult to ask taxi companies to reduce their fees. After all, they could help transfer part of the monopoly profit to the government by doing so.
But surprisingly, even when drivers go on a strike, the local government prefers not to disturb the profit-sharing process. Instead, it chooses to raise taxi fares, grant subsidies or take other measures that will burden the public further.
Though the prospect of any marketization reform of the system doesn’t look possible, there is hope that vehicles-for-hire could be allowed to operate as public carriers.
Introduced to New York in the 1950s and different from traditional cabs, vehicles-for-hire do not pick up passengers on streets but ferry people who make prior reservations over the telephone or through personal visits. Nowadays, making reservations has become more convenient because of the Internet. These vehicles’ and their drivers’ main features are their diversified, humane and convenient service. For example, vehicles-for-hire can be "community" cars that are available at nominal fares, for bigger occasions, people can book business vehicles called black cars, and if a person can afford, he/she can hire a limousine. This service is available in some Chinese cities, and it’s time to spread it across the country.
The author is a researcher with a private think tank, Transition Institute, dedicated to social and economic research.
Get to the root of the problem
Problems related to cabs and cabbies have emerged in some Chinese cities. But surprisingly, the solution to the long-standing city management problem is not that complicated; it’s more a question of whether city governments want to solve it.
The public transportation system in many cities gets subsidies from public funds. Last year, for example, the Beijing municipal government granted 13.53 billion yuan ($2.1 billion) in subsidies to at-grade and underground transportation systems to keep ticket prices low. City authorities have said they are supposed to grant subsidies to bus networks and subways. But they never considered giving subsidies to taxi drivers or companies until oil prices rose so dramatically. The reason is that taxi drivers are individuals and taxi companies run according to market rules while subways and bus networks are State-owned enterprises. Although being part of the public transportation system, they are treated differently from buses by city authorities because of prejudice.
Experts and media have suggested many solutions to the problem, but there has been no effort to help taxi drivers escape their predicament.
Some people have suggested reducing the fees that cabbies pay taxi companies. But since the fees are the basic source of taxi companies’ income, a reduction could cause their downfall. In Shanghai, for example, if the fees are reduced to 300 yuan per taxi per day, the profit of the companies would drop to only 6 percent. Add to that the high cost of the dispatch system and other costs, you have a recipe for disaster. How can taxi companies survive in such a situation?
Others have suggested abolishing the dispatch system to lower taxi operating costs. But the system is essential for the operation of taxis. Individual taxi drivers may not need this system but that does not necessarily mean the entire industry does not need it. It is especially important for taxi companies in big cities.
Besides, the suggestion to encourage self-employed individuals to have their own taxis and phase out big companies is faulty, too, because the sector is supposed to be open and operates according to market norms without discriminative rules against entry of individuals or companies.
A more suitable practice would be to transform local administrative bureaus into associations to promote self-management and social security in the industry, whose membership should be open to groups and individuals both.
The shortsighted decision of many city governments to limit the number of self-employed taxi drivers is fraught with problems, too. Though the taxi industry’s problems are complicated, an open market with an open policy could never be wrong. And raising taxi fares freely could be dangerous. If the increase in fares is not limited to a certain extent, it will create chaos, causing more inconvenience to passengers which would outweigh the benefits that taxi drivers get. Worse, the inevitable drop in the number of passengers after fares are raised would fail to increase drivers’ income. This could lead to lose-lose situation.
Given the facts, the most feasible solution to the problem would be for local governments to grant subsidies to the taxi industry as a whole. As the windows to a city’s service industry, taxi drivers who toil all day long deserve a better deal with a monthly salary of at least 4,000-5,000 yuan a month, because even a nanny who works fewer hours a day can earn 3,000 yuan or more a month nowadays.
Therefore, it is necessary that city authorities change their mindset from maintaining stability to building a system that will actively push forward a city’s service industry. To solve the problem of the increase in costs, local governments could approach PetroChina and Sinopec, or even higher authorities, to reduce the price of gas for taxi drivers.
The author is chairman and chief analyst of Anbound Consulting.
What’s fuelling London’s cabs?
With the world economy held hostage by spiralling oil prices, it is little wonder that the taxi drivers’ industry around the world are feeling the strain. Why then have we heard very little from the London Taxi trade despite rocketing fuel costs and the recent increase in value added (sales) tax in the United Kingdom?
There are 25,000 licensed taxi drivers (more commonly known as black cab drivers) in the Greater London area. Licenses are issued by the public carriage office, which falls under the auspices of Transport for London (TfL). It is chaired by London’s mayor.
The general secretary of the Licensed Taxi Drivers Association that represents more than 8,000 licensed taxi drivers also sits on TfL’s board of members. Hence, it is not surprising that licensed taxi drivers are afforded a powerful voice within London’s governance.
TfL is responsible for licensing and regulating the taxi trade. It ensures that all drivers are of the required standard by subjecting them to the world famous "knowledge" examination of London’s streets that can often take two to three years to complete. TfL also undertakes detailed background checks on the drivers and licenses the vehicles that can be used as taxis.
The "black cab drivers" should not be confused with the 30,000 or so private hire drivers, who too are registered with the public carriage office but are not subject to the same level of regulation or enjoy the same privileges as black cab drivers.
For example, black cabs are the only form of vehicle hire in the UK which do not require pre-booking, allowing them to be hailed on the street. All other private hire vehicles must be pre-booked, ultimately affording less autonomy to the driver. As well as enjoying a monopoly on fares in central London, black cabs can also use bus lanes, are exempt from paying the congestion charge and have dedicated parking bays.
It is perhaps these privileges that to some extent have cushioned London’s black cabs against the effects of rising fuel prices. But the taxi trade is by no means immune from the effects of rising fuel prices. The higher the price of fuel the higher the running cost and the less the profit.
Crucially for the black cab trade, fares are set on an annual basis following a tariff review, which takes into account fuel prices at the time of reviewing the cost index.
In recent years, TfL has included a fuel threshold which, if reached, allows taxi drivers to add to the fare charged the passenger. This threshold hasn’t yet been reached, and rising fuel prices throughout the year are a concern for the taxi trade because they have an impact on costs to the driver and will doubtlessly precipitate calls by the trade to increase the fares.
Also, although there are no fuel subsidies for taxi drivers, TfL actively works and lobbies on behalf of taxi drivers on such issues and works with various parties on initiatives such as access to cheaper, more environmentally friendly fuel for drivers.
Taxi drivers are self-employed and therefore all income a taxi driver earns will be his or her own. There are "umbrella groups" such as taxi circuits where taxi drivers pay a subscription, to receive jobs provided by a central booking and despatch system, but such arrangements are entirely voluntary (about 6,000 of London’s taxi drivers are registered with one of the three taxi circuits).
Critically, black cabs are considered by the authorities to make up part of London’s integral transport infrastructure in the same way as buses and rail services. And yet essentially, they are simply sole traders.
London’s iconic black cabs have through the years successfully protected their craft thanks to effective lobbying and representation. For this reason, they have probably been better placed than private taxi drivers to safeguard their fares from rising fuel prices.
The author is the chair of the London Assembly Environment Committee.