Lyft, Taxis, and Regulatory Capture

What is the role of government regulation in our economy? Supporters of more regulation tend to cite the need to protect clean water and clean air while also protecting consumers against unsafe products. Well-crafted regulations CAN be a force for good in these areas, but all too often, regulations become “captured” by the very industries they are meant to regulate. Rather than being imposed for the public good, regulations become a tool for established players in a given industry to “protect their turf” (and profits) by keeping competition out.

The case of Lyft and its battle with New Mexico’s PRC and the incumbent taxi industry is a great example of this tendency towards “regulatory capture.” Check out this column in defense of the current regulatory system from Michael Cadigan an Albuquerque attorney and former city councilor. Cadigan’s argument can be summed up in one paragraph from his column, “Right or wrong, New Mexico taxis have to charge rates approved by the state. They cannot charge less; they cannot charge more. That is the law, just like it is in nearly every state in the country. They also pay required gross receipts taxes and payroll taxes to the city and state.”

So, no matter how bad the regulations are for consumers, taxi companies and new players should just shut up and deal with it. Of course, this view is based on the fallacious belief that regulations were simply created from on high without the “benefit” of industry input. In reality, as recently as the 2013 legislative session, I sat through committee hearings in Santa Fe in which the only opposition to partial deregulation came from the taxi industry led by their lobbyist Raymond Sanchez. Despite broad bi-partisan support for deregulation, the bill passed was weak tea indeed and still left New Mexico’s transportation industry heavily and unnecessarily regulated.

This heavy regulation doesn’t benefit consumers. It benefits the incumbents in the industry. Airline deregulation that took place in the 1970s was just one famous example and what is happening with Lyft reminds me of a great scene from The Aviator.

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