[Free Speech Platform] The Curious Taxi Cap System

The taxi cap system was introduced in 2005 amid criticism that an oversupply of taxis was lowering service quality. Its core principle is to set a total number of taxis for each designated region and limit the number of vehicles so that the cap is not exceeded. Every five years, the Ministry of Land, Infrastructure and Transport commissions a research study to calculate taxi caps for 156 taxi service districts nationwide, and based on the results decides whether to increase or reduce the number of taxis.

The taxi cap system does have its own original rationale. This is related to the fact that an individual taxi transport business license is, in legal theory, a “concession.” A concession in this sense is an administrative act that newly grants a specific party a right, capacity, or legal status in light of the public interest. A motor transport business license likewise falls into this category. In industries such as passenger transport, which have a major impact on the daily lives of the public, it is considered necessary to prevent bankruptcies caused by excessive competition, and so a certain degree of exclusive operating rights is granted by law. At the time, taxis also played a role as a means of transportation for ordinary citizens, which is likely why licenses were issued only on a limited basis.

Now, however, it is difficult to say that the taxi cap system still has a valid basis for existence. That is because taxis are no longer regarded as a mode of transport with strong public utility. As is well known, city buses are mostly operated under a quasi-public system. These buses have a strong public character because they are mainly used by people who do not own private cars or cannot afford to operate them. If bus companies competed freely, profitability would become the top priority, and routes with insufficient demand would disappear. That is why local governments retain the authority to determine routes while subsidizing bus companies for their losses. Similarly, railways are also operated by public enterprises such as KTX, SRT, and Seoul Metro, because rail is a necessary means of transportation for medium- and long-distance travel.

But what about taxis? When car ownership rates were low, they may indeed have been a means of transportation for ordinary people. But now, it has long been the case that households own one or more cars. With their declining share of passenger transport, it is hard to regard taxis as social infrastructure. Taxi transport’s modal share, which reached 50% several decades ago, fell to 2.7% in 2020. Even compared with 6.6% in 2007, that is a decline of more than half. That is the point: taxi services are now better understood as an ordinary private good with low public utility, used mainly by people with sufficient ability to pay.

The taxi cap system also has no small number of institutional flaws. Above all, it is problematic to calculate taxi caps nationwide using a uniform standard. The cases of Gwangju, Gyeonggi-do, and Hanam are representative examples. In these areas, rapid population growth from recent new town development has made taxi shortages a serious problem. As of September 2021, the number of residents per taxi was 905 in Gwangju and 937 in Hanam, two to three times the Gyeonggi-do average of 358. Nevertheless, these areas were designated as a single service district and assigned a total cap of 719 taxis; in fact, they even faced a situation in which they had to reduce the fleet by about 40 vehicles.

This is just one example. Problems caused by mismatches in the supply and demand of taxi services are occurring throughout the country. Yet only stopgap measures that fail to address the essence of the problem are being repeated. That is because of the institutional defects of the taxi cap system. The clearest solution is simply to allow more taxis to operate where demand is high and fewer taxis where demand is low. Of course, fare regulation must also be loosened together with this. Private goods can be traded through the optimal mechanism when supply and demand are determined according to market principles.

The taxi cap system is also ill-suited to the new social environment. We are now in the era of the Fourth Industrial Revolution. What has been the result of rejecting innovation under the pretext of protecting the taxi industry during the Park Geun-hye and Moon Jae-in administrations? We are experiencing the inconvenience of being unable to use needed transportation in a timely manner. Urban air mobility (UAM), flying above our cities, is emerging. It will no longer be easy to ignore the powerful trend of platform transport services such as Tada and Uber. The spread of personal mobility (PM) devices serving as last-mile mobility is another challenge. We too must lift excessive regulations and embrace the wave of innovation.

The taxi cap system, born under the ostensible banner of protecting industry, has now become “the taxi cap system in Wonderland.” Let us finally let go of this troublesome burden that generates nothing but conflict—regional conflict, conflict within the taxi industry, and conflict with new industries. To untie this “Gordian knot” of the taxi cap system, however, the issue of rigid fares must also be addressed together with it. At the same time, we should also consider strengthening public service programs for the transportation disadvantaged.

Hanmin Koo, Adjunct Research Fellow, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 이상한 나라의 택시총량제

Author: Han-min Koo

Date: 2023-03-17

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=6&idx=25464