Friday, June 21, 2013

Korean Taxi Blues: The story where there are no good guys

I enjoy watching movies. In the movies, there are the good guys and then there are the bad guys. The bad guy, as per his character, would go about doing something bad – robbing a bank or harassing villagers. That’s when the good guy appears. Upright and moral, he fights the bad guy, saves the day, and gets the girl. When I walk out of the movie theater, I have a smile on my face and at least for a while, the world is all right.

Unfortunately, the real world isn’t so black and white. And that is especially the case when money, special interest groups, and government are involved. They all like to think that they are the good guys but, unfortunately, that couldn’t be further from the truth.

If the Korean government gets its way, the Ministry of Land, Infrastructure, and Transportation will submit the Taxi Improvement Bill to the National Assembly for approval. If passed, the bill would reduce the number of taxis in Korea by up to 50,000 vehicles over the next five years. The reason that the government gave for this proposed reduction in the number of taxis was “oversupply.”

NO!  Stay with me!  Don't fall asleep just yet.  Economics graphs aren't that boring.  And this one isn't even that hard to understand.  It's really straightforward.  All right, I swear this is the only graph I'll use!  Oh come on!  Really?  You're going to fall asleep and drool on your keyboard?  Oh fine.  Just remember to wipe down your keyboard later.

The government came to the conclusion that there was an “oversupply” of taxis when the Ministry discovered that “the number of passengers has decreased by 22 percent over the last 16 years, from 4.9 billion in 1995 to 3.8 billion in 2010, but the number of licensed taxis has increased by 24 percent, from 205,835 to 254,955 in the same time period.”

(I can’t help but wonder if the JoongAng Daily, from where those numbers were cited, actually meant ‘million’ or ‘billion.’)

The government has its reasons for wanting to eliminate this surplus of taxis. For one thing, the Korean government has been aiming to pass “green growth” policies in accordance with its “Low Carbon, Green Growth” agenda since 2008. A reduction in the number of fossil fuel-burning and greenhouse gas-emitting automobiles would reflect that agenda.

Furthermore, considering the fact that Korean taxi drivers have been lobbying and protesting since late last year to be classed as public transportation workers, which would make them liable to receive government subsidies and benefits, the government must have felt compelled to reduce the number of taxis. That is because the only way for the government to grant all those taxi drivers subsidies and benefits, if the government chooses to do so, is for it to either cut spending elsewhere or to hike taxes; neither of which would be popular.


However, the government was the very reason for the “oversupply” of taxis in the first place. The government’s guilt can be summed up in one word – licensing.

In order to become a legal taxi operator in Korea, be they corporate taxis or individually-owned private taxis, taxi operators have to obtain a license from their local governments. Seeing this as an opportunity to buy votes from their constituents, local government officials issued those licenses indiscriminately.

Due to the fact that Korea has an inadequate pension system, senior citizens, who cannot afford to stay retired and have difficulty finding employment in the corporate world due to ageism, have been seeking non-mainstream employment. As a result, more and more middle-aged men and senior citizens have opted to turn their cars into taxis. It is no wonder that there was a far greater increase in the number of privately-owned taxis rather than corporate-owned taxis.


With amoral politicians willingly selling licenses to whoever seeks to become a taxi operator (knowing all the while that they are flooding the market with an excessive number of taxi drivers, which would eventually drive down taxi fares that would reduce taxi operators’ standard of living in the long run) and middle-aged and older citizens purchasing these licenses to earn their income, it was only a matter of time before the taxi industry imploded.

To add serious insult to what is already a grievous injury, the government is promising to compensate taxi drivers who willingly surrender their licenses up to US$11,400 (because the government, in its infinite wisdom, prohibited taxi drivers from selling their licences to other people through the passage of the Passenger Transport Service law) despite the fact that taxi licenses are traded at up to 70 million won (US$62,000) each.

Former US President Ronald Reagan once said, “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’” I wonder if there is a Korean equivalent of this.


As I said earlier, however, there are no good guys in this story. As mentioned earlier, Korean taxi drivers have been lobbying and protesting to be classed as public transportation workers since late last year, which would make them liable to receive government subsidies and benefits.

Although it is true that taxis are ‘public transportation’ as much as buses and trains are, it ought to take a serious amount of fantastic imagination to believe that taxi drivers are public sector workers, aka civil servants. That such a notion was even deliberated in the National Assembly and had to be vetoed by the former Lee Myung-bak administration (only to have taxi drivers seek to have the new government give in to their old demands) just goes to show the sheer depth of intellectual bankruptcy of Korean politics.

That taxi operators as a whole are operating in a saturated market, thus driving down their income, is an undeniable fact. That this was the result of government interference in the industry for the sake of making political gains is also an undeniable fact. However, what is also another undeniable fact is that the only lasting solution to the problem would be to allow the free market to readjust the supply-demand equilibrium.

Yes, that means that those taxi operators who are least successful in their line of business will have to suffer losses and seek gainful employment elsewhere. Demanding government intervention to a government problem, on the other hand, is no lasting solution.

When taxi operators demand that they be counted as public transportation workers, what they are in fact demanding is that taxpayers subsidize their incomes. In other words, they are demanding that Korean citizens help to pay for services that they do not want (as evidenced by the 22 percent decrease in number of passengers) so that taxi operators can continue to operate at a loss by offering cheap fares. They are demanding special privileges at the expense of taxpayers.

I cannot help but be reminded of what Frédéric Bastiat, the nineteenth century French economist, said about government – “The State is the great fiction through which everybody endeavors to live at the expense of everybody else.”

So long as the government insists on interfering in the free market, and so long as individuals seek government help for special privileges, problems of this kind in the taxi industry will not disappear and in the end, all we will end up with is financial losses, frustration, and disappointment.


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