Ticket To Ride

Taxi drivers are a wonderful source of information and gossip. They spend much of the day listening to talk shows on the radio or discussing topical issues with passengers as they drive and hence have an excellent feel for the public mood. Foreign correspondents visiting a city for the first time, or revisiting an old haunt after a long absence, find them a useful resource for quickly getting a handle on local sentiment.

The trade in Hong Kong has submitted a request for a fare increase ( the first since 2013) ranging from 16 – 18 per cent in flagfall plus a rise in some other charges. The main reasons given are increasing costs, and the need to boost drivers’ incomes. The proposals are now the subject of consultation with Legco Members, and later will have to be considered by the Transport Advisory Committee, the Executive Council and then be subject to negative vetting by Legco again. Despite the long and circuitous bureaucratic journey that lies ahead, I am able to confidently forecast the outcome: there will be an increase; it will not be as much as the trade has sought; most of the benefit will accrue to taxi owners and relatively little to the drivers.

Let us spend a little time exploring each aspect of that forecast. Why will there be an increase? The taxi trade is in the very privileged position of having a powerful say in the election of the Legco Member representing the Transport Functional Constituency, and considerable influence over the appointment of 18 members of the Election Committee which will elect the next Chief Executive in just two months’ time. Taxi associations constitute the largest single block of electors in the Transport FC (36 votes out of 192, or close to 20 per cent). Thus a candidate with their support is well on the way to victory, whereas a candidate without it has an uphill climb. Similar factors apply to the process of identifying the members of the EC. A juggernaut like this takes some stopping.

Why will they not get everything they ask for? First of all, officials in the transport department and Transport and Housing Bureau must be seen to do something to show they have acted to protect the public interest. The trade is well aware of this factor, of course, which is why they cushion their opening shot with a wide margin part of which can be comfortably conceded later. Then there is the matter of public acceptability. In recent years all the talk in economic circles has been of deflation and practically zero inflation, together with the collapse of oil prices. One has to wonder what special part of the universe our taxis inhabit that has seen inflation in the order of 18 per cent.

Then comes the tricky part: apportioning the spoils. Most of our 18,163 fleet is not driven by the owner himself, but rather by people renting the taxis from the owners for a charge per shift set by market forces. Thus a driver pays for fuel and other running costs, plus the shift charge, and derives a net income. Take as an example three different notional levels of driver monthly income: $15,000, $17,500 and $20,000. The owner’s interest lies in maximising his own income while attracting sufficient drivers to keep his cabs on the road and earning revenue. If he can find enough drivers to do the job at the lower net pay, he will calculate the shift charge to achieve that level. Only if he has to pay more to get someone behind the wheel will the shift charge be lower so that the driver’s share can be increased. The key point is that this calculation is entirely independent of the fare shown on the meter. We know for a fact how this “tug of war” has worked out over the decades because taxi licences are now worth somewhere in the region of $6.5 million for a vehicle costing about $300,000.

As a separate but connected issue, there is the matter of Hong Kong’s economic future. We know, and say, that it must be based on innovation and technology. So we talk the talk, but do we walk the walk? Why is it that in Singapore you can pay the fare by credit card, but not in Hong Kong? Why is it that throughout Asia – not just in advanced cities like Singapore but also in developing economies like Vietnam, Indonesia and the mainland – governments have introduced legislation to regularise Uber and similar services. In Hong Kong our response to this innovation was to arrest the drivers.

How will our hypothetical foreign correspondent feel when he boards a taxi at the airport, asks the driver about competition from Uber and is told “Don’t worry sir, we soon put a stop to that”.

The taxi fare saga is but one example. We can have a future built on innovation and technology, but only if we are prepared to confront vested interests when they stand in the way of progress.

Mike Rowse
email: mike@rowse.com.hk