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New York’s Taxi Time Warp

The yellow taxi is a New York City icon. But in a city that prides itself on being on the cutting edge, those cabs are bound by an archaic system that shows no signs of budging.

New York’s taxi medallion system was established back in 1937. For decades, there were 11,787 cabs in the city, and that number has barely inched up to 13,237 today. Only medallion taxis are legally authorized to pick up street hails.

You can generally find medallion taxis at airports and in Manhattan below 96th Street or so. In some parts of the outer boroughs, you might go days without seeing a yellow cab - unless you happen to catch one in the act of dropping off another passenger, since taxis are legally required to take passengers anywhere within New York City (though this requirement is not always observed).

In the capital of American capitalism, the car-for-hire industry has been carved into fiefdoms and locked in a time warp that disadvantages drivers and passengers alike.

The medallion system is the basic problem in New York’s taxi industry, and the basic problem with the medallion system is that medallions are treated as private property that can be bought and sold, rather than as licenses or franchises that ultimately belong to the city itself.

New York’s medallions are traded through a close-knit community of authorized brokers. Medallion owners make their money through appreciation in the medallion’s price and by leasing their medallions to cab drivers.

Back in the ‘30s, the medallions functioned more like licenses, and could not be leased. When that changed in 1979, medallion prices began their dramatic rise. Last year, medallion prices passed the $1 million mark. Purchasing a medallion is effectively out of reach for most taxi drivers. Only about 40 percent of New York’s fleet is operated under individual, rather than corporate, medallions; even those only have to be driven by the owner occasionally, and can still be leased. Bhairavi Desai, the head of New York’s nonprofit Taxi Workers Alliance, described the system as “feudal.” The system enriches medallion owners and the financial system that has sprung up around them, while injuring the drivers themselves.

So it is only a small added insult that, in order to maintain this misguided system, the city’s Taxi and Limousine Commission seems inclined to prevent drivers from using modern conveniences to find customers who want rides.

Uber, a company based in California, wants to get its smartphone app into the hands of New Yorkers, drivers and passengers alike. The app allows taxi seekers to broadcast their location with a push of a button. Available cabs that are nearby receive the request on their version of the app, which allows them to go find a fare they might have otherwise missed.

The TLC claims that, among other potential violations, Uber is violating the rule against pre-arranged rides for yellow cabs. Instead, the commission would rather force drivers to wander the city aimlessly, burning $5-per-gallon gas looking for street hails. (The commission says it might get around to authorizing one or more apps sometime next year, probably in return for the city getting some cash from the vendor.)

Street hails might quickly become obsolete anyway. If given the choice, who wouldn’t prefer to press a button and have a cab come to meet them, especially in the outer boroughs? Travis Kalanick, Uber’s chief executive, is still confident that his service and services like it are the future. “The bottom line is the genie is out of the bottle,” he told The New York Times. It’s hard to imagine that a population as obsessed with cutting-edge convenience as New York cab riders would willingly give up such a useful service once it’s in their hands - a fact Uber is betting on by offering its service for free in a preview stage.

If street hails eventually vanish, what exactly will a $1 million medallion be worth? It will be interesting to watch the city that invented the New York minute try to modernize a taxi system stuck in the era of Fiorello LaGuardia.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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2 Responses to "New York’s Taxi Time Warp"

  • Athan Rebelos
    September 12, 2012 - 11:40 am

    The conclusion of this article is clearly biased toward Uber. If there is a cab to be had by waving your arm, it is certainly quicker and more convenient than e-hailing. Finally there is already an alternative to hailing a yellow cab in NYC; it’s using the app or the old-fashioned telephone to call a livery cab or car service.

  • Charlie Grotten
    September 13, 2012 - 12:36 am

    ZabKab already works in NYC and TLC Commissioner Yassky said it complies with all the rules, which it did on day 1.

    Rather than work within the system, others chose to not respect the rules and change from within.