Mary Cheh, who represents a leafy, affluent, embassy-filled section of Washington, doesn’t fit anyone’s image of a free-market reformer. A member of the D.C. Council since 2007, the sixty-something’s dress and manner are those of the Harvard-educated law professor she is. Many of her legislative priorities—free breakfast programs and green energy—could come from the playbook of any urban progressive.

Her latest accomplishment, however, is a model in managing economically disruptive forces in a way that balances capitalist principles with traditional institutions. She led an overhaul of the District’s ridesharing and taxi regulations, creating a level playing field for conventional taxis and their rival upstart transportation network companies (TNCs) while responding to residents’ legitimate gripes about a system with serious shortcomings.

Cheh’s transportation reforms have won plaudits from free-market groups for creating a sensible legal framework to regulate fast-growing TNCs like Uber, Sidecar, and Lyft. The companies have to procure insurance, check their drivers’ backgrounds, and ensure cars are in working order, but they can otherwise charge fares and maintain service as they please.

Most of the nation’s big cities now allow ridesharing services to operate without huge burdens, with New Orleans, Las Vegas, and Houston notable exceptions. What distinguishes Washington’s regime is that it also maintains a largely free market for taxicabs that has been enhanced under the legislation that opened things up for the TNCs. The District never issued tradable medallions like New York and Chicago, which serve to enrich lucky medallion owners while limiting the supply of cabs for consumers. Deregulation in the late 1990s and early 2000s under former insurance commissioner Larry Mirel also made taxi insurance more affordable than it is in other big cities and let local insurance companies write most of the coverage.

Nonetheless, D.C.’s taxi system was never copacetic. While anyone with a full-sized car who passed a fairly simple test could drive a cab in Washington, an antiquated zone system made it difficult even for locals to figure out fares but downright easy for cabbies to cheat out-of-towners. Price controls also ensured that D.C.’s cab fleet remained dingy and decrepit.

There are good reasons that, in most places, taxis tend to be heavily standardized. If fares had to be negotiated each time a customer hailed a cab, cabstand lines would grind to a halt and street hails would block traffic. Because consumer choice has always been limited, most cities have required that taxis be full-sized cars with room for four adults and their luggage; that they maintain a uniform livery “trade dress,” with black cabs in London and yellow ones in New York; and that they have basic amenities like air conditioning and seatbelts.

But starting in 2008, through several successive waves of reform, Washington’s taxi regulations moved toward a far simpler structure, replacing zones with conventional meters and allowing more adjustments for gasoline prices. This made it possible for cabbies and companies to buy newer, better cabs.

Cheh’s bill went further in the direction of deregulation. If they’re hailed by a smartphone app, D.C. taxis now can set prices based on market forces of supply and demand, just as TNCs do. Alone among major U.S. cities, therefore, the nation’s capital now has something close to a free market for on-call transportation. So long as they follow some basic rules, just about anyone can drive for hire in the District and, in many cases, charge almost any price the customer is willing to pay.

The reforms haven’t all made cabdrivers happy, though. In October, hundreds of them staged a protest on the city’s Freedom Plaza, blocking traffic for hours while honking their horns loudly. While the protest, organized by the Teamsters-affiliated Taxi Operators Association, probably backfired on the cabbies themselves—the Washington Post reported that it was “unlikely to have endeared the taxi driving community to their riders”—it did raise legitimate issues. The city, for example, now requires drivers to use credit card readers that charge relatively high fees and take, the Teamsters say, “a very long time to get drivers their money.”

And some measures that haven’t been all that controversial might still be bad ideas. Evidence from over 50 years of car inspections indicates there’s very little they do to improve safety, but D.C. still requires them for both taxis and TNC vehicles. The requirement for a uniform trade dress for taxis—with no similar requirements for TNCs—may go too far and drew protests from cabbies, especially those driving the recognizable cars of the Yellow Cab Company, when it was announced. (The District ended up mandating it for new vehicles rather than making all cabs get new paint jobs.)

Of course, ardent libertarians object to any sort of ride-for-hire regulation—even basic insurance requirements—and predict confidently that the market alone can work out a decent system. That may well be true in the long run, but Washington is showing that transparent and equitable regulation that doesn’t blow up the existing market can work exceptionally well. D.C. maintains far more taxis in service (over 6,000) than either comparably sized San Francisco (which has fewer than 2,000) or much larger Chicago (which has around the same number as D.C.). All of this has been possible in a city with an extensive rail system, lots of buses, subsidized bike sharing, and three major car-sharing services.

While taxi business is down by all accounts, some cabdrivers have switched to driving for the TNCs, which are flourishing. Insiders at leading TNCs say the District is among their most profitable markets, although there, too, fares have been heading downward, thanks in large part to intense competition between Uber and Lyft, which may eventually erode profits.

Areas of the city historically underserved by taxicabs, particularly the poorer areas east of the Anacostia River and better-off but low-density areas in northwest Washington, have much better service than they did before. Uber, in fact, has located one of its major operational bases for the city in Anacostia. On a Sunday afternoon in late December, the two largest TNC operators reported more cars and a shorter response time near a church in Anacostia than a home on ritzy Foxhall Road in the northwest quadrant.

It’s not a capitalist’s dream by any standard, but transportation in Washington is moving toward a more market-friendly reality. It’s an excellent example of how even progressives in a very liberal city can move free-market causes forward a few miles at a time.

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