Jul 20 2011

Of taxis and men…

by Professor Nikolaos Zahariadis

The recent strike by taxi owners and drivers has brought into light some of the worst aspects Greek society has to offer. After receiving word by the former minister of transport that their demands for special treatment, i.e., exceptions from full deregulation with fewer or no new licenses in the major cities of Athens and Thessaloniki, the taxi owners were stunned by the new minister’s refusal to honor this “agreement.” The end result is that deregulation will proceed without exception. In response, taxi owners throughout the country decided to respond by striking and closing off the roads to airports, ports, toll booths, and other transport hubs in order to bring the country to a standstill, hoping, I presume, to show the government they mean business when they demand exceptions. Not surprisingly, the government says it will not budge, we’ll see about that, and the opposition, in its own populist way, has declared everything to be the government’s fault. If only they were in government, things would have been handled differently. Well, they were in government and we all know what happened; so for the time being let’s set aside this aspect.

There are so many things wrong with this picture that the difficulty is to decide where to start rather than to figure out what’s wrong. Let’s be clear at the outset. There is a desperate need for careful deregulation in the Greek taxi market. Forbidding the issue of new licenses for over 30 years has left major cities with serious traffic problems. First, there are double or triple hires, that is, picking up two or three individuals who go to separate addresses and charging them full service while the cab records the transactions as a single hire. This is of course illegal because it implies revenues that are not subject to taxation. In theory, taxis are not allowed to do this, but hands up how many residents or visitors in Athens and elsewhere have not encountered, or continue to encounter, such illegal behavior. Second, there is the terrible practice of hailing a taxi only to be told you, the customer, are not going in the “right” direction, meaning it is not profitable for the driver to take you there. Talking about putting the cart before the horse. Do customers serve drivers or do drivers serve customers? Don’t take me wrong. Not everyone does this, but enough drivers do, with their owners’ consent I assume, for this to be a general problem. Does deregulation solve this behavior? Partially yes. More taxis mean more convenience for customers and better service. The number of licenses will initially increase dramatically; research shows no more than 200% (in Dublin and far less in other European cities) and not the fantastic numbers of quadrupling that we hear. Service has improved in all cases. Of course deregulation needs to be done carefully to ensure quality, a ceiling on charges, and special bureaus designed to address abuses with responsibility and follow through, something that exists on paper but in practice is as dysfunctional as so many other public services.

Interestingly, the number of taxis per person in Athens is currently higher than pretty much everywhere else in Europe. There are almost 4 taxis per 1,000 residents in Athens, only 2.1 in Rome, 2 in Milan, and so on. So it is important to understand that deregulation needs to be part of a broader overhaul of transport systems. The key is not necessarily to put more taxis into operation but to combine this mode of service with other public transport systems, buses, subway, etc., in order to provide the widest range of options at the least possible cost. But the aim is one and only: provide better service to customers not to taxi owners or drivers. One need not come at the expense of the other, hence the need for careful deregulation, but if there is a trade off, let’s be clear on whose side we need to err.

So what has been the organized reaction by taxi owners? Typical of the Greek system of state-society relations, every organized group whose benefits are threatened by impending legislation creates chaos and misery for everyone else until its demands are met. In this case, the choice is keep the country hostage or meet our demands. How else can one explain the takeover of roads leading to airports and ports, the ability to takeover toll booths and allow cars to go by but without paying toll, and the general willingness to decimate the already weakened tourist season? Why should one group, however just its demands may be, hold hostage everyone else until it gets its way? Why does it believe it can impose huge losses on everyone (hotels, tourist agencies, airlines, restaurants, taxpayers, etc) because some of its members stand to lose? Why should some potential private losses be nationalized? And more importantly, what are the chances tourists who are caught in this confusion are likely to return? The country desperately needs hard currency now, there are precious few alternatives, and the taxi owners (and drivers) stand to destroy it all. It may not be their intent but it is certainly the effect.

The government of course shares the blame for all this. Why is one transport minister allowed to make side deals with special interest groups only for these deals not to be honored by his successor? At a time when the prime minister (and the rest of us) strives for structural changes, each politician is allowed to “play by his own rules.” If he is, publicly acknowledge his smart politics. If he is not, then punish him for that because the message is clear. Keep things under the radar screen and hope no one notices. Isn’t this strategy that has brought the country to ruin? Structural changes will never bring the desired results no matter how many times the law changes, unless politicians and their clients decide to behave in more responsible ways. There is only one solution. The law should go through, and it will because not doing so gives incentives to other groups to act in the same irresponsible manner. And there will be many other groups. But the government must also publicly reprimand (or worse) the former transport minister for making side deals. He helped create this problem in the first place. If the government demands taxpayers to pay their fair share, it should also learn to govern fairly.

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10 Responses to Of taxis and men…

  1. Vassilis Monastiriotis says:

    I have written my views on this elsewhere (https://blogs.lse.ac.uk/greeceatlse/2011/07/07). But a couple of points here.
    1. I agree that the type of demonstrations seen by the taxi drivers shows exactly how hooliganistic the Greek society has come to be (including the police). But if Athens has more taxis per capita than other European capitals, and if the de-licensing of the profession does not remove the regulation of prices, then what is it that deregulation improves? Surely with more taxis in the streets you will have lower incomes for taxi-drivers/owners and thus worse-maintained taxis and poorer services. Unless one expects that people will stand on the side of the street cherry-picking on the high-quality taxis…
    2. In my experience, refusals of service and multiple rides describe the situation prior to 2004 – but not the current situation. And if you allow an unlimited number of licenses (which I suspect will mean that anybody can get a license and operate their taxi occasionally / as they return home from their day-job), then I am afraid that “route-picking” will become the norm…

  2. Nikolaos Zahariadis says:

    I have read Prof. Monastiriotis’s blog and I agree with several of his points in it. Deregulation needs to be done carefully. I will concentrate on responding to the points he raises in his questions.
    1. I agree there should not be deregulation for the sake of deregulation. It needs to have aims and a logic that links changes to results. As I mention in my commentary we don’t necessarily need more taxis on the street (there are plenty already) but we need to improve quality of service which means better trained drivers, properly maintained vehicles, a commission with the ability to correct abuses, receipts (which does not happen automatically and in many cases), and of course some way to regulate charges. I leave aside the black market of licenses, which may be the real aim of the current government’s efforts. Careful deregulation addresses many of these concerns. I hope the government, and I am sure Prof. Monastiriotis knows, deregulation does not mean anything goes. I am not at all convinced the numbers will go sky high as Prof. Monastiriotis says and many fear. The reason is simple. If the profession is profitable, new entrants will be attracted. If it is not, they will flee to more profitable endeavors. If there is careful regulation of quality and a cap on charges, there is no reason why thousands more will be attracted to become taxi drivers, a profession that is admittedly difficult and can be dangerous. Lowering the barriers to entry does not necessarily mean an infinite number of entrants if returns on investment are also reduced. Lower incomes don’t have to translate into poorer service especially if quality is regulated; they can translate into exit, which improves the average quality of service. Besides all this is moot now because of politics. The disgraceful behavior of many taxi owners and drivers today in Greece means the government is left with no choice. If it gives in, it invites other groups to conduct themselves in the same counterproductive manner. For the sake of everyone in Greece, I hope it will not. I agree that Greek society has become very extreme in its responses. I am not at all convinced the same applies to the police. I cannot say there are no problems with the police’s response, but I must admit there is at times a deafening silence on their part to the abuses by various groups. There is a desperate need for greater presence and action; less hooliganistic to be sure but we need to go beyond the current situation of expecting more action and complaining when it comes. There is a balance here, but present circumstances call for more civilized but firm action.
    2. My experience differs significantly from Prof. Monastiriotis’s. There are still significant double or triple hires; not as many as before but the problem persists. The various conversations I have had in Greece, my personal experience, and the comments I read in newspaper blogs lead me to believe many others have similar experiences. I must conclude the situation has not improved dramatically.

  3. Apostolis Grammis says:

    I read your discussion with great interest since the lack of logical, dispassionate analysis about public policy options is, in my view, one of the greatest problems of modern Greece. In that sense, I would like to make some comments:

    1. Yes, multiple rides are illegal (and, indeed, to some extend taxi-drivers break the law). But are multiple hires inefficient? If two persons want to move to roughly the same place is it more efficient to have two taxis with two taxi drivers to go them there or is it better (in terms of socially optimal allocation of given resources) to provide only one taxi for that transportation? Same result, less resources.
    Besides, we should note that tax evasion is not, in principle, relevant here. First, because taxi-drivers are not taxed by the amount of the receipts they give but by a system that the state defines an imputed income for them and then taxes are imposed based on it (τεκμαρτός και όχι λογιστικός προσδιορισμός του εισοδήματος). Ιt is another matter if that system is correct (and I think that has recently changed). Second, because giving a receipt is not related to the number of passengers. You can have only one customer, not giving a receipt and thus tax evade but you can have three customers, give three receipts and no tax evasion takes place.

    2. Refusals of service are motivated by the fact that the price is fixed but the cost varies. This happens because after a ride to a distant, isolated area it is unlikely to find a passenger that wants to move to the opposite direction and thus the taxi will return empty. Deregulation of licenses does not solve that problem. Deregulation of price might help, but it creates other problems (increased search costs, full appropriation by the taxi driver of the consumer surplus due to price discrimination) . In fact, deregulation could make things worse since there won’t be any cross-subsidization between profitable and not profitable rides. Therefore, “average pricing regulation, enforced by a medallion system, may promote efficiency” (Gallick and Sisk, A Reconsideration of Taxi Regulation, Journal of Law, Economics, & Organization, 1987).

    3. Potential entrants to the taxi market compare private costs and benefits. Since private costs are less than social costs due to the negative externalities of air pollution and traffic congestion in a free market equilibrium the number of licenses would exceed the social optimum.

    4. In the paper that Professor Monastiriotis cites, Cairns and Liston-Heyes (1996) point out that a positive market value of a license (medallion) can serve as a “bonding device”. The logic behind bonding is the following: If free entry is permitted into the industry then the owner would face only his opportunity cost of labor and capital and he would have an incentive to shirk to the extent possible. But, if he bears more than these opportunity costs (like the need to buy a license), then suspension of the right to drive as a penalty for shirking would entail a significant economic loss which could prevent him from shirking in the delivery of services.

    5. I’m surprised that you said nothing about the cost for the taxi-owners from the deregulation since the value of an intangible asset of them (the license) suddenly goes down to zero. Isn’t it normal to demand some kind of compensation?
    Let us recall here the notion of regulatory taking, i.e. “a situation in which a government regulates a property to such a degree that the regulation effectively amounts to an exercise of the government’s eminent domain power without actually divesting the property’s owner of title to the property” (http://en.wikipedia.org/wiki/Regulatory_taking). In our case (as in lorry drivers last year) we have exactly the opposite problem: deregulatory taking (see the excellent book by Sidek and Spulber http://ebooks.cambridge.org/ebook.jsf?bid=CBO9780511572227).
    Government decisions about deregulation effectively expropriate the private property of taxi-owners without any compensation. It is difficult to consider such a radical change in the terms of practicing the profession as a normal market risk that the taxi-owner should fully suffer. Thus, we have the paradox that a market-oriented reform (deregulation) undermines the very foundations of the market economy: contract and property rights.

    6. Besides, compensation for losers it should be something familiar to economists. A change to a different allocation of resources constitutes a Pareto improvement only if it makes at least one individual better off without making any other individual worse off. Therefore, if the social benefit from deregulation is indeed so much higher than the cost which is the problem to compensate the losers to accept the policy change and still have a net benefit?

    7. Greece obviously needs reforms. But the right ones. It tends to become common knowledge that some reforms don’t take place, although it might be socially desirable, due to objections by minority groups that protect their own interests. This, in many cases, is certainly true. But not always. And even when it is true it does mean that personal interests are always in conflict with the public good. On the contrary, that’s exactly the great idea that Adam Smith promoted: “It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages”. Replace butcher for the taxi driver and you might find that something which is profitable for taxi owners (the preservation of the license system) it might also be socially desirable. Therefore, we should have in mind that some of the proposed reforms which have been put forward all that previous years may have not been implemented not because some notorious occupational coalition blocked them but simply because they were wrong and socially inefficient.

  4. Nikolaos Zahariadis says:

    Thank you Mr. Grammi for the opportunity to have a reasonable conversation about this issue. It’s more complicated than many readers think, and it has certainly been clouded by the reaction of taxi owners and drivers, who in my opinion, have effectively shot themselves in the foot. However just their demands may be, they will be lost in the current political climate caused largely by their own doing.
    You raise good points, and I would like to respond to several of them. Please note that my aim is to improve service to customers; so I look at the issue primarily from a consumer’s perspective.
    1. Multiple hires are inefficient and inconvenient from a consumer’s point of view. If I hire a taxi to go to point A, and the driver allows two more people (almost always without my consent) who go to points B and C, close but not exactly where I am going, then requiring everyone to pay full fare is inefficient, if the driver has to take detours to take everyone to their desired destination. If I am third, I pay more because I have (I am not asked) to pay for two detours. It is inconvenient because tax hires, the way I understand them, are exclusive to customers. By this I mean when I hire a taxi, the explicit agreement is that the driver caters for a fee to my private wish for transport to a certain point. When the driver takes more people, he/she adds to social cost by adding inconvenience to my (and their) transport for which none gets compensated but for which the driver (and owner) gets compensated.
    2. Thank you for illuminating the point about refusal of service. But again if we look at it from the point of view of consumers, it is surprising that a one-way taxi hire depends on a two-way cost structure. I understand your point about returns, but the key is to figure out why consumers have to pay (or not) for the likelihood of a taxi returning empty (or not). If customer service is the primary objective, and that is almost always a one-way hire, should that not be the hire criterion? If the supplier thinks this is not profitable under the current charge structure, then Adam Smith, as you quote, has an answer to that: do something else that is more profitable.
    3. You are right about the number of potential entrants possibly exceeding socially optimal numbers due to externalities. This is the reason why I was careful to note there needs to be a broader plan of transport that affects not only a single mode, taxis, but public transport as well. One potentially reduces total externalities by providing alternative options which produce fewer externalities.
    4. Thank you for clarifying the mode of regulation needed.
    5-6. You are absolutely correct about my omitting the issue of compensation. That’s a very tricky subject and, in my opinion, not applicable in this case. If the government (for whatever reason) decides to create an oligopoly at time A, standard economic theory says it also creates market distortions by increasing profits for current market participants, probably lowering quality of service, raising social cost due to inefficient allocation of capital, and discouraging new entrants. New entrants to this market pay a steep price for such barriers. Should they decide to enter, they must think the profession is hugely profitable, otherwise they would not pay such exorbitant entry fees. They also “bet” the situation will continue for at least as long as they need in order to get their money back and a reasonable profit. Notice this is a bet in the sense no one knows whether or when barriers to entry may fall. Good entrepreneurs make these calculated bets all the time, and they decide whether return on investment is high enough to justify the amount of entry fees. This is especially important in a policy environment such as that in Greece, where laws change frequently. Now assume at time B the government (again for whatever reason) decides to reduce barriers to entry. The entry fees will naturally go down. Does this mean compensation is due? Hardly, for three reasons. First, it’s a voluntary (not a forced) decision to enter the market under current rules. This means the entrant pays the fee and enjoys the benefits. If the situation changes, the entrepreneur pays the cost just as much as he reaps the profits (if any). It’s a calculated risk and that is what the system is all about. Second, if the price of private property depends on government action, and if government action fluctuates, which it must inevitably do, then the price of private property will also fluctuate accordingly. Substitute taxation for government action and you’ll see the argument is illogical. You seem to advocate that every time the government changes the rules, it has to compensate those who currently profit (and potentially stand to lose) at the expense of society at large. Do owners of assets have an inalienable (I emphasize the term) right to compensation every time the tax code changes? Surely not because it implies the government privatizes profits and nationalizes losses (that’s what compensation entails). Besides, if that were the case the tax code (or anything else for that matter) would never change essentially freezing the status quo. Third, we are not talking about expropriation here. The latter means the government takes over taxis (without compensation) and now provides the service itself. I have not read or heard anyone saying this is what the government intends to do.
    7. You are absolutely right about Greece needing to attempt the right kind of reforms, a point that is lost in the current political climate. I also agree that sometimes reforms don’t work because they are the wrong kind. I wonder what this means though. Are we talking about creating oligopolies or breaking them?

  5. Ioannis Papadakis says:

    Some interesting points are being raised in this discussion and I would like to add my personal view.
    While the arguments used are very convincing and actually very true the problem is that the reality (whether it is Greece, US, UK or any other country) is very much different from the theory. Unfortunately, in real life not all market participants are rational and markets are not purely driven by supply and demand.
    1) I agree with your statement that private losses should not be nationalized. However, I am more than sure if the issue was around losses of the banks or finance institutions we would not be having this discussion in the first place. We have all seen in the last few years how many bailouts have happened across the globe. The banks may have been bailed out in order to avoid a financial crisis cycle but in essence it is the same thing. The only difference is that finance sector usually has significantly stronger political backing than taxi drivers.
    2) My personal feeling is that the government is making a ‘show-case’ out of the taxi profession in Greece. To be honest, I do not see how it will help/or contribute towards resolution of national problems. There are much more profound issues to deal with –tax system reforms, bankrupt and completely rotten social security system and many more. None of these issues actually is being addressed – just talked about. In addition, had the move was to de-regulate all the other professions as well (e.g accountancy, lawyers, education, etc),I I would accept it. However, the way I see it, the only other profession that gets de-regulated together with taxi are beekeepers.
    3) In a society that wants to attract investments and is a Democratic and fair society the right of ownership must be safeguarded, and I question whether such Involuntary, or forced zeroing of private property is “just.” If the value of a license is zeroed, essentially it means that all these people are going to default on their mortgages, loose their job and homes, thus creating another chaos in the Greek society.

    4) You talk about full deregulation in barriers of entry but then you talk about “a ceiling on charges”. It is like being ‘a little bit pregnant’ – never good situation to be in. That just doesn’t make any economic sense. In any society there has to be a fair equilibrium when imposing restrictions.

    5) It is stated that deregulation will improve quality of service to the end customer. My personal prediction of this is that the roads in Athens and Thessaloniki will be flooded by unemployed people who will enter the taxi industry. No one in the industry will be earning a decent living if they play by the book, and the only way for them to survive would be to overcharge and pick and choose the customers they like, resulting in worse quality of service for the end customer. A good example of this is Moscow and all other major former CIS cities.

    6) My experience with multiple hires is that it is always in the customer’s discretion to allow the driver to pick up a second customer. If you tell the driver you don’t allow it, he will not, although sometimes he/she might not be happy about it. If you are the second customer and stop a taxi that is already being used by another customer, again it’s in your discretion whether you are willing to use it or wait for an empty taxi. Therefore based on this, your statement “Multiple hires are inefficient and inconvenient from a consumer’s point of view” is not valid, and I agree with Vassilis Monastriotis that“ refusals of service and multiple rides basically describe the situation prior to 2004’

    Of course there are cases of bad taxi drivers, like in all professions, (teachers, lawyers, doctors etc) but that entails the job of the police and judicial system to address. It is totally incorrect to say that the entire taxi driver population in Greece is rotten to the core.

    7) I also agree with your statement “Good entrepreneurs make these ‘calculated risks’ all the time, and they decide whether the return on investment is high enough to justify the amount of entry fees” however, it must be conceded that the large majority of taxi owners in Greece as well as in many other countries are hard working blue collar laborers that have either taken bank mortgages to acquire a license and/or have worked a lifetime in factories, mines, ships to save and essentially buy a job (the taxi job). Not, to make profits on top of the money they paid to buy the license, but just to have job and survive.

    8) Finally, I must agree with Apostolos Grammis that such radical measures undermine the very foundations of the market economy and property right.

  6. Nikolaos Zahariadis says:

    This is turning out to be a very interesting discussion in sharp contrast to much of the public dialogue in Greece. I am glad to see this and I must thank the staff at the Hellenic Observatory for making this possible.

    I would like to raise three issues.

    1. Full deregulation is a mistake in the sense that barriers to entry should not be zeroed and anyone can buy a license without appropriate responsibilities (proper vehicle maintenance, the responsibility to make it a full-time profession, training, etc). I don’t believe the government wants full deregulation and neither do I. In economic terms, this raises the barriers somewhat and I think that’s fair and appropriate. It implies the number of licenses after deregulation will not be sky high. It also means that it will come down significantly as those who initially entered the profession figure out their rate of return is not be as high as they thought it would be.

    2. Putting a ceiling on charges is necessary in taxi hires. It happens everywhere and I don’t believe it is unreasonable to expect that it happen in Greece as well. The reason has to do with transparency of transactions and protection of consumers. Taxis cannot be expected to advertise their prices and neither should drivers or customers have to negotiate this at the point of hire. It would indeed be absurd and counterproductive to do so; hence the ceiling so that consumers have an idea of what the service will cost. The ceiling also helps owners because it gives them assurances they will get specific revenue for their efforts. So I don’t think the ceiling is the issue here. If the matter has to do with the actual level of the price, that’s a different issue. If the fixed price per km is low, so that owners don’t make a decent living, then negotiations are in order. Greece needs taxi services and people must make a living (yes, making a living also includes profits; I personally don’t think it’s a bad word or it is unreasonable not to expect this from taxi owners). My understanding of the crisis now, having read all the newspaper reports, is that is not the problem because it has not been raised as a point of contention.

    3. The statement about banks and turning the taxi profession into a show case is important and deals with the politics of the issue. I am not at all convinced that we would not be talking about it if we were talking about banks. In other countries we did (Greece did not suffer from this problem). The result was massive bailouts to be sure, but this does not make it an issue that was not discussed or resented by many voters, including me. I don’t think the Greek government is trying to make it a show case for two reasons. First, I don’t think the government speaks with one voice (you seem to give them too much credit). The problem is individual ministers and MPs try to do what they want regardless of the consequences. This is why they are making side deals and many seek to preserve their business-as-usual attitude. I am totally against this and it is precisely the reason why I suggested in my initial blog that the prime minister publicly reprimand (or worse) the previous minister, Mr. Reppas. He needs to NOT give people the excuse to think he is playing favorites. He has not done so, and I believe he hurts his case by not doing it. I believe the reason why he is not doing it has more to do with partisan politics and not with playing favorites. I wish he would take control of the situation and finally realize that intra-partisan politics hurt him and the country in the long run. The second reason why this issue has received so much attention is because of the actions of organized groups of taxi owners (apparently taxi drivers feel differently). Their extreme responses for some time now have brought to light their concerns but also turned public opinion strongly against them. The logic of “if I lose, then everyone should also lose” is politically and socially unacceptable in a democratic society. Had their actions been civilized and firm, I think the issue would have received far less attention and much more sympathy. Research shows that what you say matters perhaps less than how you say it. Taxi owners appear to have chosen the wrong way to articulate their demands.

    I agree the deregulation of taxi licenses is far less “beneficial” from the country’s point of view than the deregulation of lawyers, accountants, civil engineers, pharmacists, and so many others. But don’t we all think the most appropriate and effective response to this predicament is NOT to demand that “I should keep my hand in the cookie jar because others do it as well?” Will it not help Greece in the short and long run if the response were “deregulation for all with no exceptions?” Shouldn’t taxi owners show their true colors by joining the silent majority to lobby for equal treatment by pointing out the deficiencies and clientelism of the current system? Corruption and favoritism continue to exist despite the gravity of the situation. The way to create a fair and just system is to try to do the right thing; get rid of those corrupt politicians and resist favoritism. We agree on the goal but seem to disagree on the solution. But I believe you will at least agree with me on this: two wrongs don’t make a right.

  7. Apostolis Grammis says:

    I’m glad to participate to “a very interesting discussion in sharp contrast to much of the public dialogue in Greece”. It’s a pity for Greece that the social dialogue is highly controversial but without well-thought arguments. Just a few more comments from me.

    1. The difference of taxi industry from other markets that makes deregulation so difficult to be successfully implemented is that customers have little or no choice about taxi cabs. But, technology can solve that problem to a large extent. See for example the following application http://www.taxibeat.com. With that, users have again the advantage of choice and reputation mechanisms can also put in practice. Thereafter, the taxi industry would retrieve normal market characteristics and deregulation could work.

    2. I think there is a legal argument in favor of no compensation. According to article 106 (paragraphs 3 and 4) of the Greek Constitution:
    “3. With the reservation of the protection provided in article 107 in connection with the re-export of foreign capital, the law may regulate the acquisition by purchase of enterprises or the compulsory participation therein of the State or other public agencies, in the event these enterprises are of the nature of a monopoly or are of vital importance to the development of sources of national wealth or are primarily intended to offer services to the community as a whole.
    4. The cost of purchase or the counterpart to the compulsory participation of the State or other public agencies must indispensably be determined by a court and must be in full, so as to correspond to the value of the purchased enterprise or the participation therein.
    Interpretative clause: The value specified in paragraph 4 does not include such value as is due to the monopolistic nature of the enterprise.”
    Therefore, since the value of a license is nothing more than the present value of the monopolistic returns that taxi drivers enjoy due to entry restrictions, no compensation is owed to them according to Constitution.
    However, it is interesting to note that article 106 is, in general, the hallmark of government intervention and free market supporters push for its abolition.
    Besides, from an economic point of view, I still think that the government should partially compensate at least the taxi owners that bought a license recently (let’s say last five years). Since, as you point out, the price of private property depends on government action, state behavior should be as predictable as possible and in cases of sudden and great changes to provide some kind of compensation. Otherwise, entrepreneurs would face an extra risk from government action beyond normal market risk leading to greater unnecessary uncertainty and hence lower savings and investments. It is also supported that this insecurity about the stability of the legal framework is a major factor that deters FDI. Radical changes even if they seem to be justified by static cost-benefit analysis (applying the Kaldor-Hicks criterion of potential but not actual compensation) they may prove dynamic inefficient since rational agents adapt their behavior in such a way that offsets all the benefits.

    3. I totally agree that taxi drivers are “lost in the current political climate caused largely by their own doing”. Violent protests, intimidation and excessive arrogance by taxi drivers’ trade unionists are far beyond what could be considered as a legitimate reaction to a bad legislative proposal. However, government’s attitude is rather irresponsible since it exploits the negative stance against taxi drivers (and in general against protesters and strikes) and it doesn’t try as hard as it should to provide solid, well-structured solutions to the problems. It is surprising that the government initiative about deregulation isn’t accompanied by an in-depth scientific analysis of the current situation and the proposed reforms (by a simple “googling” we can find hundreds of articles about taxi deregulation in other countries but not even one about Greece!). Newspapers, television, journalists, politicians are overwhelming (not say exclusively) talking not about the deregulation program but about the extreme reactions of protesters, the impact on tourism and the political implications of that situation. Not a single word about the essence of taxi deregulation! Of course, I do not expect average person to demonstrate sophisticated arguments about policy options but I rather demand from decision makers to be able to justify their actions properly and not to rely on social dissatisfaction in order to pass poorly designed legislation. Since the devil is in the details a good idea may perfectly have a bad result if inappropriately implemented. Crisis is an opportunity for reform but judging from the quality of the public debate in Greece is probably an opportunity for bad reform.

    4. Although, I agree that “two wrongs don’t make a right” I also remember from second best theory that in an economy with some uncorrectable market failure in one sector, actions to correct market failures in another related sector with the intent of increasing overall economic efficiency may actually decrease it. Partial deregulation of only one sector may have that perverse effect. Therefore, it’s time for first best solutions!

  8. Nikolaos Zahariadis says:

    Even good ideas can have bad consequences and even worse if implemented poorly. Deregulation is one of those catchall phrases that includes a huge number of changes that differ across sectors. The problem in Greece is that so many sectors seem to warrant so many changes that it is difficult to identify let alone agree in a public forum what is needed and warranted. This is further compounded by the fact that change has to come quickly because it took Greeks so long to begin doing it. Change presupposes some kind of rationale that goes beyond impressions and the minimization of political cost. I disagree, however, with the basis of dialogue. Because so much needs to be done so quickly, it is more cost effective that each “closed” profession provide a detailed rationalization why the present system is efficient and provides the best possible value for consumers and a detailed plan for change if needed. Consultations can then begin with each sector individually and in public and private as to what closed means and why oligopolies are still needed. In other words, it is up to the closed profession to argue why it has to remain closed (and there are good reasons sometimes to do so), to what extent, and why this system provides the most value rather than for the government or anyone else to rationalize why it needs to open. This gives us a first (but not necessarily best) solution. But it also requires a willingness for dialogue based on reasonable grounds (on the part of all including the government) rather than the present system of opposing change “till the end” on the basis of some untouchable, and often unfair, rights [κεκτημένα]. The government must publicize its proposals, rather than just publicize its willingness not to agree to what the previous minister agreed. And taxi owners (I don’t think the drivers or unionists are most problematic in this case but the owners and their association) must stop their extreme reactions and pay (along with so many others who have and will come after them) for the consequences of their actions.

  9. Allen Cattran says:

    Interesting points raised.However, could you specify what a “closed profession” is
    according to the “Cambridge dictionary” closed refers to not having access .It is my
    firm belief that anyone can enter the taxi profession, either by obtaining a specific drivers licence or by acquiring the licence to own the vehicle. It has been rumoured
    that the present minister is conspiring for some time now, with the directors of the
    two airline companies to instigate taxi monopolies in greece. Is this the aim of
    deregulating so called closed professions.
    Thanks in advance.

    • Nikolaos Zahariadis says:

      My understanding of the taxi profession (as an owner) is that one has to purchase a specific professional license to operate the taxi (not just a drivers license). The fact that no new licenses have been granted by law for close to four decades qualifies in my opinion as an inaccessible profession. I know nothing about ministerial conspiracies, but it sounds like such a situation would contravene the law (if and when the full proposals are publicized) and it should be illegal.

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