taxiappsApps that can help hapless Beijingers hail taxis have become all rave recently, but are they really the cure for all?

Citizens in Beijing would say maybe. After all, it’s almost a given that it is hard to get a taxi, especially during rush hour. The apps allows the users to state where they are, where they want to go, and if they are willing to pay extra to attract nearby drivers to take a detour.

Many have pointed out that there are problems to taxi apps’ model. But these criticisms are mostly constructive; they point out that while the apps are imperfect, they are indeed aimed at a ready market, and assume all the kinks are fixed, they would be immensely beneficial both to its users and its investors. After all, many are already using the apps and have found them very useful.

This is the reason why VCs are also attracted to the apps. VCs, after all, are just people like us in that they also display herd behaviors. After Didi, one of the best known taxi apps, reportedly received $15 million investment from Tencent, taxi apps have become the New New Thing, and have been practical a godsend for technology blogs and new sites.

But others have point out something even the best technology cannot solve: regulations. Beijing taxis are governed by something greater than the law of supply and demand, namely the Beijing Municipal Government.

Beijiners would tell you that the problem with taxis lies in the disincentive for the taxi drivers to go around fetching people when people most need them, and that the only way to solve the problem once for all is to remove this disincentive and increase the number of taxis around.

But that’s precisely what the Municipal Government does not want. As a rent seeking enterprise, the Government licenses taxi companies, these companies controls a fleet of taxis, which are leased to drivers who pay daily fees for the privilege of being indentured servants.

If the Government wanted to solve the taxi problem, it would’ve solved it a long time ago: allow the market to work its magic in order to determine the number of taxis needed, then revoke the license of any drivers who are reported to have refused service. The fact the Government has not done anything sends a clear message: powerful interests do not want the problem fixed.

This is why Beijing is already trying to regulate the apps out of existence; many other municipal governments are following suit. After all, why would the Governments allow their monopolizing power corrupted by start-tups?

The biggest problem for taxi apps is not that they are an imperfect solution; it is the fact that they are trying to use market solutions to solve a problem that’s fundamentally political.

Things are not going to end well for the taxi apps. Right now, the competition among the taxi apps is fierce. Didi and other front runners are the lucky ones. With, Didi has time to grow legit and claims that it has already reached agreements with the government in regard to 43,000 taxis. But that also means Didi cover about 2% of Beijing’s 2 million taxis. Even if it survives and prospers, what’s keeping the Government from outlawing it (or worse) nationalizing it? After all, that’s what any self-respecting rent seeker with unlimited power would do.

image credit: techo2o.com