Priceonomics

A bus and a "dollar van" in New York. Source: wNYC

Outdated government regulations and vested interests stand in the way of innovation and the ventures of plucky entrepreneurs. 

No, we’re not describing Airbnb, Lyft, or Uber, although those startups have made that case. It’s a line that describes the “dollar vans” that take thousands of residents of New York City’s outer boroughs to work and school in violation of the city’s Taxi & Limousine Commission policies.

The dollar vans resemble the fleets of privately-owned vans that transport millions of people every day, mostly in cities in developing countries whose public mass transit is insufficient. When this author lived in Cairo, he relied on a microbus, which held one or two dozen people, to go the final few miles from the subway to his office. 

As Cairo doubled in size (to 10 to 20 million, depending how much sprawl you include) in a generation, its two short subway lines and public buses don’t come close to serving all of the city’s sprawl. Vans driven by individuals who see an opportunity to pick up the slack charge around 15 cents for a ride. They yell out their destination and pick up passengers without ever fully stopping. The Egyptian government may not get everyone to work and back in German-style efficiency, but the microbuses make sure that everyone still gets there. 

Brooklyn and Queens, like parts of developing world capitals, have the populations of major cities but a relative dearth of subway stops and bus lines. So, dating back to a 1980 transit strike, immigrants from the Caribbean, where vans are a popular way to get around, have operated fleets of dollar vans. For $2 a ride (inflation hit them like the McDonalds dollar menu), they operate like part taxi, part city bus, responding to street hails but also following popular routes.

Some are registered and licensed as a van service that can take passengers on pre-arranged trips to the airport, Six Flags, or the Barclays Center. Others aren’t registered at all. None are legally allowed to respond to street hails and risk a citation every time they do. Yet, as The Atlantic noted during a spate of publicity about the dollar vans in 2010-2011, they represent “America’s 20th largest bus service -- hauling 120,000 riders a day.”

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There are a few reasons why a large and seemingly very valued transit system remains unrecognized.

One is simply inertia, as the bureaucracy maintains the status quo of police citing illegal dollar vans, but at such a low rate that they continue to operate. In the last few years, however, New York passed new regulations in recognition of how communities in its outer boroughs are underserved by mass transit. Given yellow cabs’ reticence to leave Manhattan, New York offered new permits for green taxis to operate there. But dollar vans have yet to receive the street hail permits they desire. In late 2012, one van owner told The Brooklyn Daily that New York’s Taxi and Limousine Commissioner had broken his promise to include them in the revamp. A van owner we spoke to last week -- who prefers to stay anonymous -- says that dollar vans still lack street hail permits. They are supposed to apply for them, but he doesn’t know how it will turn out. For now, he continues to operate illegally.

Another source of opposition is New York’s Transit Workers Union. In 2010, John Samuelsen, who represents the city’s thousands of bus and subway drivers, asked New Yorkers in an op-ed to oppose the “Wal-Martization of transit” and described support for dollar vans as “a union-busting agenda in the sheep’s clothing of economic empowerment.” Notably, when New York experimented with sanctioning a line of vans to provide service to bus routes discontinued by the city, it gave the permits to the laid off MTA workers, who remained part of the union.

Another source of resistance is city residents who dislike the dollar vans, citing their aggressive driving and constant beeping (to attract fares). Of course, part of the reason vans need to beep is that they can’t openly mark the vans without attracting police attention, although some do paint their vans in vibrant colors. And despite the reputation for aggressiveness and impatience, many give rave reviews to drivers who wait for parents to drop their children off at daycare, take people to their doorstep, and pick up octogenarians with canes.  

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So how do New York’s dollar vans compare to Uber and Lyft?

In terms of innovation, ridesharing apps represent future technology while dollar vans are a throwback. Uber and Lyft offer a new way to hail a ride, and Uber’s $3.5 billion valuation partially represents its potential to, say, partner with Google’s self-driving car technology to produce self-driving taxis. Dollar van drivers hope to make a decent living by making a few hundred bucks from a particularly productive shift. 

But both recognized a market opportunity and began to serve that market without waiting for permission. The scarcity of taxi medallions left city-dwellers competing to hail one. Uber and Lyft serve that market and offer an experience that delights customers as well. 

The dollar vans did something similar by offering rides to customers underserved by public transit. The Transit Union complains that it competes with public transit, but it’s really a supplement. When New York experimented with replacing bus lines with vans, it failed. And that’s not surprising. The bus lines shut down because they were so unprofitable. But the dollar vans excel at serving heavily trafficked -- and therefore profitable -- routes that were once sleepy, but became heavily trafficked before public transit could adjust. As The Atlanticpoints out, it takes years to expand subways or negotiate new bus stops. When cities change rapidly, whether its Cairo’s two subway lines failing its 20 million residents or New York not keeping up with neighborhoods’ rapid growth, vans are nimble enough to step in and capitalize on the opportunity. 

Both also face resistance predicated on outdated regulation. As we have argued previously, the taxi medallion policies that regulate cabs were a reasonable way to protect riders in the 1930s. But today, with the reputation and location tech offered by smartphones, it’s unnecessary. 

Municipalities generally maintain a monopoly over mass transit, which limits dollar vans, but as the same Atlantic article related, it’s also the lingering result of a generations-old policy:

Until the early 1950s, most transit systems in the U.S. were privately owned companies that operated as regulated monopolies (like electric utilities today) and expected to provide transit service to an entire city. In exchange, they got the right to be the city's only transit service. Transit ridership peaked during World War II, but the transit companies slid into bankruptcy afterwards, as they were expected to serve greater suburban areas, service declined, and more and more federal money went into highways -- all of which tempted people to buy cars and abandon the trolleys and buses. Most of the country's 200 private transit franchises died in the 1950s… Cities took over the bankrupt transit lines and tried to make a go of them, retaining for themselves the monopoly on the right to provide service. 

The opposition to dollar vans is the vestige of a government granted monopoly, even though they offer a distinct service from public transit. And despite the opposition, both customers and the city clearly value it. In the aftermath of a winter storm in 2005, with few buses running, the cops normally charged with ticketing dollar vans encouraged them to help New Yorkers get around.

Both ridesharing apps and dollar vans, of course, also refused to wait for permission and permits. As we’ve written, Uber, Lyft, and co. ask for “donations” instead of payment and claim to be “marketplaces” rather than taxi services, yet they clearly compete with taxis. And dollar vans operate despite guidelines that don’t accommodate them. 

But while ridesharing apps have enjoyed major support from prominent members of the tech community and politicians advocating that city governments not stifle innovation, the blue-collar, largely immigrant supporters of dollar vans don’t have as loud of voices. Nor do their owners, who are “not hip tech entrepreneurs,” as one Hacker News user put it in a comment that inspired this post. (Hat tip.) And that’s a big reason why ridesharing apps have slowly gained recognition, while dollar van operators still have to plead for the right to operate legally. Is this what happens when blue-collar entrepreneurs move fast and break things? 

This post was written by Alex Mayyasi. Follow him on Twitter here or Google PlusTo get occasional notifications when we write blog posts, sign up for our email list.



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