Regulations at all levels of government are enacted for many reasons. They are usually passed with very laudable intentions—to protect consumers or the environment, for instance. But regulations can have unintended consequences. One example of this is when business owners act as "political entrepreneurs," and use their entrepreneurial skill to lobby for regulations that secure for themselves a monopoly or some other advantage over their competitors.

The jitney bus is the perfect vehicle to show how political entrepreneurs with ulterior motives influenced regulators and impacted an entire American industry.

BIRTH OF THE JITNEY

In 1914, Mr. L.P. Draper of Los Angeles, California, accepted a fare from a stranger in exchange for a brief ride in Draper’s Ford Model T. The fare, a "jitney" (which was slang for a nickel), became the industry’s standard fee for service. And Draper became the widely acknowledged father of an industry that was quick to rise and fall. By the autumn of 1915, less than eighteen months after Draper’s first jitney customer, the jitney industry was providing inexpensive, reliable, local transportation in cities from San Francisco to Portland, Maine.

GROWTH AND DIVERSITY

The electric streetcar industry was also in its heyday, but it had several competitive disadvantages when compared to the jitney. The streetcars were limited to areas where electric cables could run, moved fifteen times slower than their jitney counterparts, and jitney operators could charge the same fare for faster, more personalized service. Some jitney drivers delivered parcels during off-peak travel hours; others operated only before and after their day jobs; and still others carried passengers to and from work.

The combinations of style and service provided by jitney entrepreneurs were limited only by the imagination of jitney owners. The creative flair and natural flexibility of the jitney filled a niche in the transportation market that consumers loved and competitors feared. The jitney industry rocketed to success and was trailed by unhappy political entrepreneurs, municipal officials, and urban shop owners (who did business along railway routes) looking to crush the infant industry.

REGULATED TO DEATH

The electric streetcar industry didn’t mince words when it came to jitney services. The October 1972 Journal of Law and Economics published an article entitled "The Jitneys." According to its authors, Professors George Hilton and Ross Eckert, the Electric Railway Journal called the jitneys "a menace," "a malignant growth," and "this Frankenstein of transportation." Many public officials felt similarly threatened by the advent of jitney bus transportation. Municipal leaders believed that franchise-driven streetcars provided the city with greater economic opportunity because they often paid a franchise tax on profits, a cross-subsidization of fares, and provided "free street lighting." As Hilton and Eckert explain, "municipal governments were typically reluctant to forgo these advantages."

Eckert and Hilton cite several ways that lawmakers and competitors stifled the jitney business through restrictive regulations.

Franchise Ownership. Forcing jitney owners to purchase franchises and obey their charters eliminated smaller, part-time operators. In some cities, the authors report, winning a franchise required a ballot vote of local citizens. This immediately politicized the business and possibly made an operators livelihood dependent upon well connected public officials, rather than their own skills.

Surety Bonds. Perhaps the heaviest burden was a bond requirement. The American Electric Railway Association was so brazen in its attempt to eliminate jitneys that it recommended jitney operators pay a $10,000 bond per vehicle–a huge sum in the 1920s.

Minimum Hours. Some city governments required an operator to work a minimum number of hours. The jitney’s advantage was its flexibility. Drivers who provided part-time jitney service before and after their day jobs were forced to exit the industry, thus reducing competition.

Mandated Operations. Other pernicious orders included mandated routes, special licenses for route deviation to "special events," and the requirement that jitney operators transport police and fire officials free of charge.

Route Regulation. The jitney success was in large part due to quick, short routes in densely populated areas. As part of their regulatory tornado, municipalities began to require minimum-length jitney routes. The Electric Railway Journal noted, "as one means of exterminating the jitney under the guise of regulating it, the routes required are sometimes so long as to be unprofitable."

Patron Density. Denying the jitney bus the opportunity to operate in major thoroughfares delighted the railway industry. Even more disturbing, some municipalities allowed jitneys to operate only on parallel side streets, solely to transport patrons needing "a system of transfers" to railway cars. For a brief period, the electric railway industry enjoyed what amounted to a mandated cross-subsidization from jitneys.

Safety Ordinances. The electric railway leadership, jealous of the jitney’s ability to move faster, confidently forecast an increase in the cost of doing business with the passage of "safety" ordinances. These included limiting the speed at which a jitney could travel, decreasing seating capacity, and mandating special gear, all of which had to be inspected on a regular basis. Similarly, the operator was often required to undergo a battery of exams for literacy, residency, and "moral character."

The American Electric Railway Association (AERA), again according to Eckert and Hilton, was shameless in its attempt to use government to drive jitney competition out of business.

From Eckert and Hilton’s, "The Jitneys": Additional harassment for remaining jitneys came during Word War I, when the railways argued that the War Industries Board should be "suppressing entirely all useless competition with existing electric railways." The AERA argued that "men engaged in nonessential automobile service of this nature should be forced to obtain some useful occupations or compelled to enter the service. . . ."

In other words, the AERA was saying this: "Obtain some useful occupation that does not threaten our livelihood, or risk being regulated out of business or into the battles of World War I." By the mid 1920s, the jitney industry was dead. Years of increased regulation had taken their toll.

Sadly, men and women of limited means were the greatest victims of legislation foisted upon jitney operators. The jitneys were more than an opportunity to supplement income, they represented freedom from standardized bus schedules, routes, and other behavior that is consistent with oligopolies (the market condition that exists when there are few sellers).

French social commentator Alexis de Tocqueville once declared that, in its desire to help, government "covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate." Government may intend only good, but new bureaucratic agencies tend to create new positions of power. Such power often benefits those being regulated, rather than those for whom the regulation was intended to benefit–the consumer, for instance.

Well intentioned citizens and public officials often ask government to create and enforce regulations and marketplace standards for consumer convenience and protection. Today, many people are questioning whether government should engage in such activities as certifying a taxicab’s "public convenience and necessity," as is done in Detroit, or if such a decision could be left to the marketplace.


Privatization is one tool that can be used to decrease the demands on government while allowing consumers themselves to establish standards (regulations) for protection, convenience, and efficiency.


Privatization is one tool that can be used to decrease the demands on government while allowing consumers themselves to establish standards (regulations) for protection, convenience, and efficiency. This leaves for government the crucial roles of enforcing contracts, prosecuting fraud, and protecting the rights and liberties of citizens. Privatization is important because it makes us ask, "Why?" Why is government in this business? Why does this prohibition exist? Is government the best institution to perform this task? In the words of economist Mark Skousen, "[E]verytime we pass another law or regulation, every time we raise taxes, every time we go to war, we are admitting the failure of individuals to govern themselves."