Jake's View | How Uber is doing what the Hong Kong government can't do

Taxi drivers and owners criticised transport authorities in the legislature yesterday for failing to curb the practice of private car drivers offering cheap rides through car-hailing mobile apps.

Have you ever tried to draw a straight line on a piece of paper? I mean straight as in no curve or wobble, almost as if done with a ruler. It's not easy but I think I come pretty close in the chart.

It shows you the number of urban, New Territories and Lantau taxi licences in existence over the last 20 years. The numbers are not absolutely changeless. Total taxi registrations are frozen but some taxi owners do not renew their licences every year. There are thus some very slight wobbles in the chart.

Now turn to basic economics. Three forces interact closely with each other in the market for any commodity, gadget or service. They are supply, demand and price.

The market works best when all three are left to find their own level. Control one of them and the market will still work reasonably well by making adjustments to the other two. Control two of them and your market will break down if these two are not adjusted exactly to the third. Control all three and you have no market.

What we have done with the taxi market in Hong Kong is control two of the three, supply and price, and we have guessed wrong at what these should be relative to demand. We have limited taxi registrations to 18,138 and then set taxi fares too high.