I DO NOT consider myself a brute but let me take the brutal line here. Why should we feel an obligation to protect the investment that owners of taxi licences have made in those licences? Let us put this into perspective again. Last week, we quoted a director of one taxi-owning company as saying that he took in about HK$18,000 a month per taxi in daily rentals charged to the drivers and out of this income paid $15,000 a month to service the debt he incurred to buy that taxi licence. Only a fraction of that debt service goes to the actual cost of a Toyota diesel, a paint job and a lighted taxi sign on the roof. I would guess that the cost of these, including taxes, comes to no more than a tenth of the $2 million at which a taxi licence is currently quoted in the market. In other words, most of what you pay for a taxi ride goes to servicing the cost of the owner's investment in the right to operate that Toyota diesel as a taxi. The true cost of only the taxi ride itself, taking in all the costs of buying, insuring, fuelling and maintaining the car plus what the driver takes home is much less, probably under a half of what you actually pay. You get nothing for that extra amount you pay. I am repeating what I wrote in recent columns, I know, but this bears repeating. Think of the basic idea here in terms of a triangle with its three points marked with the three basic elements of any market - supply, demand and price. The rules (laws of nature) say that the market works most efficiently if you let all three be determined by market forces. If, however, you feel it necessary to control the market, then you have your choice of one of those three to control, but only one if your object is still to give consumers the best of the commodity or service this market offers. Demand is difficult if not impossible to control. It represents consumer wishes and you cannot legislate these. You can thus control supply and leave price to move to keep the market in balance or you can control price and let supply move. If, however, you control both, you no longer really have a market and the consumers will suffer to the extent that you have set supply or price at the wrong level. What we have done with taxis is control both. The number of taxi licences is fixed and the fares are fixed. The result has been the destruction of one market and emergence of a new one to supplant it. This one, an efficient one in that it has no controls on supply, demand and price, currently sets a value of $2 million per taxi licence on the ongoing right to collect that fixed price from that fixed supply. This is firm evidence that supply, price or both were set at the wrong level. Now let us say that we restore the original market. We will leave fares fixed as there could be too much confusion if every taxi driver could change his fares at will. We will instead say that anyone who meets standards we set for a taxi driver's licence and has a car that does so too may have a taxi licence at no more than a nominal fee. In other words, our controls on supply will be lifted. What will happen? First, let us get it straight that this will not result in a glut of taxis. The present system is, in fact, more geared to bringing this about as licence owners must keep their taxis on the road, whatever the demand, to service the licence debts they have incurred. Under our new system this, will not happen. With much lower costs, the driver/owner can afford to make his money some other way during periods when business is slack. We will have as many taxis as we want at the price we pay for them, no more, no less. But, of course, the taxi licence market will collapse. There will be little speculative value in holding a licence. As soon as the price of one goes up, more people will apply for taxi licences and the price will go down again. The result will be that taxi drivers can take home at least double what they now earn or the cost of your fare will be half what it now is. The actual result will probably be somewhere in between and it will give us cleaner taxis with more courteous drivers (Tokyo style) who know their city better (London style) and will do much more business (bringing down unemployment). And, of course, the people who hold taxi licences now will scream and shout and demand to be compensated at $2 million per licence. Should we do it then? I say no. Homeowners in this town have lost 70 per cent of the value of their investments over the past five years while stock market investors have lost 50 per cent over the past three years, in both cases much more in money terms than the $36 billion tied up in taxi licences. Have we ever considered compensating homeowners and stock market punters? Brutal, I admit, but that is the way of markets. You put down your money and you take your chance. If it works, you keep your winnings, if you lose, you take your losses. There is no reason why the taxi licence market should be different. Just think how much better off we all would be if we took this route.