The arrest of drivers working for the Uber taxi app operation in Hong Kong is further evidence of the grip that monopolists and oligopolists have on the territory’s government.

Uber was initially welcomed by the authorities, with the government agency InvestHK, which encourages entrepreneurial investment, giving publicity to the local launch of the service. However, under pressure from the vested interests which own most taxi licenses, the police have now taken to accusing the Uber drivers of operating without license or insurance. Uber denies this.

On the face of it, it is the regular taxi drivers who are up in arms about competition from Uber. But the real story behind the arrests lies in the unspoken but all too close relationship between the owners of taxi licenses and officials and politicians.

There are some 7,000 urban taxi licenses and another 2,000 for taxis allowed only to operate in the semi-rural New Territories. No new taxi licenses have been issued since 1994 and urban licenses are (or at least were until Uber arrived) worth about $7 million apiece on the open market. In other words, the theoretical value of the licenses is well over HK$50 billion.

This chunk of wealth is largely owned not by the taxi drivers themselves but by a small group of private companies which dominate the trade. Most drivers eke out only a modest living as they must rent their cabs from these companies. In 2013, taxi drivers seeking a raise said on that average they pay HK$450-500 to rent the cars. At the end of a 12-hour shift, the take-home pay is an average HK$300 [US$38.70] in profit over car rental. Out of that comes the driver’s lunch and dinner and any other incidental expenses.

In turn the companies use a mixture of influence peddling and threats to keep the government in their pocket. This not only explains why no new licenses have been issued for 20 years. It is also a reminder that the taxi owners mafia brought Hong Kong to a halt in 1984 blocking streets in a bid to force the government to climb down and cancel a tax that it intended to levy on taxis. And so to today the taxi mafia has again been threatening illegal direct action to force a clampdown on Uber.

Chief Executive C.Y. Leung is fond of making speeches urging maximising IT resources and wants to spend public money setting up a new ministry supposedly to promote IT based industries. But as in other instances relating to property, land use, air pollution, broadcast licenses, waste disposal, etc the government itself remains the main obstacle to modernization and best practice because officials and politicians from pro-government parties are close to those who would lose from increased competition.

For sure, competition needs to be fair, but there is nothing fair about the existing system whereby a small clique controls most of a static number of licenses. Meanwhile the police have long been unwilling to prosecute taxi drivers for ingrained illegal activities such as refusing to take passengers, demanding double the meter price, operating phones while driving etc etc.

The Uber arrests are yet another shocking example of the gradual breakdown of the rule of law in Hong Kong as vested interests increase their grip on officials.