The announcement of an increase in Dublin taxi licences by the Minister of State for the Environment, Mr Bobby Molloy, is a welcome recognition of economic reality. Governments should not ban new entrants to any field of economic activity.

Competition is the life blood of trade. Telecom deregulation has already saved the customer over £450 million a year, according to Eircom estimates. Access transport deregulation has raised the number travelling by air between Ireland and Britain from a stagnating 1.9 million in the early 1980s to more than 8 million today.

From the deregulated telecom and airline sectors two huge new industries have emerged in information technology and the fastest-growing tourism in the OECD. Failure to deregulate a sector reduces the competitiveness of the wider national economy. Irish deregulations have been a major contributor to the Celtic Tiger in the authoritative UCD study of our recent growth by Mr Frank Barry.

No sector is ever willingly deregulated. Noise from taxi operators is therefore par for the course. Such noise started the present problem in the mid-1970s when the late Jimmy Tully was "persuaded" by a blockade of taxis on Butt Bridge not to issue new licences. Giving in to the pressures exercised by the taxi operators over a number of years caused the value of taxi licences to rise steadily from £3,500 in 1980 to a reported £70,000 today and more than £80,000 at peak.

The more restrictive the regulatory regime, the greater the value of the licence. It reflected the ability of the licence-holders to earn supernormal profits by charging above the putative deregulated market price. The more rapidly the licence price rose, the more people were persuaded to invest in this apparently easy way to make money.

The underlying economic reality was, however, that a taxi licence is a worthless piece of paper. It acquired a scarcity value only because the Government stopped issuing them. Nor is there any economic case for reimbursement of those who bought licences at the top of the market.

These people bought an expensive piece of paper in a bet that the Government would never have the courage to introduce a rational system in economic terms. They are now losing that bet and will lose it completely when the Government deregulates fully.

The Government owes them nothing. We don't pay out on losing national lottery tickets. Nor do bookies pay out on the also-rans in racing. The latter point has interest because bookmakers are reputed to have bought up a number of taxi licences.

The issue of extra licences to existing licence-holders is an attempt to sweeten the pill, but it makes little economic sense. The value of the licence reflects their uncompetitive behaviour of the past three decades, for which the customer has paid in high fares and poor service.

It is not a good idea that the Government should charge for the issue of licences. This creates the impression that the Government "owes" something to the licence-holder.

The pieces of paper called licences should be freely available. The sector needs both new entrants and more efficient incumbents. If the Government weakens its resolve to deregulate the sector totally, the scarcity value of a taxi licence will begin to rise again and the whole sorry saga of the past three decades will repeat itself.

The Government must, therefore, name a deregulation day when there will be no more barriers to entry and the market will determine the supply as well as the demand for taxis. There is obviously huge excess demand at the moment, given the queues throughout the day at the airport, railway terminals and city-centre ranks.

All of the remarks here apply also to the bus sector. Seventy bus companies in Dublin and hundreds nationwide were legislated out of existence in the early 1930s by laws which would not satisfy the criteria of today's competition policy. It must be reversed.

Regulations against the creche sector in 1996 have had a similar cost-increasing impact and should be repealed to allow new entrants to the sector, thereby reducing costs. When governments intervene to restrict new entrants to a sector, they invariably make a mess of it.

Mr Molloy must press on to full deregulation and not be deterred by threats from licence-holders, as all ministers since Mr Tully have been. In the week in which Northern Ireland changed utterly, the Minister's Northern counterparts might like to tell him how the taxi businesses in Derry and north and west Belfast were deregulated. They now carry more passengers than the entire CIE rail system, with fares at, or below, the competing bus fares. They do so without subsidy.

To paraphrase a saying from another sector, there are three solutions to the Dublin taxi problem: deregulate, deregulate, deregulate. Taxis, buses and creches illustrate why the Government should not meddle in vital sectors of the economy.

Sean Barrett lectures in economics at TCD