June 25, 2017
Dean Baker
New York Daily News, June 25, 2017
Travis Kalanick’s forced resignation as the CEO of Uber is a great symbolic end to the adolescence of the “sharing” economy. Uber and other companies that claimed space in this invented arena may now have to acknowledge that they are not actually new and different from everything that went before them. And the rules that apply to their competitors also apply to them.
Uber under Kalanick was in many ways the poster child for the sharing economy. The company insisted that all the rules that governments had put in place to regulate the taxi industry — to protect workers and to prevent discrimination — didn’t make sense for the new model, because they were Uber.
The company’s effective motto, that it is better to ask for forgiveness than permission, seemed to cry out for a swift slap to the face. Taxis are hardly new, but the Uber gang claimed that the whole set of regulations developed around the industry didn’t apply to them because they were an app-based “ride hailing” platform, not a taxi company.
This was, and is, garbage; as are most of the claims for the “newness” and “uniqueness” of the sharing economy companies. There is very little that is genuinely unique about this set of companies, but they insistently claim that they are reinventing everything but the wheel.
Take, for example, Airbnb, the other towering pillar of the sharing economy. What exactly is new and unique about renting out rooms in a house, or even about renting whole apartments? This one probably dates back to pre-historic times. Airbnb has people marketing this service over the Internet, in a single, easily organized directory. That is certainly newer, but the Internet has been around for two decades and so has been the practice of using it as a way to market rooms for rent.
The only thing that was really new about Uber, Airbnb and the other sharing economy companies was the claim that they should be exempt from longstanding rules and regulations.
Uber took this to the extreme, fighting all forms of regulation everywhere, whereas Airbnb and most of the other sharing economies have generally tried to reach accommodations with regulators. (Interesting exception: In New York City, though Uber flooded the market and undercut yellow cabs on pricing, they technically abided by the stringent rules of the Taxi & Limousine Commission. Airbnb, meantime, got its foothold enabling activity that was against the city’s hotel laws.)
Just to be clear, there were and are real problems with the regulatory structure in many sectors, especially the taxi industry. Uber performed a valuable service by directly challenging a framework that largely served to protect the incumbent industry. The structure limited supply and in this way had the predictable result of giving bad service and high prices.
This regulatory environment needs to be modernized — thoughtfully, not by a profit-making competitor, but by government.
But Uber forced the issue by plunging ahead with its service and completely ignoring the rules governing the taxi industry. It quickly gained a following of loyal customers, which made politicians in most cities reluctant to challenge the company.
One result was that the incumbent taxi industry had to quickly adapt to stay in business. Many bought new fleets of cars, began accepting credit cards and brought other aspects of their service into the 21st century.
This was certainly a positive outcome, but there are still many important regulatory issues that need to be addressed.
For example, it is a real public safety concern that some Uber drivers pose a risk to their passengers. City regulations usually require taxi drivers to be fingerprinted and undergo an FBI background check to be licensed to the drive a cab.
Uber said that we should just trust them to do adequate checks (again, New York City, where drivers undergo TLC background checks, is an exception). When the city council in Austin, Tex., decided that Uber’s word was not good enough, and put in place an ordinance requiring fingerprint checks for drivers, Uber then challenged it with a ballot initiative. The company, along with Lyft, spent a fortune to push its position. Both also threatened to leave the city if they lost the initiative.
Uber and Lyft followed through on their threat when the voters of Austin refused to be cowed. After they left the city, a contingent of upstart companies quickly filled the gap, and Austin’s cab-using population suffered no serious inconvenience.
Uber’s response was to run to the Texas state legislature and spend a fortune lobbying. It managed to buy itself a state law that took away the right of cities like Austin to regulate ride-hailing services.
This victory for the Uber boys shows everything wrong and contemptible about the sharing economy contingent. If the background checks required for taxi drivers are excessive, then the obvious solution is to modernize the system for all competitors so that it is sufficient to ensure passengers safety without imposing unnecessary burdens on drivers and their employers.
Uber decided to run roughshod over the rules, then try to get them rewritten around its own needs.
This is the same with many regulations. We want to make sure that the cars used by taxi companies and Uber are safe. The former have to undergo regular government inspections. This was not originally the case with Uber cars, although several cities have more recently required the vehicles to undergo a similar inspection process.
This modernization of safety rules should be the general practice. We also want to make sure that there is adequate insurance to cover passengers in the event of accidents. This is again an area where Uber has made concessions after originally insisting it was not its problem.
Taxis are also regulated in part to ensure universal access. This means that people without smartphones and credit cards also have to be able to use the service.
The same is true of people with disabilities. Taxi companies are usually required to ensure that a portion of their fleet is wheelchair accessible. If Uber is not going to serve this population, then perhaps they should be required to pay a fee so that they share with their competitors the cost of providing universal service.
This is also an issue that arises with other sharing-economy companies, most notably Airbnb. Hotels are required to ensure that a percentage of their rooms are accessible to people in wheelchairs. That means installing ramps, bathrooms with grab bars and the like.
Given its structure, it would be difficult for Airbnb to meet a similar requirement. However, it would not be difficult to assess a fee if a certain percent of its rentals are not accessible.
The same story applies to discrimination against racial or ethnic groups, where existing companies must comply with a strict set of rules. It may be difficult to determine if an individual Airbnb renter is discriminating. But it would not be hard to determine if African Americans or other groups have a more difficult time renting rooms on the service than whites. Assessing a penalty for this discrimination would give Airbnb an incentive to discourage its hosts from discriminating, even if it may not be able to prevent discrimination altogether.
Then there are the labor regulations. Uber, like many other “sharing economy” behemoths, insists that its drivers are independent contractors, nothing more. This means that they are not entitled to overtime pay, guaranteed the minimum wage or able to form unions. Nor are they covered by workers’ compensation or unemployment insurance.
While Uber is not the first company to try to classify workers as independent contractors, it is larger than most employers that attempt this trick.
Treating Uber drivers, as well as drivers of traditional taxis, as employees, with the rights of employees, should not be hard. Much smaller, less sophisticated companies have done it for decades. Of course Uber could not figure out payments for its drivers in New York and managed to cheat them out of millions, so perhaps treating drivers as employees would be too complicated a task for the company.
But perhaps the worst part of the story with Uber is its internal culture. Tales of gender-based discrimination are common in Silicon Valley, so it would not be surprising if Uber also had some issues with it.
But it seems Uber took discrimination and harassment to a new level. In the wake of the resignation of a former top-level female engineer over complaints of sexual harassment, Uber fired 20 employees for sexual harassment. This group probably followed the company motto of asking for forgiveness rather than permission.
This country has no shortage of sexist jerks. What was different about Uber is that these were jerks with money. And the money did not come from the profits Uber earned from providing a good service to customers. Uber has consistently lost money, and often large amounts.
The money that fueled the Uber games came — and continues to come — from venture capitalists who apparently believed they were sitting on the next Microsoft or Apple. It is not clear if Uber will ever be able to use its huge market share to become a profit-making company.
The Austin experience suggests that market entry is easier than many believed. If Uber upped its prices 20% to 30% so that it earned a profit, it might see many new entrants pulling away market share. The company has been pushing forward in developing technology for self-driving cars, which would certainly cut back on labor costs, but it hardly has this field to itself.
At its peak, Uber’s implicit market capitalization was almost $70 billion. (The company is privately traded, so the assessment of market capitalization is based on the small numbers of shares whose sale price is publicly known.) This is almost 40% higher than the market capitalization of General Motors, a huge company that actually does make a profit.
While a humbled Uber, as a company that actually follows the rules, may ultimately be able to earn a profit, it is unlikely to be large enough to justify its stratospheric valuation. This means that many of its venture capitalist sponsors may take a big hit.
That would be good.
In the future, perhaps the people who hold the money will put more value in that profit while obeying the rules, and work to get the rules changed where necessary. When a company’s road to profitability is a culture of bending if not breaking the laws, it should not be a good bet for investors.
