Labor

The 'Sharing Economy' Isn't About Sharing: The Dark Reality Behind This Major Workplace Shift

The 'sharing economy' extends the same harsh free-market practices that existed before it came along.

Photo Credit: pixabay.com

The following is an excerpt from the new book, What’s Yours Is Mine: Against The Sharing Economy, by Tom Slee (OR Books, 2016):

In city after city, debates surrounding ridesharing services are playing out, with Uber front and center. The debates are about many things: they are about us as consumers, but also us as citizens, and us as employees; they are about the role of government and the responsibilities of business. Given the company’s success at building an enthusiastic customer base, many media stories present Uber as an inevitable future to which nervous city governments must adjust. Here is an example from journalist Todd Hirsch:

It’s an economic tale told time and again. Camera film makers. Video stores. The music recording industry. Perhaps most famously, the Luddites—those textile labourers in 19th century England who protested against the introduction of mechanized looms by smashing them. Many of them failed to adapt to new, disruptive technologies and went extinct. Next on the list may be the taxi industry . . .

Conflating Uber with the broad advance of technology is exactly what the company wants. Who, after all, can argue against the future? But there is a choice, and Uber is not the inevitable future of transit—certainly not Uber on Uber’s terms. Thousands of new technology businesses start every year, and many high fliers fail: Groupon turned out not to be the future of shopping; MySpace was not the future of social networking. In 2012, massively open online courses (MOOCs) were going to bring about the end of the university as we know it, but three years later their role has shrunk, rather than expanded. In November 2014, Toronto mayor John Tory wanted to “sit down with the Ubers and the Hailos and others of the world,” but Hailo has already folded its North American operations. Paris has outlawed UberPop (the European equivalent of UberX), but it has Autolib’, which, with 2,500 cars, 155,000 members and a total of over 30 million miles driven may be the world’s most successful electric-car sharing program. There are many roads to the future—many innovative roads to the future—and the best of them don’t involve Uber in its current form.

Uber enthusiasts attribute the company’s success to its technology, and the efficiency with which it matches drivers and riders, but this misses much of the story. Uber’s success also owes a lot to avoiding the costs of insurance, sales tax, mechanical vehicle inspections, and providing a universally- accessible service. Its ability to provide a cheap and effective service for consumers comes from its ability to run at a loss while pursuing its lavishly-funded quest for growth. Uber’s success comes from being parasitic on the cities in which it operates. 

Before looking more closely at Uber, let’s step back for a second and think about taxis. Uber CEO Travis Kalanick says that his company is engaged in something like an election race in which “Uber is the candidate and [its opponent] is an asshole called Taxi. I’m not totally comfortable with it but we have to bring out the truth of how evil Taxi is.” Kalanick also referred to “Our opponent—the Big Taxi cartel” when he hired former Obama strategist David Plouffe to run Uber’s political lobbying efforts.30 But there is no such thing as “Big Taxi.” Taxi firms are generally city-wide, at least until Uber itself came along.

Uber is not only campaigning against taxi firms, it is also campaigning against existing taxi regulations. Law professor Paul Stephen Dempsey spelled out reasons for those regulations in a 1996 paper and focuses on two main motivations: level of service (limiting the number of taxis and regulating fares) and standards of service (universal access, safety standards, and insurance requirements). He also looked at what happened when cities tried deregulation.

In a few cities, being a taxi driver is a skilled occupation, the most famous being London with its examination “The Knowledge.” Applicants must memorize all 25,000 streets in the city, along with any businesses or landmarks on them, before they can become a driver, a task that takes several years and which is often compared to qualifying to practice law or medicine. But in most cities taxi driving is not a skilled job, and open entry led to large numbers of empty cabs in the streets, long lines at taxi ranks, and aggressive competition for passengers. Also, oddly enough, it led to higher prices. For example, Seattle deregulated in 1979 but found that “service quality declined and rates were often higher,” and a 2004 report noted that

. . . several studies, including a 1993 Price Waterhouse study, found that overall, in many cities that deregulated, the supply of taxicabs increased, fares increased, service quality declined and there were more trip refusals, lower vehicle quality, and aggressive solicitation of customers resulting from a higher supply of taxicabs.

The combination of increased supply and increased fares is counter-intuitive; in a competitive economic market increased supply should lower the price. But of course passengers don’t get to shop around among taxis before they commit to taking a ride and so are vulnerable to being overcharged, particularly in taxi rank locations such as airports and railway stations. Economic generalities are one thing, but the devil is often in the details.

The higher prices did not lead to better taxi driver incomes, as drivers spent more time waiting in the cab stand queue or driving the streets empty, looking for the next ride. In some cities the sheer number of taxis has the potential to cause traffic congestion, and the supply is linked to other traffic management challenges that cities face. Limiting entry to the taxi market and setting out standard fare rates were the response to these problems, balancing the need to provide a predictable service to customers with reasonable conditions for drivers and, in some cases, keeping traffic moving.

Regulating the supply of taxis has been far from a universal success. In many major North American cities, the chosen form of action has been the requirement that taxis acquire one of a limited number of licenses, often embodied in the form of a taxi medallion. Medallions have become valuable investments in recent years, and some say that medallion owners have become like landowners, contributing nothing to the service while extracting extortionate rent from the actual taxi drivers, although the picture is a bit more complex: in cities with a lot of owner-operated taxis the taxi medallion can instead be seen as a retirement investment, a supplement to the low wages of driving rather than a rent-extraction technique that cuts into already low pay. Still, taxi drivers themselves are often middle-aged immigrant men who work very long hours for very low pay at one of the most dangerous jobs around: in Canada and the US, taxi driving appears at the very top of the list of occupations with an on-the-job risk of murder, twice as high a rate as the next on the list (police officers).

Standards regulation addresses a number of concerns around individual vehicles and around the overall level of service in a city. Consumers cannot reasonably inspect the condition of a vehicle’s brakes when they get in a car, or know who will be responsible in case of an accident, so regulations require taxis to pass vehicle inspections and carry commercial insurance.

Universal access is one of the tenets of most taxi systems. Cities mandate that taxi services provide a quota of child-friendly vehicles, vehicles suitable for disabled passengers, accommodate service dogs, and meet other universal access requirements. Municipal government means that cities such as Toronto can demand that the entire taxi fleet must be wheelchair accessible over the next decade. As new concerns appear, cities can address them, such as London’s introduction of zero-emission vehicles to address environmental concerns.

In many cities the taxi industry is slow to change, but the fact that taxis are managed at a city level does mean that the service can be tuned for the demands and traditions of each city, so that taxis have become iconic in cities such as New York and London. The taxi service is just one part of a larger traffic management problem that cities continually struggle with, and municipal governance allows it to be balanced with other parts of the urban transit landscape such as bus services and subway services, and to fit in with other management techniques such as congestion charging. The sheer number of cities around the world also means that transit innovations can be and are imitated from city to city, such as the municipal car-sharing and bike-sharing programs that have blossomed in cities around the world over the last decade.

From balancing consumer and driver interests, to providing predictable pricing, to ensuring individual cars are safe and that the system as a whole fits into the puzzle that is urban traffic, there is more to transit than a simple market exchange.

Enter Uber. The investors in Uber clearly believe that it is not destined to be one player among many in the taxi space, they believe that the economics of digital technologies will make Uber the clear winner not only in taxi services but in deliveries and other related work.

Not everyone believes that the winner-take-all nature of digital technologies will extend to Uber, which after all is only partly technological. There is certainly competition at the global level; in particular Asian competitors to Uber have grown very quickly (Didi Kuaidi in China has raised $3.4 billion, and both Ola in India and GrabTaxi in Singapore and Indonesia have raised over $500 million). But the evidence to date, and the basis of many of the investment bets, is that the market favors the big, especially within a city. That’s one reason why Uber CEO Travis Kalanick admitted to undermining the fund-raising efforts of his main competitor, Lyft. The ridesharing model is a “two-sided marketplace” in which Uber manages the supply of both riders and drivers. The more riders on the platform, the better it is for drivers; the more drivers available, the better it is for riders. Getting this spiral kick-started is one of the challenges to any new entrant seeking to gain entrance. The technology component of the business is amortized over all the cities in which Uber operates, so its success in New York helps its business in San Diego.

If the ridesharing market is indeed winner-take-all, then restructuring the transit system to accommodate Uber (allowing them to operate without the expenses and regulations to which taxi companies are subjected) amounts to handing over the taxi market to the company. So what kind of a city would we live in with Uber at the wheel?

Tom Slee writes about technology, politics, and economics and in the last two years has become a leading critic of the sharing economy.

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