Don’t Blame Uber

At the risk of painting too broad a stroke, it seems to me that much of the opposition to changes wrought by the Internet undervalue the positive impact said changes have on normal people. For example, people despair over newspapers closing without appreciating the explosion in quality content freely available to anyone anywhere in the world, the net result of which means those who choose to be can be far more informed about far more things than just a few years ago. Others gripe about Facebook’s frivolity or it and Google’s collection of data without acknowledging that both have fundamentally changed how we relate to both those we know as well as anything we wish to know. Probably the most charged group of companies, though, are those which most closely touch the real world: the “sharing” companies. And, of those, none is more controversial than Uber.

The benefit of Uber for consumers is really quite remarkable. Everything about an Uber experience is superior to the taxis it is obsoleting: it is easier to get an Uber, it is more pleasant to ride in it, it is easier to pay. In places with heavy coverage it is possible to not use a personal car for days at a time or to completely go without, with all of the financial and environmental advantages such a decision entails. And so, my position, at least to start, is to presume that the existence of such a service is a good thing.

Critiques of Uber, particularly from the left, rather stridently disagree; consider this piece by Avi Asher-Schapiro from Jacobin:

Uber is part of a new wave of corporations that make up what’s called the “sharing economy.” The premise is seductive in its simplicity: people have skills, and costumers want services. Silicon Valley plays matchmaker, churning out apps that pair workers with work. Now, anyone can rent out an apartment with AirBnB, become a cabbie through Uber, or clean houses using Homejoy.

But under the guise of innovation and progress, companies are stripping away worker protections, pushing down wages, and flouting government regulations. At its core, the sharing economy is a scheme to shift risk from companies to workers, discourage labor organizing, and ensure that capitalists can reap huge profits with low fixed costs.

There’s nothing innovative or new about this business model. Uber is just capitalism, in its most naked form.

First off, as I noted at the beginning, I’m put off by the lack of acknowledgment of the very real benefit Uber is providing to people who use their service; while I quoted only the conclusion, actual consumers were not mentioned once in the article. The reason this matters for Uber in particular is that if Uber were to actually hire all of its drivers as I presume Asher-Schapiro would prefer (and something Kevin Roose warned the IRS might make happen) the impact on consumers would be significant:

  • Because Uber’s cost per driver would increase significantly, the geographic reach of Uber would be dramatically curtailed
  • Because Uber would not have the flexibility of drawing more drivers onto the roads through surge pricing, availability during peak demand would likely suffer
  • Were Uber to hire drivers as Uber employees, they could also restrict said employees from driving for any other car service; this would actually increase the advantages Uber gains from being reportedly 12 times bigger than its nearest competitor, Lyft, which would ultimately reduce competition and result in higher prices

Moreover, what exactly would drivers gain from being employed by Uber? Clarity on insurance and liability is a big one, and I absolutely think that Uber should be more proactive here, particularly since their scale should give them an opportunity to demand better rates. The bigger gain though – and the biggest reason for Uber not to straight-up hire their drivers – are benefits, particularly health insurance. As Roose notes in his piece:

For start-ups trying to make it in a competitive tech industry, the benefit of opting for 1099 contractors over W-2 wage-earners is obvious. Doing so lowers your costs dramatically, since you only have to pay contract workers for the time they spend providing services, and not for their lunch breaks, commutes, and vacation time. Contract workers aren’t eligible for health benefits, unemployment insurance, worker’s compensation, or retirement plans.

This is the biggest hangup for me in the Uber spin that they are, as the Uber blog put it, enabling entrepreneurship:

Drivers around the world are seizing Uber’s economic opportunity by building small businesses for community needs long forgotten by the taxi industry: high quality, safe, reliable and affordable transportation options. At its current rate, the Uber platform is generating 20,000 new driver jobs every month. UberX driver partners are small business entrepreneurs demonstrating across the country that being a driver is sustainable and profitable…Our powerful technology platform delivers turnkey entrepreneurship to drivers across the country and around the world.

Entrepreneurship is nice and all – I’m obviously a fan – but the truth is it is a risky proposition in the United States. Estimates for the cost of health care for a family of four range from $16,000 to $22,000, and medical bankruptcy accounts for the majority of personal bankruptcies. If these numbers are shocking to you, it’s likely because your employer is paying the lion’s share of your costs; the cost of such payments is a significant factor in income staganation, particularly in the lower to middle classes. The real world implication of having employers provide health care is even more pernicious though: it dramatically increases the stakes when it comes to entrepreneurship, Uber-style or more traditional.1

This is the chief reason why I am so frustrated by the left-wing attacks on Uber. Beyond the lack of regard for consumers, the truth is the venom is misplaced: it’s not that Uber is bad for not hiring workers and giving them attendant benefits, it’s that said benefits shouldn’t be Uber’s – or any employer’s – responsibility at all. It’s employer-based health care that is the problem, and in ways that go beyond the economic benefits of universal health care (the most obvious of which is the broadest possible risk pool, not to mention unmatched buying power). It’s that people are afraid to leave or lose their jobs because they lack the most basic of safety nets.

This is quite personal for me; one of the chief reasons I took the risk of launching Stratechery is that my family lives in Taiwan, home of one of the best health care systems in the world. As someone who is self-employed I pay my fair share, but in return I could take a chance on this site knowing that while I might fail (I haven’t), I at least would not endanger or bankrupt my family in the process. I wish this opportunity on everyone.

And, as for those Uber drivers, the truth is they are Uber’s weak point (members-only); they recently forced Uber to change its policies in New York – how much more might they accomplish if they had the sort of safety net afforded to citizens of every other developed country? Imagine that: the freedom to leave a job you didn’t like because you knew that at least your family would have its most basic needs met. That’s what alleged advocates like Asher-Schapiro should be focused on.

As an addendum, I find it frankly bizarre that I write this article concerned about being characterized as both a right-wing fanatic (It’s not Uber’s problem!) as well as a left-wing socialist (Go universal health care!). And, to be honest, I’d be lying if I said I weren’t concerned about making some of my paying customers unhappy. Politics are fraught like that. But it seems like this issue in particular is one in which alleged right-wingers like Uber CEO Travis Kalanick and left-wingers like Asher-Schapiro could find common ground.

Moreover, I believe that Silicon Valley broadly should make the adoption of a social safety net one of their top political priorities. I do believe that services like Uber and technologies like automation will ultimately progress humanity, but as someone who grew up in the Midwest I know personally the wrenching cost this progress can exact. The political and regulatory challenges that Uber is facing are only the beginning for Silicon Valley, and if we as an industry are not proactive in ensuring that everyone benefits from progress then we will have only ourselves to blame for the inevitable backlash.

  1. Obamacare has, in my opinion, improved the situation, but seeing as how it still relies on employer-based health care it’s not nearly as friendly to entrepreneurship as true universal health care would be