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The True Cost of Uber

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Uber, like the cowboy socialists of the West, talk all about private, individualized effort that makes America great. And like those cowboy socialists, Uber also relies on the government for everything, effectively socializing their business model on the rest of us while doing everything possible to escape paying the taxes that would contribute its fair share to those services. A government starved of resources then has to turn to private companies to provide basic services. A vicious circle results:

Compare this with the dire state of affairs in which most governments and city administrations find themselves today. Starved of tax revenue, they often make things worse by committing themselves to the worst of austerity politics, shrinking the budgets dedicated to infrastructure, innovation, or creating alternatives to the rapacious “platform capitalism” of Silicon Valley.

Under these conditions, it’s no wonder that promising services like Kutsuplus have to shut down: cut from the seemingly endless cash supply of Google and Goldman Sachs, Uber would have gone under as well. It is, perhaps, no coincidence that Finland is one of the more religious advocates of austerity in Europe; having let Nokia go under, the country has now missed another chance.

et us not be naive: Wall Street and Silicon Valley won’t subsidise transport for ever. While the prospect of using advertising to underwrite the costs of an Uber trip is still very remote, the only way for these firms to recoup their investments is by squeezing even more cash or productivity out of Uber drivers or by eventually – once all their competitors are out – raising the costs of the trip.

Both of these options spell trouble. Uber is already taking higher percentages from its drivers’ fares (this number is reported to have gone up from 20% to 30%), while also trying to pass on more costs related to background checks and safety education directly to its drivers (through the so-called safe rides fee).

The only choice here is between more precarity for drivers and more precarity for passengers, who will have to accept higher rates, with or without controversial practices like surge pricing (prices go up when demand is high).

The broader lesson here is that a country’s technology policy is directly dependent on its economic policy; one cannot flourish without the active support of the other. Decades of a rather lax attitude on taxation combined with strict adherence to the austerity agenda have eaten up the public resources available for experimenting with different modes of providing services like transport.

This has left tax-shrinking companies and venture capitalists – who view everyday life as an ideal playing ground for predatory entrepreneurship – as the only viable sources of support for such projects. Not surprisingly, so many of them start like Kutsuplus only to end up like Uber: such are the structural constraints of working with investors who expect exorbitant returns on their investments.

Finding and funding projects that would not have such constraints would not in itself be so hard; what will be hard, especially given the current economic climate, is finding the cash to invest in them.

Taxation seems the only way forward – alas, many governments do not have the courage to ask what is due to them; the compromise between Google and HM Treasury is a case in point.

There’s really no way out of this outside of vigorous taxation and investment in social services. Of course, that’s the opposite of where most American elites are today, with former Obama advisers now working for Uber and of course Republicans hating any public services.

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  • twbb

    “Let us not be naive: Wall Street and Silicon Valley won’t subsidise transport for ever.”

    Well let’s ride it out as long as possible; subsidized startups appear to be the only real way to redistribute Wall Street wealth.

    • Lee Rudolph

      subsidized startups appear to be the only real way to redistribute Wall Street wealth.

      Similarly, subsidized startups appear to be the only real way that drug pushers redistribute their wealth!

    • kped

      I’m not sure “redistributing” money from many people in Wall Street to a group of 1 or 2 Silicon Valley Randians, is the kind of redistribution we want…

    • SamChevre

      Does any money that flows to Uber drivers come from investors? It was my understanding that the answer was no–drivers paid Uber to use the Uber app, and the investors investments and profits were in the app, not the drivers.

    • The Temporary Name

      Well let’s ride it out as long as possible; subsidized startups appear to be the only real way to redistribute Wall Street wealth.

      We can liberate a whole lot of money via presidentially sanctioned drone strikes.

  • ThrottleJockey

    This reads like a parade of horribles without having any data to back it up. Are yellow cab drivers treated any differently by yellow cab than uber drivers are treated by uber? Aren’t yellow cab drivers independent contractors, not employees, as well?

    • twbb

      There’s no way to make blanket determinations like that considering the different regulations you find between states and municipalities which result in a totally different demographic in different places. When I take Uber in Philadelphia I get college kids and people working a second job; in New York City Uber drivers are just the regular livery car drivers, who are distinct from the actual cab drivers (who have historically been treated terribly by the medallion owners).

    • aaronl

      If you are arguing that regular taxi drivers get a bad deal, also, I don’t think that you’ll get much argument — but as the saying goes, two wrongs don’t make a right.

      If you are arguing that the legal environment that has allowed taxi companies to rely on short-term leases of their cars to independent contractors, rather than having employees, has been a boon to companies like Uber, I can’t dispute that, either. But perhaps we should see it as a problem that our nation’s labor laws and regulations that allowed workers such as taxi drivers to be transformed into independent contractors.

      • Yankee

        Yep. Where “independent contractor” is defined as a little guy on his own.

        I mean, that basically wouldn’t be a bad arrangement if the contractor were able to capture the actual value of his input, which includes capital (driver’s license) as well as labor and assumption of risk. In the current state of the world, “employee” is a relatively favorable category, but actually not so much. I want to talk about the continuity from “employee” to “slave”, but that would be inflamatory.

    • Malaclypse

      If “Yellow Cab” = “New York,” then yes, they are employees under most circumstances.

      • yet_another_lawyer

        If only New York’s taxation and regulation were at higher levels, rather than being a libertarian hellhole. Then we could prove the argument in the OP! Oh well…

  • AdamPShort

    “vigorous taxation and investment in social services.”

    At levels below the federal level, this is definitely true. If the federal government got involved in giving out block grants to states for infrastructure and necessary social services to bring them up to some minimum level, there would not necessarily be higher taxes associated with that.

  • Feathers

    I wish some techno dogooder would create an Uber style app which could be used by actual cab companies. So far I have stayed away from Uber, but if I could get a cab without the bored “20 minutes” from a dispatcher, calling them back in 25 minute and getting a “sorry, you weren’t there, 15 minutes,” I wouldn’t even be tempted. Knowing the cab number and being able to contact them directly would be huge.

    • AdamPShort

      Such apps exist but not in the regulatory and legal vacuum that Uber does, so they have drawbacks/limitations that Uber doesn’t have. Particularly “surge pricing” is illegal for many taxi companies to practice.

      • aaronl

        One thing you generally know with Uber is how much your fare is going to be prior to the ride, and by having a fixed fare you also know that your driver is going to have an incentive to use the most direct route. Pretty much any person who has used taxis on more than a few occasions is likely to recall an incident where the driver took a questionable route, seemingly to lengthen the ride either in terms of time or distance, to pad a fare.

        I’m not disputing your point about the significant advantage Uber gains from the comparative lack of regulation of its business model, but taxi companies could easily take steps to reassure their passengers that they won’t be cheated, including the setting of fares (or maximum fares) in advance. Even if required to meter the fare, the taxi company could say, “If your meter exceeds $X, you will still only pay $X”.

        • J. Otto Pohl

          That is a US thing. In many countries including Ghana and Kyrgyzstan you know exactly how much the fare will be before you get in the taxi. It is negotiated up front. Also here in Ghana there is a taxi application. It is called a phone. You call the personal phone of a taxi driver and arrange for him to pick you up at a certain time and place. The taxis drivers own their own cars but are organized into cooperatives referred to as unions. They are required to be marked with orange wings.

          • I took a cab in Istanbul once. I was much too worried about dying to worry about the fare.

            It was an “E-Ticket” ride.

    • nathanw

      Such things exist, like this one locally: https://play.google.com/store/apps/details?id=com.apcurium.MK.GreenYellowCab

      but if you read the reviews it’s clear that the usual flaws of taxi service apply – payment shenanigans, drivers not showing up just like they don’t show up when you call them, and so on. Just having an app doesn’t change the taxi structure much.

      • skate

        And on the iPhone/iTunes store, Arro and Way2Ride. Reviews for the former are generally lousy. Those for the latter are better but there aren’t many yet.

  • AMK

    I don’t see how the lack of adequate infrastructure and/or social services spending has anything to do with Uber. Uber got very popular because it was (a) so much more convenient than taxis (b) cheaper than taxis most of the time. If it turns out that Uber can’t sustain those low prices or attract/retain as many drivers with an actual business model that does not involve huge VC checks, than its bubble is going to pop.

    Meanwhile, we need to fix bridges, repave roads, refurbish rail lines, rebuild airports, etc. What this has to do with ride-sharing, I’m not sure.

  • Dilan Esper

    Uber was a reaction to a real problem- if any industry suffers from regulatory capture, it is taxis in big cities. There weren’t enough of them, the medallions went from being a license to being a capital asset, the companies were structured to limit liability even for grievous harm, etc.

    Uber, of course, has all the pathologies of unregulated capitalism.

    What i wish would happen is that Uber would spur cities to stop treating taxis as an entrenched lobby and start treating them as a public service. But i have little hope.

    • Tyro

      Actually, the problem is more cabs in small to medium sized cities. Uber never would have been invented in New York.

      • meelar

        And conversely, it’s no surprise that it got started in San Francisco, which had both a lot of tech people and a completely awful cab industry.

    • AMK

      I’ve lived in the middle of a city for a decade, and I find it very hard think of private companies chauffeuring me around as a “public service” on par with the bus lines or the metro. Maybe that’s why I don’t have as much of a problem with Uber, because I just see it as one private entity replacing another.

      • Dilan Esper

        While taxis are supplied by private companies, that doesn’t mean they aren’t public transportation. (Inns, airlines, and private railroads (back in the day) are similar.) If taxi companies didn’t exist, cities would have to supply that transportation as cities and residents depend on it.

        And taxi regulations reflect that fact. That’s why there are medallions, rules about taking all passengers, licensing requirements, etc. Unfortunately, the regulators get captured and the regulations are written in ways that are very friendly to the owners of taxicab medallions.

        But taxis are, ultimately, a public utility and they definitely do need to be regulated. Uber is not the solution.

  • Brett

    Uber’s a fraud. They burn through money at an incredible rate, and still have tons of competition despite slashing fares so low that their drivers are nearly in revolt. If they get hit with something that shakes confidence in the firm, the end for that company will come quickly – we’ve had high-profile startup implosions before.

    • ajay

      That’s not really a fraud, though. What you mean is “they’re going to fail”.

    • yet_another_lawyer

      So… in the meantime, we get subsidized cab rides and a new startup can imitate their business model and make improvements. The drivers are either on par or better off than cab drivers. Struggling to see the downside.

      • guthrie

        I wonder where the money Uber is using up comes from?

        • ajay

          I wonder where the money Uber is using up comes from?

          Yes, it’s a mystery. I mean, I know there are things called “investors” and “venture capitalists” who are in some sort of mysterious relationship with Uber… and there are people called “customers” too who presumably have something to do with it… and Uber certainly seems to have a lot of money, so that must come from somewhere… it’s just puzzling out the links in this bewilderingly complex network that’s baffling me. Can anyone help?

  • ajay

    The “Uber is avoiding taxes” argument never carries very much weight in London, because normally it’s being delivered by black cab drivers, who are notorious for operating on an entirely cash-in-hand basis.

  • DrDick

    Whatever problems exist with cab companies, Uber is not the answer. It is just another way to screw the workers and avoid regulation.

  • harlanhoyt

    I worked as a taxi driver for six months in a small (~70k) city. Here’s how it worked.

    Shifts were twelve hours, and there were no on street pick ups. You had to be dispatched from the central company. You began your shift by renting a cab ($50 a day — all money in 2006 dollars). Hopefully it would be running okay, because after twelve hours in a cab with bad shocks, you’d feel beaten up. You paid twenty-five cents for each mile you drove to the cab company at the end of each shit. A fare anywhere in town was six dollars. Didn’t matter if it was a five minute ride or a fifteen minute ride, $6. Of that, the cab company got $3. Unless they had a token, which were sold for $3 a piece at all of the local grocery stores and employment agencies. For a token, the cab company would pay you out $1.50. 90% or more of fares, in my experience, used tokens. Tipping was very much optional, and almost always non-existent. At the end of the day, you had to wash the cab, and you’d have to fill it up with gas. These were big ol’ decommisioned Crown Vic police cars, and they got maybe 20mpg, if you were lucky. Depending on the car, it could be a lot worse.

    There were a couple of factors at work on how much money you were making. The main one was if the dispatcher liked you. The most lucrative fares were out to the airport, a forty minute drive away. You might be gone for an hour and a half, but it was $60. In the six months I drove a cab, I got one of these. The dispatcher would assign you your fare and you’d have to go get them.

    Days were usually easier, because people weren’t drunk, but they also paid less. It was mostly people who were going to work but had lost their licences for DUI, or the severely mentally handicapped going to adult day care or work programs who weren’t able to drive in the first place. These people always used tokens, and they often lived in out of the way places and would travel halfway across the county to get where they were going.

    Nights were harder, but you made slightly more money. Drunks were trouble. Some could be threatening, one threw up in my cab and I had to wash the car twice in one day. Several jumped out of the cab and went tearing off without paying. That caused its own problems. The first time, I had the dispatcher call the cops, and they came and knocked on the door and no one answered, and the cops shrugged and drove off. Took about forty minutes. Afterwards, I just decided it wasn’t worth the last time.

    Most days when I worked a twelve hour shift and walked away with maybe twenty or thirty dollars, after cashing out and filling the car. I once made $100 (airport trip) — that was the most I made. One day — my last day — I lost money. It’s probably easier in a bigger city, but I can’t imagine it’s all that great.

    So, when people complain about how badly Uber treats their drivers, it really makes me wonder. I use Uber because the city I live in now (~250k) is next to a much bigger city, and has extensive public transit, including light and commuter rail and buses. But the buses don’t run after midnight, and the train doesn’t go to my apartment. So I take cabs. And I can’t tell you how many times, prior to Uber, I would call for a cab to go to the airport and they just wouldn’t show. You had to build an extra hour into getting to the airport just to account for the cab. It’s a bad system.

    So, when I take Uber rides, I talk to the drivers. I’ve never had one that had anything but glowing things to say about Uber. Meanwhile, when I take cabs, the driver is never the person whose license is displayed. The cabs are always dirty and in bad shape. And they try and put two or three fares in each ride. I’m not concerned about it, but it worries me when my girlfriend comes home late from work and is forced to take a cab with two or three strangers (four, if you count the driver).

    Maybe Uber is a terrible company, I don’t know. But the taxi companies are as bad if not worse. But this article is embarrassing. It’s a long cri de cour about every tech company in the world, but without any specifics about its ostensible target, Uber. Sure, Apple has a lot of off shore assets. But does Uber? I dunno, maybe, but the article doesn’t say. Why did Kutsuplus go out of business? Who knows? The article doesn’t say. It only tells us that Kutsuplus is good, and Uber is bad. Why? Because Uber has financing, I guess.

    The whole thesis of the article seems to boil down to, “Governments — and by extension, citizens — should pay for services.” Well, sure, I agree. But what does that have to do with Uber? Uber seems to come in for a lot of attacks by people who either don’t have to take cabs or have never driven a cab. Which must be nice, I guess. Having done both, I can tell you that Uber looks a lot more positive to me.

    • Dilan Esper

      Meanwhile, when I take cabs, the driver is never the person whose license is displayed. The cabs are always dirty and in bad shape. And they try and put two or three fares in each ride.

      And that’s what I mean when I say that taxis are an area where there has been a great deal of regulatory failure.

      I mean, we all have a basic idea of what good taxi regulation SHOULD look like. All the things you mention should be prohibited, and the prohibitions should be enforced. But it hasn’t looked like that in many places, because the taxicab owner’s lobby is powerful and interested in local politics, and such lobbies always get their way.

      (My favorite here in LA isn’t really germane to the Uber dispute, but the reason the Green Line Metro doesn’t go into LAX airport and instead turns south is because the taxicab owners “convinced” the powers that be that there was huge pent up demand in the boring, nondescript suburb of El Segundo for light rail service. Taxicab lobbies are that powerful in a world where nobody pays attention to local politics.)

      Uber doesn’t solve any of this. Yes, it’s more user friendly and I will admit that some of the regulatory issues (like clean cabs) are also something where the free market can help, but the fact remains that we actually need taxis to be regulated. They are a public utility. We just don’t regulate them very well. And now, with Uber, we still don’t.

      • I agree with all of that, but none of it is an argument against UBer as for regulation. Here in New Jersey, the anti-Uber forces I’ve seen have uniformly been from taxi company stakeholders. They’re hardly disinterested, but what’s more important to me is that they provide worse service and I’m unconvinced that they’re better for the drivers that Uber may or may not be displacing. There’s a limit to the number of cabs that can service the various cab stands around town here, and that number hasn’t dropped because Uber has become more responsive to other parts of town. If the argument is, should progressives fight against Uber, I’d say the answer is no. We should be agitating for stronger regulatory situations that — and this is where the rubber hits the road, as it were — don’t just become another renter capture. If we just recreate the pernicious incentives of the current cab companies, we haven’t advanced along any goals. At least with Uber, I can actually get a ride.

    • The Temporary Name

      Maybe Uber is a terrible company, I don’t know.

      It really is, and you can know this.

  • guthrie

    It looks like the UK is actually ahead of the USA. WE’ve got taxes on the poor and middle classes, but the 1 to 0.1% or so can escape most taxes.
    Meanwhile, an ever increasing % of those taxes goes into paying for outsourced services which could be done cheaper by public bodies but aren’t, because the people who benefit most from the outsourcing companies are the 0.1% and their minions.

    One day someone will do some sums and work out how many billions are being siphoned off the taxpayer and into private hands.

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