Sharing Economy Realities

I appreciate Matthew Feeney’s thoughtful reply and his important questions.

It seems obvious that our disagreement is largely ideological. He trusts unregulated markets are both efficient and fair, while I suspect those markets aren’t value neutral and rather tilt in favor of business interests. This isn’t a dispute we can resolve here in the pages of Cato Unbound.

But I do think my reporting on Uber can clarify some of our disagreement, and as I wrote before, it may help inject the actual lived experiences of Uber drivers into this discussion.

I met S.J. while working on a piece about Uber’s military recruitment initiative, Uber Military. It’s an ambitious program to bring 50,000 veterans on as drivers. Backed by former Secretary of Defense Robert Gates and General Stanley McChrystal, the initiative has been widely successful, enlisting 10,000 drivers in the first six months.

While serving in the marine corps, S.J. threw out his back carrying a machine gun that weighed as much as he did. He was honorably discharged, moved back home to Los Angeles, and started looking for work. At the time, Uber was were reaching out to veterans, and S.J.  heard CEO Travis Kalanick claim drivers make $100,000 a year. So he signed up.

When we first, spoke S.J. described himself as a “totally free market guy.”  He admired Kalanick’s entrepreneurial machismo. He saw Uber much the same way Feeney does—a good deal for riders, a free market innovator, and an opportunity for enterprising hardworking types to excel.  When S.J.  first started driving for Uber in May, 2014 he cleared $1,200 a week, not exactly $100,000 a year, but a good living.

In preparing this response, I caught up with S.J. He quit Uber in January after his pay dipped to $400 a week. All summer and into the fall, Uber cut its rates in L.A. to edge out competition from SideCar and Lyft (unlike AirBnB hosts who can set their own rates, Uber drivers have no say in the matter). S.J. was able to quit because he hadn’t taken out a loan to finance his car. But many of his co-drivers aren’t so lucky—Uber partners with predatory subprime lenders like Santander to link up its drivers with easy loans, locking drivers into a cycle of debt.

I asked S.J. if he still thought Uber was an example of free market efficiency. It’s fascinating how out of touch Uber is with its drivers, he told me. “Uber used unethical practices to hook drivers onto their platform… and not everyone is working with the same set of information.” He says the job is fine for some side cash, but it’s totally untenable as a full-time job, even though the company continues to market it as such. Uber, he says, encourages unstable employment and preys on those who’ve fallen on hard times and are desperate for any paid work.  “I feel like a lot of people are stuck,” he said.

Above all, S.J. worries about the many recent immigrants who worked with him at Uber—many trusted Uber’s wage projections, took out loans, and are still riding it out, hoping rates will rebound. Without the protection afforded to regular employees in our society (and admittedly these protections could be improved markedly) the economic fate of these drivers is in the hands of billionaire entrepreneurs in Silicon Valley.

Driving for Uber actually shifted S.J.’s political outlook: “I still support the free market, but something has to be done to account for exploitation,” he said. “As long as the company can keep duping drivers into signing up and taking out loans, it has no incentive to improve working conditions… that’s where regulation comes in.”

I agree with S.J.

As for the specifics of such an intervention, I think Dean Baker is on the right track: Uber shouldn’t be allowed to set its own safety standards, termination policies, and wages, outside of the current regulatory framework just because it uses an app to drum up business. Minimum wage laws, insurance mandates, and overtime pay should all apply to drivers who work on the Uber platform. As I suggested in my first essay, if Uber doesn’t want to act like a responsible employer, it can charge a licensing fee for use of its product and walk away.

In his thoughtful response to my initial essay, Feeney asked me to provide a standard of economic “predicament” that would warrant government intervention. Here’s a good starting point: work should pay a living wage, include healthcare, pension benefits, and sick leave—in short all the minimum requirements to pursue a dignified life.

Feeney did bring up “market failure” as his own benchmark for intervention. The U.S. economy now contains over 7 million people forced to work part-time jobs, despite being willing and able to do full-time work. A multi-billion dollar tech company increasingly misleads these workers and corrals them into subprime car loans. If this doesn’t count as “market failure,” I’m not sure the term retains any use.

To specifically answer Feeney’s’ question about Airbnb: since the company does not require its “hosts” to adhere to any pricing structure, it wouldn’t be fair to classify them as employees. Rather, Airbnb is just a platform that allows unlicensed (and untaxed) hotels. As you’d expect, this process is increasingly dominated by capital-rich landlord and speculators—not individuals with a spare room. An investigation by the New York Attorney General found that in New York, just 6% of hosts were responsible for 36% of bookings—one operator alone accounted for 3,000 reservations and $6.8 million in revenue.  That trend will only accelerate, and Airbnb will increasingly be dominated by larger proprietors.  New York should levy taxes on these businesses. In the long term, it may also be prudent for regulators to further discourage speculation—which drives up rental prices—by restricting Airbnb to the actual residents of a home.

Also from this issue

Lead Essay

  • Matthew Feeney argues that the right response to the rise of the sharing economy is often to deregulate legacy industries. Users and service providers alike have tools at their disposal that ease many of the worries that might otherwise come with sharing one’s car, kitchen, or spare bedroom. Meanwhile policymakers should recognize that older regulatory systems often amounted to favoritism. Taxi monopolies are only the most egregious example among many. A level playing field should be the goal of public policy, provided that this playing field does not impose arbitrarily burdensome regulations.

Response Essays

  • Dean Baker points out how sharing economy companies have often received special favors, and he suggests what a truly level playing field might look like. While it’s hard to deny that companies like Uber have offered much-needed services, he argues that limiting the number of taxis in a city is still reasonable, that drivers must be guaranteed standard minimum wages, and that accessibility requirements must also be met. Anything less would amount to an implicit subsidy for one industry participant - in other words, exactly the sort of thing that conservatives should recognize as corporate welfare.

  • Sharing economies do not really exist, says Avi Asher-Schapiro. The glowing term really denotes downward mobility for the middle class. Formerly regulated and stable professional occupations are growing increasingly part-time and menial. Companies like Uber, HomeJoy, and Taskrabbit promote what is ultimately a servile class, one that must wait hand and foot on the desires of the wealthy. This is certainly not what we should want our society to look like. Such companies have succeeded in recent years in large part because many people have been otherwise unemployed. But if we want our economy to serve more than just the wealthy, then we should hope that Uber drivers and the like will exit the “sharing” economy in favor of something better.

  • Christopher Koopman notes that firms like Uber and Lyft are already writing very comfortable regulations for themselves, rules that lock out competitors and hurt consumers. The results will be higher prices, fewer choices, and poorer service. In the longer term, it may mean that many companies can’t innovate by providing entirely new side businesses or related services - things like moving services, delivering goods on demand, or offering autonomous cars for hire. There is no clear reason why these things mustn’t be on offer, but regulation stands to forbid them before they even exist.