the uber model

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By Aaron Benanav*

Uber and Lyft largely exist as Wall Street-funded automation bets that have proved unsuccessful.

After threatening to leave California, companies Uber and Lyft recently obtained a temporary reprieve from the order to recognize their drivers as employees rather than independent contractors. The companies argued that they would not be able to comply overnight, even though more than two years have passed since the California Supreme Court ordered them to change their practices. California's AB5 labor law was supposed to put an end to non-compliance.

It can be assumed that incorrectly treating drivers as independent contributors would ensure exorbitant profits for ride-hailing companies such as Uber. The reality is much stranger. In fact, Uber and Lyft are not making any profit. Instead, companies have been losing money for years by undercharging users for trips in an attempt to aggressively expand their worldwide market share. Flattening drivers' incomes is not their main strategy for becoming profitable. It just slows down the speed at which companies burn through cash.

The truth is that Uber and Lyft largely exist as Wall Street-funded automation bets that have proved fruitless. These companies are trying to survive legal challenges posed to their illegal hiring practices while they wait for the improving self-driving car technologies, which do not need a driver. The advent of the self-driving car would allow Uber and Lyft to lay off their drivers. Having gained dominance of the ride-sharing market, these companies would reap profits in a monopolized market. In the long-term business plans of Uber and Lyft there is simply no room for paying decent wages to drivers.

Only in a world lacking in more lucrative investment opportunities could such wild bets on futuristic remote technologies become large multinational companies. Corporations and wealthy individuals have accumulated huge sums of money and don't know where to put it because the returns on investments are extremely low. The flip side of falling business investment rates is a slowdown in the pace of economic growth, which economists have called “secular stagnation“. It was this downturn of the past few decades that spawned the insecure workforce that Uber and Lyft rely on.

In slow-growing economies, labor markets are weakened. Older workers who lose their jobs have difficulty in finding equivalent jobs. Meanwhile, young people who start working have to send hundreds of resumes and end up working in commerce, in positions without much prospect. Ride-sharing companies like Uber and Lyft feed off the pervasive insecurity of the modern economy. When the alternative is to work irregular shifts in coffee shops, for example, driving to these companies working your own hours can seem like a dream. Algorithmic management also seems utopian compared to nasty bosses. In the first few years of operation, app transport companies even offered good remuneration rates in relation to available alternatives.

Uber and Lyft probably figured they would have laid off these workers by now, replaced by robots. But like many promises of automation, driverless cars are still a long way from becoming a reality. Uber and Lyft have begun to flatten these workers' incomes to stem the bleeding of their own reserves. That's when drivers started to react.

This struggle for workers' rights is based on the growing recognition that the expansion of the digital economy does not just reflect the triumph of unstoppable technological change. Behind the Silicon Valley rhetoric, much of what appears to be technological innovation is nothing more than a means of circumventing regulations, including minimum wage laws. By misclassifying its employees, Uber missed paying hundreds of millions of dollars to US unemployment insurance systems. Yet, during the economic crisis stemming from Covid-19, Uber lobbied the federal government to step in and pay their drivers' unemployment insurance.

Why could Uber win twice? It makes sense to require companies to either hire workers for stable jobs or not hire them at all. But in an environment of weak economic growth, this requirement will fail to guarantee economic security for all. Capitalist economies were able to extend security to more and more workers only in periods of rapid economic growth, when low unemployment rates enabled workers to demand better wages and better working conditions. The era of high-speed economic growth is long over and will not return.

The high rates of economic growth in the mid-20th century – the benchmark for any policy that seeks to restore economic growth in the present – ​​were premised on a historically exceptional period. The restoration of stable international trade after two world wars made possible the greatest growth in productive capacity in human history, not only in Europe and the United States, but in Worldwide. In the 1970s, rapid expansion gave way to worsening global overcapacity, resulting in increased competition and falling rates of investment in internationally traded goods. People found themselves jockeying for jobs in the growing service sector, where the potential for increased labor productivity, and therefore economic growth, is significantly smaller.

Workers' inability to find steady employment is therefore not the result of recent advances in automation technologies, which, like driverless cars, almost never caught on. Their situation results from a daily reality of low profitability in economies saturated with capital, and with insufficient opportunities for its reinvestment, so that dividends and share buybacks increasingly become the norm for cash surpluses. With investment opportunities shrinking, huge pools of capital went to highly speculative companies, such as Uber and Lyft, with little proven profitability.

It's no surprise that governments have turned a blind eye to Uber and Lyft's bad behavior for so long. Governments are complicit in increasing the vulnerability of workers. Faced with persistently slow economic growth and high unemployment rates, governments have for decades tried to convince companies to invest by making it easier the cut of benefits of workers and tax exemptions. Once again, this attempt to restore conditions for rapid economic growth has failed, as have supply-side and demand-side solutions. trickle down, who failed to generalize economic prosperity. The Covid crisis has only made the economic outlook even less favourable.

People need security that is not job-related. The pandemic has accentuated this imperative. In a world as rich as ours, and given the technologies we already produce – even without the dreams of automation being realized – everyone should have access to food, energy, housing and health. If people had that security, why would they choose to work horrible, low-paying jobs? The owners of Uber and Lyft know that their business needs them to be able to make the key decisions that shape our future, without our voice. The world of work will have to be democratized. They are just postponing what will be inevitable.

*Aaron Benanav is a researcher at Humboldt University (Berlin).

Translation: Clarisse Meireles

Originally published in the newspaper The Guardian

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