(Why) Is Uber Failing?
On Friday, a California court ruled that Proposition 22, the recently passed ballot initiative enabling rideshare apps like Uber and Lyft to classify their drivers as independent contractors rather than employees, is unconstitutional. The current arrangement under Prop 22 allows rideshare companies to rely on the full-time services of drivers without rendering the benefits required for full-time employees, such as paid time off and health care. With a repeal of Prop 22, drivers could potentially be reclassified as employees, enabling them to unionize and seek the benefits afforded to traditional employees of traditional companies.
Uber and its allies are appealing, and pending that appeal the law remains in force, so this is a symbolic victory if it’s any victory at all. The companies poured a combined $200 million into the campaign to pass the law in the first place (the resulting 58 percent vote is as good a proof as any of the pitfalls of democracy) and their deep pockets are just as likely to ensure a favorable outcome in appellate court.
But symbolic victories aren’t nothing, and this is just one of many blows struck to Silicon Valley’s clay-footed giant in recent months. In fact, the overall picture lately seems much like one of imminent collapse. Any urbanite is likely to have noticed drastic changes in the service provided by Uber recently: a ride that might have been $10 with a 3 minute wait last year is now $20, and you’ll be lucky if the car gets to you in less than a quarter-hour. The change has been noted nationwide.
It wasn’t that long ago that Uber seemed like the next big thing; it was even more recently that its IPO became the second biggest in U.S. history (trailing only Facebook). For workers, it promised a liberation from the strictures of traditional employment. For consumers, it offered the democratization of the chauffeur experience: an easy, affordable way to get around without the commonality of public transit or the dinginess of cabs. And for a while, to a great many people, it seemed like it was going to deliver.
Now, even those typically on the side of big, progressive business, such as Bloomberg columnist and Substack blogger Noah Smith, are ready to call time of death on the rideshare experiment. In a blog post this week on the gig economy’s underwhelming showing—after Uber’s apparent early success left many speculating that its model could spread to any number of other sectors—Smith asks, “Why has the gig economy been a disappointment?” His answer: “Maybe because traditional companies still have a good reason to exist.” That reason, in Smith’s estimation, is the same explanation economist Ronald Coase gave for the formation of corporations almost a century ago: the minimization of transaction costs. Gig economy platforms are failing because they can’t minimize transaction costs the way traditional companies can.
Smith offers valuable insights, and this is no doubt a part of the problem at hand. But the most important caveat to Smith’s and other purely commercial diagnoses of the gig economy’s swift end is that, by all appearances, Uber is going to fail socially long before it fails financially. This is not a failure of efficiency—Uber has been woefully inefficient from the outset, and that innate inefficiency is accounted for in the company’s business model and grand strategy; in fact, it’s an integral part of both, as Hubert Horan explains in detail in a magisterial 2019 essay on Uber in American Affairs. The strategy essentially boils down to “growth at all costs”: relying on regular injections of investor capital combined with predatory business practices, Uber’s intention has always been to achieve market dominance in urban transportation and then to use its artificially achieved market power (obtained at a continuous loss) to finally turn a profit.
The problem Uber now faces is deceptively simple: nobody wants to be a part of that. The company’s core problems as it attempts to bounce back from the pandemic crater in demand all boil down to a shortage of drivers. What a surprise that laborers don’t want to collect poverty wages from a company that assumes none of the risk and none of the responsibility of their business and offers nothing meaningful in return to either the laborers themselves or their communities at large. It is precisely for its failures to fulfill the basic social responsibilities expected of traditional corporations—and even the sleaziest companies used to get this, at least from a public relations standpoint—that Uber is now failing. If you can’t provide health care for your workers, or you can’t effectively enforce standards on behalf of your consumers, then sooner or later you’re going to lose both your labor force and your customer base.
The irony is that Uber’s shtick has always been to undercut the understanding of companies as fundamentally human and social institutions (at root of “corporation,” remember, is the Latin word for “body”), associations of people united by a common economic interest; it has always dodged regulations and taxes by insisting that it is just a platform, a software service that people can choose to utilize as they wish. This attempt to sidestep the public authority may well prove the company’s undoing with the public itself.
In the beginning, Uber promised to revolutionize the economy, to redefine not just the way people work but the way they move around in their environment and relate to corporations. What’s funny is that, even as commentators declare its imminent death, the company may have actually done just that. Uber may prove the archetype of a new corporate model: never actually producing anything of value, never really innovating; only serving as a throughway for investor capital and drawing money out of communities without any obligation or attempt to put something back in. (We can certainly see the imitators all around us already.) Or it may, after a decade of distorted numbers and predatory behavior, finally collapse as it should have done at the outset; if it does, it will be thanks not to its unprofitable model but to the simple refusal of workers and potential partners to be complicit in it, together with some good old-fashioned labor organizing.
This is why the post-pandemic fate of Uber will be a bellwether for the near future of the American economy. Will we allow the continued dominance of entrenched moneyed powers, irrespective of the connection between their interests and those of the community, of the actual needs of consumers, of the actual capacities of infrastructure, and of the moral considerations that ought to weigh on the ordering of the market? Or will we demand the subordination of capital to social reality and the common good?
Whichever way we choose, Uber is only the beginning of the road.