The Militant Hails a Ride

The headliner in this week's Militant is an article by Bernie Senter entitled Uber drivers fight bosses’ pay cuts across California. The lede paragraph:

Uber drivers held a 25-hour strike March 25 to demand the company reverse a 25 percent per mile pay cut it imposed on drivers in Los Angeles and parts of Orange counties. Two hundred of the striking Uber drivers were joined by drivers for Lyft to protest in front of Uber headquarters here. Protests were also held in San Francisco and San Diego against similar cuts.

There's reason for skepticism. Uber drivers go on strike all the time--whenever they turn off their app--say to sleep, eat, or pick up their kids from school. That a few drivers turned off the app for 25 hours to uselessly rage against the machine is irrelevant to the company. I doubt it even noticed.

Then one has to take the "25% pay cut" headline number with a grain of salt. Were the cut that big drivers would be quitting in droves--not simply going on strike. So there obviously has to be more to the story than what The Militant is telling us.

This website lists all changes in Uber pricing in Orange County since way back when. The relevant entries appear to be these:

UberX cost per mile decreased from $1.06 to $0.80 - 3/11/19
UberX cost per minute increased from $0.24 to $0.28 - 3/11/19
UberX minimum fare decreased from $7.30 to $6.10 - 3/11/19

So the dramatic cut in per mile compensation is at least partially offset by a comparable increase in per minute pay. This is good for drivers who spend a lot of time in traffic, but less beneficial for those out on the open road. The decrease in the minimum fare only affects very short trips. I think The Militant's "pay cut" phrase is an exaggeration.

Another website (here) has information about Uber's pay policies--and as Mr. Senter suggests, they certainly are complicated. The company's cut varies by length of service and geography, ranging from 20% to 28%--though in the latter case the company pays the driver's insurance. That percentage only applies to time & distance charges, resulting in a service fee. In addition customers pay additional fees:

• A booking fee--that goes entirely to the company.
• A surge fee--applied in cases when there is a shortage of cars, and that goes entirely to the driver.
• A tip--which also goes entirely to the driver.

The booking fee is per trip and looks to cost about $2.30. On a short trip that will be a substantial fraction of the fare, which inflates Uber's percentage of the total haul. A long post from an Uber driver (well written, despite typos, from somebody who self-identifies as Underachiever (1970-present)) details an example:

• The customer paid $9.90.
• Booking fee--$2.30
• The time & distance charge is the difference--$9.90 - $2.30 = $7.60
• Service fee (25% of time & distance)--$1.90
• Total paid to Uber--$2.30 + $1.90 = $4.20
• Total paid to driver (75% of time & distance)--$5.70

For short trips the booking fee is substantial. For a $50 airport run, on the other hand, it's nearly trivial.

Mr. Senter quotes an Uber driver:

“In 2015, I was making between $1.15 and $1.20 per mile,” driver Esterphanie St. Juste, an organizer of the action, told Los Angeles Magazine. “Today, I’m making 50 percent of that. They call us partners, but we’re not. They dictate everything.”

As just documented, Uber drivers have not taken a 50% pay cut. But let's focus on the last sentence: "They dictate everything." They don't, and here's why.

Uber is a platform--it connects drivers with passengers. An analogy is the stock market, which connects stock sellers with stock buyers. The price of stocks fluctuates as necessary to clear the market.

Uber needs all passengers to get rides and all drivers to get passengers. There is a price that will do that--it's called the market price. If Uber charges below market, it is just leaving money on the table--money that could otherwise be shared with drivers. Conversely, if Uber charges more than market, there will be fewer passengers, and therefore also less revenue.

The market price is the price that maximizes total revenue. Obviously that's good for the company--25% of more is better than 25% of less. It is also good for the drivers collectively, who get 75% of more. It may not be good for individual drivers, since more drivers mean that the money gets split up more ways.

So the drivers, as described in Mr. Senter's article, are pushing to limit the total number of drivers, similar to what cab companies did with the medallion system. This is good for those (relatively few) drivers who have a job, but bad for those who are left at the side of the road. Even worse, it's bad for passengers, who will now have to wait longer and pay more to get a ride. And it's bad for Uber who, by charging above market rates, receives less revenue.

The drivers become rent collectors--selling access to a licensed, Uber slot--and can charge a premium for the privilege. Perhaps that's good for those drivers, but rent collecting never generates social utility.

Contrary to Mr. Senter's quote, Uber does not dictate its prices. The market does.

Still, the drivers have a case. Given that Uber has maximized total revenue, how should that revenue be split between driver and company? The drivers argue for more, while Uber wants to give them less. But the company can't dictate this, either. It is also determined by the market.

The market price is established by that equilibrium where the number of drivers equals the number of passengers. If the drivers are paid more, there will be too many drivers. Conversely, if they're paid less, there won't be enough drivers. The company has no real discretion over what that pay is. Indeed, it varies by time of day--during rush hours more drivers are needed and therefore a surge price is added.

Uber also has to cover its own expenses. It has to handle requests from customers, process payments, and arrange for pickups. Payment processing alone probably accounts for the majority of the booking fee--that's a real expense. The service fee likely pays for the elaborate computer navigation systems, which has to be absolutely fail-safe. That's expensive.

It's worth noting that neither Uber nor Lyft are profitable. So the incipient union (Rideshare) demand that the service fee be capped at 10% is a non-starter. Both companies would go bankrupt.

Likewise, demands that Uber pay for gas, car repairs, taxes, health insurance,... is a non-starter. Uber is a software and payment processing firm. They're not a transportation company. Folks in the transportation business need to cover their own expenses. It's a hard-scrabble, low wage industry to be sure, but asking Uber to manage a business for which it has no expertise will not make it better.

I think Uber is better for drivers than my initial job as a cab driver in the mid 1970s. I worked for Checker Cab in Chicago and received 42% of the meter, plus tips. Tips were about half my income. Apart from social security I got no benefits, but Checker covered all the car expenses (including gas).

It was a lousy job, and within a year I switched cab companies to one that operated more like Uber.

Further Reading:

• Book Review: Tomorrow 3.0
• Teachers' Strikes: The Difference a River Makes
• Precarious Taxis

Book Review: Tomorrow 3.0

Tomorrow 3.0, by Michael Munger, is subtitled Transaction Costs and the Sharing Economy. That's actually a much better title--more descriptive of the actual thesis. The "three-point-zero" claim is, in my view, over the top. Version 1.0 was the Neolithic revolution, when hunter-gatherers settled down and became farmers. Version 2.0 was the industrial revolution, when said farmers moved to cities, got "jobs" in our modern sense of the word, and created the consumer cornucopia we enjoy today.

Version 3.0, upon which we are just now embarking, is when workers (most of them, anyway) will lose their jobs because the new economy will not depend on production in the way it has in the past. Instead of finding new and better ways to produce things, entrepreneurs will instead "sell reductions in transaction costs."

The first fruits of this new world are represented by Uber, a company which does not sell taxi services. Instead, taxi services are sold by drivers, for which they are paid by passengers. This exchange is unchanged from the good old days.

What Uber sells instead is a reduction in transaction costs. Consider the bygone era: on a rainy NYC evening after the theater you had to go outside and try to hail a cab. You spend a lot of time waving at yellow cars as they whiz by, already taken. If you're lucky you'll find a taxi within 10 or 20 minutes--or possibly you'll wait an hour.

None of this helps the cabbie. Despite the desperate desire for taxi services, he can't raise his rates by even a penny. He has no incentive to spend his Saturday evening sitting in Broadway traffic in the rain. Better to go someplace else where a passenger can be found with less hassle. (As a former cab driver I am intimately familiar with these sorts of trade-offs.)

So now comes Uber, which solves three problems: triangulation, transfer, and trust. Triangulation is the problem of the driver finding the passenger--the phone tells him exactly where you are. Transfer is the problem of getting you to your destination--the driver already knows where you're going along with the best route to get you there. Finally trust means that you've already given your credit card information--the driver knows he's not gonna get stiffed. And further, the driver has been vetted by all his previous passengers--you are unlikely to be assaulted or robbed.

Beyond which, Uber knows where more cars are needed. No, it doesn't keep track of when the theaters let out, but it realizes that all of a sudden lots of people on Broadway need cabs. So to incentivize the drivers to put up with the traffic, a "surge" is added to the price--which means you'll have your cab within 10 minutes. (Uber now gives you the option to pay a cheaper rate, in exchange for waiting until all the surge payers have already gotten their rides.)

In short, Uber clears the market. It's selling reductions in transactions costs. It saves passengers long waits in the rain, and it compensates drivers for putting up with traffic and hassle. It automates payment, security, and transfer problems, to the advantage of both passenger and driver.

Expand the Uber concept to all sorts of goods and services. Airbnb isn't selling lodging--instead it's selling a reduction in transaction costs for both landlord and tenant. Uber itself is expanding its business in the form of Uber Eats--again not selling take-out food, but instead a reduction in transaction costs.

Mr. Munger argues that this transition from selling products to selling reductions in transaction costs will be as profound a change as the Neolithic and industrial revolutions--Tomorrow 3.0. Somehow I doubt that, but there is no question it will change the way we live.

One implication of the Uber model (especially after robots start doing the driving) is that people won't see any need to buy their own car--they'll just rent a ride when they need one. The result is the automobile market will be far smaller than it is today. So auto workers are gonna be put out of work, and not just because of automation.

Similarly, Airbnb easily puts all hotel front desk and reservations office employees out of a job. Indeed, it likely erases the distinction between a hotel room and an apartment. People--according to Mr. Munger--will be much more likely to rent. (Count me skeptical--most people want to put down roots.) Similarly, take-out food with sharply lower transaction costs competes with the home kitchen--the market for kitchen appliances goes south.

In short, a reduction in transaction costs means that 1) many more items will be rented rather than purchased, implying that 2) less space will be required for storage (you don't need to park your Uber car), and 3) a much smaller market for manufactured goods.

Yesterday we bought personal computers with big hard drives. Today we buy software as a service and store our stuff in the cloud. The size of your computer's hard drive becomes irrelevant. Mr. Munger suggests the same trajectory for many manufactured products--we'll rent them rather than own them, and the need for large garages and extra storage lockers will decline accordingly.  Further, manufacturing firms will also avail themselves of the reduction in transaction costs by sourcing their products from whatever facility in the world is cheapest.

Two things will result from this trend. First, many people, if not completely unemployed, will experience significantly lower wages. And second, prices for manufactured items will decline dramatically. (See my piece, Getting Richer While Feeling Poorer for a description of this trend.)

Mr. Munger describes two phenomena: saltation and separation. The former is a dramatic change in lifestyle because of a disruptive change in technology. Mr. Munger cites a woman named Parisa--a burkha-clad lady from Herat, Afghanistan, not permitted to attend school. But she had a smartphone through which she enrolled in coding class, enabling her to write apps that she posted on Github, for which she was paid in bitcoin. It earns her a first-world income. She's a beneficiary of saltation.

Separation, meanwhile, refers to those who can't adapt to new technology. Consider Parisa's hypothetical cousin (not mentioned by Mr. Munger) who was a seamstress--until the dramatic fall in apparel prices rendered that profession completely obsolete. She wound up unemployed.

The dual trends--saltation and separation--will blur the distinction between the advanced and developing world. The beneficiaries of saltation will get rich, regardless of where they live. Those who are separated, meanwhile, will become poor, again independent of location. Global inequality will grow--not between countries but within countries.

Mr. Munger's solution to a world in which large numbers of people are unemployed is a Basic Income Guarantee (BIG), also known as a negative income tax. In his version, BIG will replace all other social welfare spending: food stamps, housing vouchers, education costs, social security, Medicaid, etc.--maybe even Medicare. Everybody (not just poor people), in lieu of the panoply of vouchers will instead get cash--perhaps as much as $20,000/year per person--just for being alive.

I'm not against the idea, though I think it's a political non-starter.

There's lots more in Mr. Munger's book. It's well worth the read.

Further Reading:

• Crypto as a Global Currency
• Arnold Kling's Moonshot
• Book Review: The Complacent Class

Taxi Troubles

A headline on today's Drudge Report reads "UBER Drivers Protest Over Lowered Fares In NYC..." But the linked article doesn't claim that: instead it reports that primarily Yellow Cab drivers were protesting Uber's lowered fares. And for good reason--the move potentially puts them out of business.

Uber announced that it is lowering it's fares for UberX and UberXL by 15%. Of course given the decrease in gas prices that makes some sense (though that's unmentioned in the article).

But it's driving the medallioned Yellow Cabs crazy. "Beleaguered yellow cabbies say they can’t compete with the lower fare since their rates are determined by the Taxi and Limousine Commission." Hoist on their own petard, I'd say, since until now the cabbies have been hiding behind the medallion to protect their monopoly. But now they've woken up on the wrong side of the issue.

A few Uber drivers joined the protest, claiming that the reduced fares would hurt their income. Not true, claims the company. "Uber is guaranteeing drivers who work the minimum will make more, and if they don’t, Uber will pay the difference. Spokesman Josh Mohrer adds that the ultimate goal is to reduce the use of personal cars."

Put another way, the lower fares will reduce the profit per trip, but the difference will be made up on increased volume. But only full-time drivers will generate the volume necessary to increase revenue. So Uber calculates that it will a) generate more total revenue for the firm, much of which will be shared with the drivers, and b) professionalize its workforce by discouraging part-time and casual drivers.

It sounds like a win on all counts. But it will put the Yellows out of business, and maybe sooner than anybody thinks.

For recently the Yellow Cab companies in San Francisco and Chicago have both declared bankruptcy. In both cases it's because they lost liability lawsuits because of accidents. The Chicago firm (my employer for about a year in the 1970s) is on the hook for about $26 million. The much smaller San Francisco company owes $8 million.

Two points can be made. First, these sound like one-off events. But liability is something all cab companies have to deal with. The sums involved are relatively paltry--a company with a strong balance sheet or good insurance should be able to survive this.

Second, it illustrates an Achilles heel for the medallion companies--they can't keep their workforce. Good, professional drivers will make more money with Uber, and that's where they're going. The Yellows, meanwhile, are left with the dregs--part-timers with spotty driving records. Indeed, the photo below can hardly inspire confidence in cab safety.

Chicago Yellow cab and victims
(Clifford Law Offices via Chicago Tribune)

It completely negates the long-standing taxi argument that the medallion somehow equates with safety.

Bill Onasch, over at Socialist Action, points me to an article at LaborNotes.org, a useful site reporting on labor news. There Sonia Singh authors a piece about an attempt to unionize Uber drivers in Seattle.

The drivers, who are mostly Somali and Eritrean immigrants, have gone to the city council and gotten a resolution allowing them to unionize. Uber has taken the issue to court, where it will likely languish for several years.

Nevertheless, Teamsters Local 117, which already organizes cab drivers, has set up the App-Based Drivers Association. During my stint at Chicago's Yellow Cab I was a member of the International Seafarers' Union, a mob-run outfit if there ever was one. It's doubtful the Teamsters will be more honest, for if they're successful they will generate a permanent revenue stream from Uber drivers. The temptation to skim off the top will be hard to resist.

Ms. Singh asks "will drivers sign up? Ajema is confident this will be the easiest part, even though he expects Uber will try to dissuade them." Count me skeptical. I think this whole effort is a non-starter.

So the taxi industry is changing faster than anybody predicted. I think that medallion cabs will be out of business across the country within the next five years.

Further Reading:

• Book Review: Walmart
• Precarious Taxis
• Working on the Railroad

Precarious Taxis

This post has two parents: an interview with Charlie Post, reprinted in International Viewpoint, the official publication of the Fourth International. (I have added them, belatedly, the This Blog's Beat.) And also Mayor DeBlasio's fight with Uber, which he has now lost decisively.

Mr. Post takes issue with the word precariat as a useful descriptor of social reality. That's a portmanteau of the words precarious and proletariat, and denotes those who work part-time, and/or without benefits, and without any job security. Mr. Post doesn't dispute the growth of the precariat workforce, but he sees it as in no way distinct from earlier historical patterns.

If you look at the condition of workers before the First World War, say in the 1890s, the vast majority of working people lived an incredibly precarious existence. I was doing some research on skilled workers in Victorian England, the so-called labor aristocracy. Most of these people were working half the year, subject to long bouts of unemployment, and if they were out of work they could lose housing. ... The sense of what most people alive today thought was “the norm,” was actually the historical exception.

Mr. Post attributes the recent rise to "neoliberalism," an ill-defined term that suggests a capitalist offensive to lower workers' standard of living.

When I was much younger, in my late teens and twenties, I was first radicalizing in the 1970s, and I had a lot of friends who’d get jobs at the post office or the Brooklyn Navy Yard. They knew that if they got laid off or fired for political activity, they could collect unemployment, get food stamps, probably get on Medicaid, or they could pick up another job quickly. Since the successful neoliberal offensive, we have seen that it is much harder to get full-time employment that have social benefits, and in general the welfare benefits have degraded or disappeared. 

The consequences of getting laid off or fired today are much more severe today than they were just a few decades ago.

While Mr. Post's friends were working at the Brooklyn Navy Yard, I was a cab driver in Chicago. I began working for Checker Cab Company and had to join the International Seafarers Union. This was a corrupt, mob-run outfit whose only function was to collect dues from the drivers. For the first couple of months they took about a third of my paycheck as an "initiation fee"--the best way to rip off a precariat worker. After that it was a mere 10% fee. With Checker I was paid a commission off the meter, along with tips.

After a year or so at Checker Cab, I moved over to Flash Cab, a non-union, "Jewish" company operating mostly on the city's far north side. They ran a good radio dispatch service. There I rented the cab for a twelve hour shift and paid for my own gas, keeping whatever was left over. That was sometimes over a hundred dollars (a lot of money in the '70s), and occasionally I lost money. Typically I earned about $30 for a ten-hour day.

I drove a cab partly for the money, partly because it gave me proletarian street cred (I was a union member after all, though they were too cheap to send me a card), and mostly because I enjoyed it. Neither company offered me any benefits.

So I'm familiar with the precariat.

An Uber-funded study (which I'm inclined to believe) shows that Uber cars are slightly cheaper than Yellow taxis, and in any event are much faster and more reliable. (See here.) I've been thinking about driving for Uber as a part-time retirement job.

There is much debate over whether Uber drivers earn more or less than cabbies. I don't know. But the Uber folks have many advantages: 1) They're safer. All customers come with a pre-approved credit card. No money changes hands in the car. 2) They can set their own work hours. I had a lot of flexibility working for Flash, but my shift started at 5pm, whether I liked it or not. Uber drivers have no such restrictions. 3) Uber drivers are earning equity in their car. Indeed, that's an important consideration for me. I can work for Uber for a year or two, and at the end I'll have a car for the rest of my life, clear and free.

So Mr. Post will have us believe that this is all an evil plot by neoliberals to screw the working class. I don't think so, though everything comes with trade-offs. But there is one, undisputed beneficiary from all of this change: the consumer. Consumers get better taxi transport at similar or lower prices from drivers with an equity stake in providing good service. They come out a winner no matter what.

And that's what Mr. Post (or any Marxist) does not understand. The beneficiary of a precarious workforce is neither the neoliberal capitalist nor the employee, but rather the consumer. The purpose of a capitalist economy is to sell as much high-quality stuff as possible at the lowest possible price to the most consumers. In that, Uber is indisputably better than the over-regulated Yellow Cab industry.

So here's a more concise definition of the precariat. A precarious worker is somebody whose income is sensitively determined by market signals. Or, put another way, there's no buffer between the worker and the market. The cab driver, the shop keeper and the restaurateur are all members of the precariat, as are their employees, e.g., at McDonald's or Walmart.

Seen this way, it's obvious that precarious workers benefit consumers. And that's why Mr. Post is wrong when he regards the trend as an "offensive" against the working class that will lower their standard of living. To the contrary, it will raise the standard of living of consumers, which also includes all workers. Cheaper cab fares for everyone!

The opposite of a precarious worker is somebody whose income does not depend on market signals at all. This certainly includes most government employees, who get paid whether or not they actually do anything useful. Mr. Post and I, for example, are both employees of public colleges. We're not precarious, but instead we're parasites. Our income derives from scamming eighteen-year-olds and mooching off the taxpayer.

Mr. Post favorably cites a fellow academic, a certain Kevin Doogan. Mr. Doogan is the author of New Capitalism, a book that sounds interesting. It's so good, in fact, that it's a top 1,740,000 best seller on Amazon. You'd think it'd be in the bargain basement by now, but no, even on Kindle it costs nearly $20!

Mr. Post is himself an author of The American Road to Capitalism, followed by a very long subtitle. That's done better, in the top 1,300,000 books sold. It's not available on Kindle, but you can buy a paperback copy of your very own for under $29.

That's how out of touch these guys are. They're not writing for actual readers. Instead they're just sucking up to referees and tenure committees.

Your tax dollars at play.

Further Reading:

• Capitalism Just Won't Sit Still
• Paul Le Blanc & the Minimum Wage
• Robots of the World, Unite!