In Defense of Uber

Uber

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I don’t usually read socialist material (although I did read Keynes’ General Theory once, though that is more Fabian socialist than socialist proper), but I’m going to start now. I enjoy exploring a variety of intellectual traditions, including those that diverge from my personal beliefs – I think it helps keep me sharp. But socialism as an economic theory is nonsensical, due to the calculation problem. Without the market system of prices, a socialist economy would have no rational way to allocate resources. Because of this, I’ve mostly ignored economic writings of a socialist bent.

However, while reading a recent article at Jacobin Mag called “Against Sharing”, railing against the alleged corporate greed of Uber and other peer to peer companies, I realized that there is more to gain from reading this kind of material than merely seeing poor economic arguments rehashed over and over again. Actually dissecting the beliefs that socialists hold and the rhetoric they employ can be highly instructive. As such, I’d like to respond to some of the claims made in this article.

I’ll let the author, Avi Ascher-Shapiro, provide a summary of his claims: “’Sharing economy’ companies like Uber shift risk from corporations to workers, weaken labor protections, and drive down wages.” A fairly predictable panoply of criticisms, all of which are neutralized by the fact that

  1. Employees of Uber and any other company voluntarily choose to work there.
  2. If Uber didn’t exist, consumers would not be experiencing the benefits that it provides, and the workers wouldn’t either. They would just have to choose from the more limited selection of other available jobs – jobs which they find less preferable, as evidenced by the fact that they haven’t gone to work at them despite being free to do so.

These facts are trivially obvious, yet supporters of free markets constantly need to point them out. I whole-heartedly welcome a socialist/progressive response to these points.

Anyways, the article itself is well written and I think would be convincing to a lot of people who haven’t already been inoculated against these arguments with an education in basic economics. But it is all smoke and mirrors – mere wordplay which cleverly obfuscates the problems inherent in socialist (and most leftist) economic analysis. Unfortunately, many people will simply absorb what they read uncritically; the simple and obvious rebuttals don’t come to mind.

With that, I’d like to dive further into the article (I suggest you read that article, linked above, to get a better idea of what I’m saying here. It is fairly short.). Much of the evidence advanced in favor of his points are quotes from disaffected Uber drivers – an excellent device for writing convincing prose, but hardly a substitute for real argument. You can find employees of any company in the world who are more than willing to complain about their employer, but human action speaks louder than words.

Almost everyone complains about their job at some point, but the vast majority choose to remain at them because they ascribe a higher value to the mediate effects of their labor (that is, getting paid) than they do to the disutility of labor (that is, their distaste for work). When this relationship fails to hold, people quit, and it their quitting that alerts us onlookers to their change in valuation.

As such, we can largely dismiss this “evidence” out of hand. Yes, there is certainly something to be said about using examples of real people in an article such as this one, and I applaud Mr. Ascher-Shapiro for using them in a convincing way. However, they do little to prove his claims. Let’s move on.

Apparently, one of these Uber drivers chooses to lie about enjoying his job when customers ask about it. Why?

“After passengers finish a ride, Uber asks them to rate their driver on a scale from one to five stars. Drivers with an average below 4.7 can be deactivated — tech-speak for fired.”

Ascher-Shapiro writes of this as though it is a bad thing for companies to try to satisfy their consumers. It’s a simple rhetorical trick; make it seem as though employees are forced to lie so as to avoid getting fired, and this is a factor that makes the job less tolerable. The implied logic is circular: Uber employees must do something immoral (lie) in order to keep their job, which makes their job unpleasant. But that assumes that the driver did not like their job in the first place. Someone who does enjoy driving for Uber will find the point completely irrelevant, and someone who doesn’t enjoy it is already in that position, which they’ve brought on themselves for choosing to continue working there.

One can certainly argue that Uber’s firing policies are misguided, and they very well might be. But the market, made up of many individuals’ human action, will determine that. If Uber fires so many people at will for inexplicable reasons, people will be far less inclined to become Uber drivers – forcing Uber to change their policies or let one of their numerous competitors swipe their drivers, the backbone of their business model. Differently stated, from an article on Forbes:

“And some drivers say that Uber is exploiting the opaque policy to fire them for speaking out against the company while saying it’s for another reason — or never giving a reason at all.”

Many companies will fire employees for speaking out against them, and my only response is: “duh!” If the author of that Forbes piece herself wrote a new article called “Against Forbes”, it would seem well within the purview of Forbes’s owners to fire her. It’s a very simple matter of property rights. In the same way that you have the right to kick someone out of your home if you don’t want them there, businesses have the right to fire employees at will, even for wholly irrational reasons. In this case, Uber is firing employees for providing poor service or by trash talking the company – actions which can obviously lead to lower profits and more consumer dissatisfaction.

Okay – back to “Against Sharing”. What do Uber workers want?

“’We want the company to understand that we are not just ants,’ Joseph DeWolf, a member of CADA’s leadership council, told me at the Teamsters Union hall in El Monte, California. ‘What we want is a living wage, an open channel of communication with the company, and basic respect.’”

Of course, having an open channel of communication with the company and basic respect are important, and would likely result in both happier drivers and more profits for the company. I have no idea what these disaffected drivers feel constitutes Uber’s lack of respect, or what sort of communication is available or not. Either way, they are company policies that can be changed if they aren’t optimal, but that is a decision that drivers do not have the authority to make. They are stakeholders, not shareholders. They do not own the company, and thus do not have any right to make that kind of decision.

But what about living wages? There are so many problems with the concept of a “living wage” that it would be imprudent to go into too much detail here. Rather, I will discuss this very briefly and point you to my 6000 word tirade against the minimum wage.

How can a living wage be defined? What it takes to “live” varies considerably in different regions, and the definition of a “living” isn’t clear. Prior to the industrial revolution, even people of great wealth did not possess many of the things that most poor (though not the poorest of the poor) people enjoy today. Is a living wage merely enough to subsist, or is it enough to live “comfortably” (however that would be defined)? These problems are insoluble.

We also run up against the points I brought up originally – what would these drivers be doing without Uber? If Uber didn’t exist (and Uber’s ownership is under no obligation to continue existing and working – they are not slaves, after all), these drivers would have to look elsewhere for work, an option which is currently open to them anyways. The fact that they have chosen to work with Uber speaks far more loudly than whatever complaints they may have, even if there is some legitimacy to them.

Mr. Ascher-Shapiro then accuses Uber of luring unsuspecting drivers with a malicious “bait-and-switch” – originally, prices for rides were fairly high, but due to competition from Lyft, fares needed to be lowered. The 80% share that drivers get to keep of the fare was suddenly no longer enough. Even worse, the “bait” caused people to buy cars just to become Uber drivers:

“Drivers rushed to sign up, and thousands leased and bought cars just to work for Uber — especially immigrants and low-income people desperate for a well-paying job in a terrible economy.”

“Uber drivers have no say in the pricing, yet they must carry their own insurance and foot the bill for gas and repairs — a cost of 56¢ per mile, according to IRS estimates. With Uber’s new pricing model, drivers are forced to work under razor-thin margins. Arman, for instance, made about $20 an hour just a year ago. And now? Some days he doesn’t even break minimum wage.”

Yet again, these points are disingenuous. Uber didn’t make these people buy new cars. In fact, their marketing message on their website is aimed at people who already own cars:

Uber's policy

It is certainly an unfortunate circumstance for those people who bought cars anticipating a certain level of income. But uncertainty is a fact of life, and a given in the market. Not even pure socialism can smooth over uncertainty. Heck, even a socialist party wouldn’t pay its employees the $20/hour that they have been fighting tooth and nail for. And really, there is nothing special about the uncertainty inherent in becoming an Uber driver – people face this kind of risk in any career decision they make. I moved to a new city in order to work at my current job, but if my employer’s business goes south (or if I get fired), I will be left without a job. It would be inappropriate to blame the company for this, though I may feel some understandable resentment towards the company if this were to occur. It is completely appropriate for an Uber driver who bought a car for the job to be pissed about the circumstances they’ve found themselves in, but that is certainly not a rational argument for higher prices (which, for obvious reasons, is something that Uber’s management would prefer as well).

Nor is the uncertainty merely a downside – there is the possibility that prices will rise again. If so, drivers will reap the rewards.

“Arman often works up to seventeen hours a day to bring home what he used to make in an eight-hour shift. When he emailed Uber to complain about his plummeting pay, he said the company blew him off. Uber’s attitude is that drivers are free to stop working if they are dissatisfied, but for drivers like Arman who’ve invested serious money in their cars, quitting isn’t an option.”

Again, the frustration that drivers such as Arman feel is perfectly justified. The circumstances they’ve found themselves in are unfortunate, and they have every right to be upset. However, that imposes no obligation upon Uber or any other employer to maintain pay at consistent rates.

In fact, Uber is correct in this quote. Drivers are free to stop working if they are dissatisfied. Arman and others like him made a poor decision in buying a car here, but that doesn’t oblige Uber to support them. I’m unfamiliar with Arman’s circumstances and I have the benefit of hindsight, but frankly, it seems like a downright silly idea to have bought a car if only for this purpose.

And of course, buying this car in no way makes it so that “quitting isn’t an option”. In fact, if the pay has decreased considerably, that makes quitting a fairly attractive option, I would say. And now Arman has the benefit of a new car to open up various other job opportunities in locations that would have been inaccessible to him otherwise. I wish him the best of luck.

The implication of Mr. Ascher-Shapiro’s article is that Uber has some sort of obligation to pay its workers a certain amount of money, guaranteed. I’ve found this to be a common thread between many socialists and progressives (often exemplified in the concept of a basic income guarantee). What this amounts to is just a denial of personal responsibility on the part of these thinkers. Everyone has a responsibility to take care of themselves, but the socialist impulse is like that of Homer Simpson as Springfield’s Garbage Commissioner: “Can’t someone else do it?” The sentiment is understandable given all the existing interventions that make it systematically more difficult for people to take care of themselves (minimum wage, occupational licensing, regulations, monetary inflation, etc.), but the answer is to remove those things, not to add more interventions.

“Meanwhile, Uber acts as if it’s doing drivers a favor by offering them work in the first place. Uber CEO Travis Kalanick, who loves giving inspirational talks about innovation, often claims that Uber helps people ‘become small business owners.’ But working long shifts and forking over 20 percent of fares to a group of Silicon Valley app-engineers doesn’t really count as owning a small business.”

Yet again, Mr. Ascher-Shapiro takes an obvious fact and distorts it in a grossly misleading way. Uber does benefit drivers, and this is indisputable. If drivers didn’t benefit, they would choose some alternative arrangement. Of course, Uber isn’t doing them a favor; the benefits are clearly mutual.

And what about Uber taking 20 percent of the fares makes being a driver any less of a small business? All business owners have expenses, often including variable expenses that are in direct proportion to their revenues. For instance, shirt manufacturers must pay the cost of the cotton that goes into their product. And oftentimes, venture capitalists will own a stake in someone else’s business and take a percentage cut. In this case, it wouldn’t be too off the mark to say that drivers own an 80% stake in their driving business. And the benefits they get from “forking over” a percentage are enormous – I seriously doubt these drivers would find riders without the infrastructure that Uber has already built up.

As an aside, there ARE organizations that take a cut of peoples’ earnings in a way that is clearly exploitative, though you’ll never hear a socialist advocating against it. Governments, through income taxation, steal a considerable percentage of their citizens’ incomes, often significantly more than 20 percent. The difference between Uber and the government in this regard is that drivers submit themselves to this 20 percent policy on a purely voluntary basis; governments, on the other hand, will take your money whether you like it or not.

“But that is just empty spin: drivers aren’t partners — they are laborers exploited by their company. They have no say in business decisions and can be fired at any time. Instead of paying its employees a wage, Uber just pockets a portion of their earnings. Drivers take all the risks and front all the costs — the car, the gas, the insurance — yet it is executives and investors who get rich.”

I’d be curious to hear what Mr. Ascher-Shapiro thinks about entrepreneurs in general. Is he not aware that a major role of the entrepreneur is to front the costs and be subject to the risks of the market not valuing his idea enough for it to be profitable? Uber is not pocketing “a portion of their earnings”; it would be far more accurate to say that Uber is charging a fee for a service they provide (an infrastructure that allows would-be drivers to connect with would-be riders).

Uber may or may not be a well-managed company. I do not have the expertise to weigh in on this question. Many of the complaints that drivers may have against the company could be legitimate, in which case everyone will benefit from a change in policy. That being said, it is a gross mischaracterization of the situation to claim that Uber is exploiting drivers or hurting the working man.

Readers, I’d like to hear what you thought of this post. I rather enjoyed writing it, and I’d like to know if you guys would like for me to write more posts like this, where I dissect the arguments of some other intellectual or pundit. Please let me know in the comments. 

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Comments

  1. Reverend Draco says:

    When I was an owner-operator, we paid 25% of our “fares” to the prime hauler, which is/was industry-standard – granted, that included trailer rent – but still. . . just part of the cost of doing business. . .

    I didn’t realize we were being taken unfair advantage of. . . sunuvagun.

  2. Michael Price says:

    “They have no say in business decisions and can be fired at any time. ”
    I thought that Uber drivers decided how long they worked, when they worked, where they worked, what sort of car they drove. Correct me if I’m wrong here. Those sound like business decisions to me.

    • But Michael, you are ignoring that none of those decisions have anything to do with Uber paying them more without them putting in more effort!

  3. The drivers have the right to make life difficult for the company tell consumers about how the company treats them if it gives them leverage to get the company to pay them more and treat them better. This is a libertarian concept: Everyone using whatever leverage is at their disposal to gain as much profit as they can. Their responsibility to take care of themselves means than they can publicly shame the company in the hope that market pressure will make the company compensate them better, allowing the drivers to take care of themselves better.

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