Editor's note: This piece from our November 2014 issue is an excellent look at the inner workings of Uber, especially on the heels of disturbing comments from Uber executive Emil Michael this week.
They’ve been seducing city governments for the past year with promises of upping the area’s cool factor and attracting trendy, high-tech, innovative businesses by mere association with their brands. All you have to do, they claim, is to get rid of your outdated, anachronistic laws regulating taxicab companies and—voila!—you can sit back and watch your reputation among the rich, hip kids grow and with it, your city’s economy.
Uber and Lyft claim they aren’t taxi companies. They call themselves technology companies that contract with “partners” to do the driving, and therefore shouldn’t have to follow the same rules as other taxi companies.
The business model of these so-called transportation network companies is based on exploiting the labor and capital investments of people who use their personal cars as unlicensed taxis.
In an interview with Fortune magazine last year, Uber CEO Travis Kalanick described his company this way: “I mean, the way we look at what Uber is, it’s the cross between lifestyle—which is, ‘Give me what I want and give it to me right now’ . . . like instant gratification—and the logistics to get it to you, right?” In an interview this year, he called the taxicab industry an “asshole.”
Lyft has a friendlier, less crass pitch to potential customers and investors, claiming they are part of the so-called sharing economy by connecting unused seats in cars with people who need rides. They leave out the part where money is exchanged. That’s kind of like connecting unused cups at a house party with college students walking down the street, or McDonald’s connecting people with hamburgers.
Both companies claim to be “disruptive innovators” that shake up the status quo in the out-of-date taxi industry that still relies on human beings to do the work of matching people with rides through dispatch offices.
But there is nothing innovative about serving the function of an exploitative middleman.
In fact, it’s as old as the unregulated market itself.
In this unregulated market, workers can get exploited, price gouging can arise, and the risks to public safety can escalate.
Drivers sign up to be “partners” with Uber or Lyft and access customers through a smart-phone app. Customers give their credit card and social network information to the companies, and then sign into the app and request a ride from the nearest available “partner.” The company takes 20 percent of the charges off the top and the driver keeps the rest.
Drivers are responsible for all operational and maintenance costs. Most people who drive for Uber and Lyft do not carry commercial insurance and are, in fact, committing insurance fraud by not disclosing to their insurer that they are using their vehicle for commercial purposes.
If drivers are injured on the job, they are not covered by workers’ compensation. All the risk and capital investment are shouldered by the driver, while the fat cats at Uber and Lyft headquarters in San Francisco reap a risk-free reward.
Uber claims to be matching supply and demand for rides through what it calls “dynamic surge pricing.” When demand for rides outstrips the current supply of drivers, the price for rides multiplies, sometimes up to 775 percent. That’s what happened to New Yorkers last winter during a blizzard, when at least one customer was charged $132 for a six-block ride.
On New Year’s Eve in San Francisco, a man who was allegedly logged in to Uber’s system and had passed a background check as a driver for the company ran over and killed six-year-old Sofia Liu. Her family is suing the company, which has denied any wrongdoing.
In other incidents in Washington and Los Angeles, Uber drivers allegedly kidnapped passengers. One driver took a drunk woman to a cheap motel and spent the night with her, according to the Los Angeles police.
Local and state governments are trying to find a way to deal with aggressive marketing by Uber and Lyft. California and Colorado have passed laws regulating the companies. Public service commissions in Nebraska and New Mexico, as well as the Virginia Department of Motor Vehicles, have placed explicit bans on their operations.
Some cities—including Baton Rouge, Chicago, Columbus, Detroit, Houston, Los Angeles, Milwaukee, Minneapolis, Seattle, and Washington—have passed local ordinances to govern them. Ann Arbor, Memphis, and St. Louis have taken a harder line, issuing cease and desist orders, impounding vehicles, and levying fines on drivers.
North Carolina went the other way and actually passed a law prohibiting municipalities from regulating what they call “digital dispatch” services. This effectively gives Uber free rein to operate anywhere in the state without having to abide by taxicab ordinances.
Twenty-one states have now issued consumer alerts warning the public that anyone who steps into an Uber or Lyft vehicle takes a big risk, and the University of California is considering barring employees from using these services during business trips citing liability concerns.
Uber is responding by bringing out the big guns. In August, Obama campaign manager David Plouffe joined Uber as a senior vice president of policy and strategy, and in mid-September former Defense Secretary Robert Gates signed on as chair of the advisory board to UberMilitary, a program to recruit veterans (and their personal vehicles) as “partners.”
In an attempt to build political support, Uber also sponsors big national conferences and offers discounted fares for attendees. Last summer it sponsored Urban Shield, a weapons and tactics convention in Oakland. It also used Mothers Against Drunk Driving to promote its service over the Fourth of July weekend.
And the company is recruiting its customers to lobby on its behalf. Uber offers free and discounted rides to new users, and then tries to turn them into political supporters to fight the corporation’s battles with local and state government. Since there is actually no corporate office or local staff in most of the cities in which it operates, Uber exploits the time and energy of its “partner” drivers and customers to wage its ground wars on its behalf.
Uber’s strategy and ideology perfectly mesh with the rightwing attack on government regulation, and it makes no bones about that. It has joined forces with the Republican National Committee and Generation Opportunity, an astroturf group backed by the Koch brothers, to inundate social media with pro-Uber propaganda urging support of the free market and innovative entrepreneurs.
It has also gained the support of government-drowner Grover Norquist. In an opinion piece for Reuters’ website, Norquist explained why Republicans are so keen on promoting Uber. His piece was entitled: “Why Uber Can Help the GOP Gain Control of the Cities.” These new-fangled taxi companies “are favorites of city dwellers, which means most of the leading Democratic constituencies—including educated professionals, gays, minorities, single women and working mothers,” he wrote. “Cities may soon be up for grabs. For the party’s refusal to embrace the innovative technology and disruptive businesses that have greatly improved city life presents a challenge to Democrats — and an opportunity for Republicans.” He hailed the companies as shining examples of the post-union “share economy.”
Uber and Lyft entered the market in Madison, Wisconsin, this February, kicking off a major political battle.
“This is more than a discussion about taxicabs. It’s about place and values,” Paul Soglin, the mayor of Madison, said as he began his presentation to a city committee charged with exploring ordinance changes to regulate Uber and Lyft.
Reminding committee members that regulation exists to “bring equity to the marketplace and to ensure the health and safety of the public,” Soglin mounted a vigorous case for thorough regulation.
Madison Alderperson Scott Resnick, vice president of a mobile app development business and candidate for mayor running against Soglin next year, has proposed ordinance changes that are geared toward “finding a path forward for these companies to operate” in Madison.
Soglin insists that the city should not be in the business of writing ordinances in the interests of specific companies, “particularly a company whose specific strategy is to violate the law as a marketing strategy, which tells you something about their core values.”
At the U.S. Conference of Mayors gathering in Dallas last June, Soglin proposed a resolution that affirms the right of cities and municipalities to regulate the industry in order to protect the public and provide equitable, competitive service. Soglin reported that the resolution was unanimously adopted in committee with more than forty mayors voting.
But when the resolution got to the floor of the whole conference, Sacramento Mayor Kevin Johnson, the current president of the U.S. Conference of Mayors, called for a vote to postpone indefinitely Soglin’s resolution. The vote passed and Soglin’s resolution effectively died.
After the conference, Mayor Johnson filed a reporting form with the city of Sacramento revealing that Uber had donated $50,000 to Johnson’s newly formed nonprofit organization, the African American Mayors Association.
There’s evidence of other ham-handed lobbying tactics in the conference transcript: Tallahassee Mayor John Marks rose on a point of order to ask how his name got to be on an unauthored document being distributed to conference delegates opposing Mayor Soglin’s resolution.
Soglin may have better luck in the city he governs. In his presentation to a local committee, Soglin noted that the public transportation system should be “meeting the real needs of real people” in the community.
To operate legally in Madison, taxicab companies must offer twenty-four-hour service seven days a week, accept calls to and from every neighborhood in the city without refusing a ride to anyone except those who exhibit “violent or indecent behavior,” have a uniform color scheme for the fleet with rates posted on each vehicle, maintain adequate commercial and liability insurance, and undergo yearly meter and vehicle inspections. Drivers must be fingerprinted and have their criminal backgrounds checked by the police.
Uber and Lyft refuse to follow these basic and commonsense rules on the ridiculous grounds that they are actually tech companies.
But the truth is, their profit margins are predicated on low overhead and shifting costs and risks onto drivers. Their innovative, disruptive business model would simply not work if they had to shoulder the costs of commercial insurance, licensing, vehicle maintenance, and oversight of drivers.
The four existing taxi companies in Madison all work with the city, county, and local school districts to fill gaps in the public transportation system, taking homeless kids to and from school, getting people who rely on Medicaid to and from their medical appointments, and providing transportation between midnight and 5:30 a.m. when the public bus system is shut down.
If Uber and Lyft continue to operate in the city, cherry picking the most lucrative hours and confining themselves to the parts of town where wealthier passengers live, the four legitimate cab companies that follow all the rules will lose an important segment of their business that allows them to perform the other public service functions.
It is not in the city’s interest for any one of the existing cab companies to go out of business.
Madison’s city attorney has issued a warning to Uber and Lyft that they are operating illegally and that unless they follow the existing regulations and become licensed, the city will take steps to enforce the law.
Alderperson Scott Resnick proposed that Madison copy provisions from ordinances written in “cities with values similar to ours like Minneapolis and Seattle.” To that, Soglin retorted, “I don’t care about other cities.”
He added, “We need to look at the poisoned atmosphere in these other cities and the size of checks that Uber and Lyft have written to people to pass that legislation. . . . Let’s write our own ordinance that creates the kind of city we want.”
Rebecca Kemble is a contributing writer for The Progressive and a member of the Union Cab worker-owned cooperative in Madison, Wisconsin.
Image credit: Lyft