Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 26 September 2017

Uber and the anti-regulations bandwagon

The news that Tfl, the regulatory body for transport in London, had banned Uber because of regulatory failures brought out the usual suspects to support or condemn the move. In addition, the company organised an online petition to reverse the decision, which half a million people have signed. Tyler Cowen declared: “The new Britain appears to be a nationalistic, job-protecting, quasi-mercantilist entity, as evidenced by the desire to preserve the work and pay of London’s traditional cabbies”, and plenty of others took a similar line.

What always strikes me on these occasions is how people can jump to conclusions without any evidence. Now it is certainly true that licensing authorities can be captured by, and therefore favour, incumbents and therefore stifle innovation. They can artificially restrict numbers to drive up prices, although Tfl do not do this. But the fact that this happens sometimes does not mean it is happening every time. Equally companies like Uber can believe that they are so big and popular that they can ignore regulations, regulations which are designed to make the market work. [1]

It is important to note on this occasion that Uber have not complained about the regulations. Instead they initially said they had complied with them. Surely the time to write articles condemning Tfl’s decision is after Tfl lose the appeal brought by Uber in the courts.

However there is public evidence in this case. We do know the that as recently as August, a Metropolitan Police Inspector wrote to TfL about his concern that the company was failing to properly investigate allegations against its drivers. Between May 2015 and May 2016 the police investigated 32 drivers for rape or sexual assault of a passenger. It appears there has been at least one case where the police allege UBER allowed a driver that had been accused of sexual assault to stay on their books, leading to another ‘more serious’ attack on a woman in his car. Here is part of the inspector’s letter:
“My concern is twofold, firstly it seems they are deciding what to report (less serious matters / less damaging to reputation over serious offences) and secondly by not reporting to police promptly they are allowing situations to develop that clearly affect the safety and security of the public.”
Uber’s boss yesterday apologised for the mistakes they had made. Whether these mistakes are serious enough to warrant revoking Uber’s license the appeals process will decide, or most likely Uber will be allowed a new license on condition that they start taking regulations seriously.

What worries me in this case is the lack of any self-awareness of those who piled in to condemn the regulator without any evidence. Ten years ago the world experienced a devastating financial crisis that was due, at least in part, to a failure of regulations and regulators to do their job that was in turn due to political pressure from those who took a similar attitude to regulations as those championing Uber. And just three months ago around 80 people lost their lives in London from a fire that almost certainly was the result of a failure to comply with regulations.

Regulation bashing has since the financial crisis become one more example of neoliberal overreach. When the two political parties that brought us neoliberalism have today brought us Brexit and a President who seems to want to start a nuclear war, it is time for neoliberals to be thinking about reform rather than just playing the same old tune. Thinking about all that and the 500,000 who signed the pro-Uber petition brought to mind a song of a well known nobel laureate called Talking WWIII Blues, the last verse of which is

Well, now time passed and now it seems
Everybody’s having them dreams
Everybody sees themselves
Walking around with no one else
Half of the people can be part right all of the time
Some of the people can be all right part of the time
But all of the people can’t be all right all of the time
I think Abraham Lincoln said that
“I’ll let you be in my dreams if I can be in yours”

I said that

[1] There is also the question of why Uber rides are cheap, and whether it is making losses simply to drive out the competition, but that is a different issue. 

13 comments:

  1. "Osborne, the editor of the Standard, is paid £650,000 a year by fund manager BlackRock for working four days a month as an adviser. BlackRock has a stake in Uber worth an estimated £500m."

    (Guardian, Graham Ruddick, 25 September 2017).

    The stereotypical Black Cab driver, "Fatcher! I'll tell you what's so great about Fatcher...", turned on by his own Conservative elite.

    The times they are a changin'.

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  2. MY EMAIL (SPAM) TO THE CHICAGO CITY COUNCIL ABOUT UBER:

    If you want Uber to survive, you don't want taxicabs to survive. Those are the only options. Uber is burning through billions of new investor dollars (betting is against it) -- subsidizing rides up to 40%; outlasting cab companies its only chance.
    http://www.vanityfair.com/news/2017/04/uber-is-losing-an-insane-amount-of-money

    I'm a cabdriver, not a lawyer, but doesn't what Uber is trying to do sound a lot like a classic anti-trust violation -- in intent at least?

    When I started with Flash cab in 1981 the meter was .90 a mile -- $2.54 in today's money. Today's meter is $2.25 a mile. But US per capita income increased 50% since 1981.
    https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=.90&year1=198101&year2=201708

    One thing that could be done immediately to help taxicabs survive Uber's burn would be to raise the meter $1 a mile (to only 75 cents above 1981). Talk of people leaving Chicago aside -- our college educated crowd grows 1% a year.

    Which may be the only thing helping cabs survive this far; "yuppiedom" seems to have doubled or tripled from what I can see on the ground since I moved here in 1980. Their incomes have kept up with growth -- and do you really want to live in a world class city without a taxi industry. Can you imagine?

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  3. How common are problems with other cab companies? Is Uber much worse?

    Should consumers have the right to choose Uber even it is more dangerous, given its problems have been widely publicized?

    There would seem a difference between hurting those who knowingly assume risks (or at least, those who assume risks they would know about if they were paying attention) and those who don't.

    The financial crisis caused problems for everyone, whether or not they were engaged in risky transactions. Is Uber causing problems for third parties (beyond the usual problems of cars interacting with innocent third parties, e.g., hitting pedestrians)?

    The people who died in the London fire did not knowingly agree to assume the risk.

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    Replies
    1. The point the police were making is that Uber were not reporting more serious incidents because they didn't want the adverse publicity. Otherwise, why not report?

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    2. Would you allow Uber to be licensed if they did a better job of reporting?

      Aren't victims talking to the police? That would seem an effective reporting method.

      Anyone who's reading the news is aware of Uber's problems and that there's some risk. If the police believe riders are not aware, they can publicize the issue.

      Delete
    3. Bander'
      Uber is subsidizing rides to 40% reportedly -- losing billions a year -- hoping taxis fail. If Uber were charging fares commensurate with what it takes to keep vehicles on the street I wouldn't object much if at all. Drivers would get closer taxi driver income. Of course these days that can be pretty miserable in lots of places too.

      Anyway, I used to drive my gypsy cab in the Bronx in the late '70s. But Uber is just another rung on the race to the wages (no benefits) bottom.

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    4. Your last point hits a huge nail on the head.
      Regulation arises, hugely, as protection against risks (very separate argument about regulations in council, Vs parliamentary regulation).
      Regulations are predominantly retrospective, fixing problems that have occurred, but may recur in future. (Would that our politicians could see the future coming, but enough trouble with past, never mind present...)
      Putting aside arguments about right or wrong of individual regs, the argument about deregulation (a core tenet of the neoliberal project) is about removing protection from those previously deemed not able to protect themselves against those risks. Said like that, deregulation as an ideological value is easily characterised as close to evil. I find it hard to disagree.
      That begs questions about the role of government, which we rely upon to write these regulations.
      In the modern complex world, which none of us can comprehend in its entirety, we have come to rely on government to protect us from risks we cannot recognise, manage or mitigate. (Insurance companies can do the obvious risks)
      While many risks come from external agents of aggression, hackers, criminals, foreign states, etc., many (back to economics and Uber at last) come from businesses trying to succeed at their 'mission'. The drive to succeed, (my least favourite phrase is "do whatever it takes", which obviates any moral judgment by managers or staff) leads to corporately selfish behaviours, at the expense of customers, governments (avoiding tax), lack of oversight and governance, leaving gaps for unscrupulous workers to commit crimes, which the company may choose to overlook.
      As a result anything which threatens 'winning', or 'success', or my bonus, has to be overcome.
      Regulations and taxes now feature prominently in that category of things to be overcome, even for individuals who in private are quite normal, caring, generous.

      Delete
  4. Obviously you are scrupuloulsy objective in this matter, despite your air of glee at Uber's problem. But how much do you know about the safety records of the other cab operators in London?

    Interesting fact that blogger William of Ockham has gleaned:

    Some pertinent numbers might be useful. London has;

    44,000 Uber drivers

    3.5m customers

    Around 50 sexual assaults a year by Uber drivers

    Around 125 sexual assaults by other taxi drivers per year

    Any number higher than zero is too high for sexual assaults but the relativity of the figures above make sense; a would-be attacker is less likely to do so if you’ve been able to identify him from a picture of his face and have a record of his car registration on your phone.

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    Replies
    1. But that is irrelevant. Why would Uber not report attacks to police? Think about it. (And there is no air of glee, that is your imagination.)

      Delete
  5. "And just three months ago around 80 people lost their lives in London from a fire that almost certainly was the result of a failure to comply with regulations"

    No you are objective...you can even pre-judge enquiries. How great is your knowledge of building regs?

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    Replies
    1. The information is out there - look at reports by Newsnight, for example.

      Delete
  6. This is a very fair summary of the specific issues raised by last Friday’s TfL complaint. I would add the procedural point that these are five year licenses, but TfL only granted Uber an interim 4 month renewal earlier this year because of its failure to address compliance issues, and last Friday’s announced suspension was because it had still failed to address them in that timeframe. So the process where TfL tries to get Uber to demonstrate that it will take these requirements seriously has been ongoing for some time. (for more details https://www.londonreconnections.com/2017/understanding-uber-not-app/)
    The focus on evidence is critical here. The TfL complaint suggests it has ample evidence that Uber fundamentally rejects the idea that it should have to obey the same legal requirements that its competitors do, and if one looks at Uber’s behavior elsewhere this evidence is overwhelming. While it attacked the TfL for threatening its driver’s jobs, in other jurisdictions (Quebec, Austin) it has suspended operations (and thrown its drivers out of work) rather than obey safety, licensing and insurance rules.
    I would argue that Uber’s systematic regulatory disobedience is actually an integral part of its business model, and that Uber’s investors have no possibility of financial returns unless they can effectively establish the right to disregard any laws and regulations that might limit its freedom of action. I have laid out the evidence for this in painful detail in an article just published in the Transportation Law Review, available https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2933177. Investor returns depend on Uber achieving the platform-based market power that Amazon and Facebook now enjoy. But rather than develop market dominance by finding massively more efficient ways to sell books or developing wildly popular new products, Uber’s growth and $68bn valuation is entirely due to predatory subsidies, designed to drive more efficient taxi companies out of business. The subsidies needed to achieve market dominance explains Uber’s $2bn loss in 2015 (a negative 142% profit margin) and $3bn loss in 2016. Uber’s regulatory disobedience is part of an overall strategy designed to create the impression that its domination of global markets was inevitable, and to intimidate any journalists and local officials that might challenge it (its open toleration of systemic sexual harassment was an obvious byproduct of a strategy that rejected any type of constraints on its freedom of action). Uber’s ability to openly flout local regulations rarely had a major short-term P&L impact, but they were critical to its longer-term goal of eliminating regulatory constraints on its ability to freely exploit artificial market power once market dominance had been achieved. Assuming TfL could accept Uber’s word that it will obey its rules going forward assumes facts not in evidence.
    (will be continued below)

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  7. (continued from above)
    The Tyler Cowen reference is also critical to any discussion of Uber and “evidence”. As the TLJ article explains in detail, Uber’s public support is largely due to a massive PR/propaganda narrative that was copy/pasted from a major 1990s US taxi deregulation campaign funded by Koch-backed “think tanks” that combined massive misrepresentations and outright falsehoods. Everything in Uber’s narrative is wholly inconsistent with actual evidence of taxi industry economics. Uber has not grown because consumers and drivers made free choices in competitive markets—Uber grew because it could use $13bn in funding to destroy the price signals competitive markets require. Uber will not naturally grow into profitability like Amazon and Facebook because it has neither scale nor network economies. Uber’s app is not a powerful innovation—it is trivial compared to similar systems in other industries, and has no impact on overall cost efficiency. Uber is not fighting a heroic battle against an Evil Taxi Cartel and corrupt regulators (like the TfL) who want to protect a world with high taxi fares, they are fighting to destroy competition and the right of local citizens to ensure that taxis contribute efficiently to the overall urban transport network. When Uber is questioned, they unleash armies of lobbyists, threaten to expose the personal life of critical journalists, and stage manage petitions from users who have no idea how heavily their service has been subsidized. And the Tyler Cowens of the world immediately opponents as “nationalistic, job-protecting, quasi-mercantilist[s]” who are unbelievably trying to “politicize and polarize opinion on what should be more narrowly technocratic issues” while claiming the TfL will victimize poor people. These are not inadequately documented claims, these are examples of deliberate, willful misrepresentation on behalf of monopoly seeking Silicon Valley billionaires.

    ReplyDelete

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