Uber, Regulatory “Disruption”, and Class Power — Eamonn Gallagher

Uber and Amazon are frequent topics of discussion on both the left and the right. Both are often characterized as models for the kind of business that Silicon Valley aspires to nurture, with “the next Uber” becoming shorthand for brilliance in technological innovation. [1] Both are also often characterized on the left as particularly severe expressions of a new form of exploitation, one that involves “gamification” as well as innovations in contract law. [2]

Uber and Amazon have been venerated by the right and centre because they have been successful in “disrupting” various markets. One recent Financial Times article praises the “healthily disruptive impact the company [Uber] has had in many markets”. [3] Similarly, The Economist notes that “[t]he notion of disruption, with its promise to destroy the status quo and then renew it, is the most fashionable idea in global business”. [4] The term “disruption” does a great deal of work in these assessments, naming an opaque process of improvement and reimagination that is difficult to define but that affects the production and distribution of a range of goods and services. The term has become fashionable, and is often deployed by participants in the financing of “tech” startups to connote a large potential upside to investment and a particularly innovative and comprehensive approach to a given problem. Both such aspects of “disruption” stem from the reconceptualization of entire industries it is supposed to entail. Occasionally, this “disruption” tracks an actual trend in business practices or consumer demand; oftentimes it seeks out a problem that does not exist as an excuse to restructure an industry. For instance, Spotify and other streaming services have successfully “disrupted” the music industry by recreating it wholesale. WeWork’s imagination of a different type of office failed to displace normal cubicle farms. Dreaming of a better and more affordable taxi, Elon Musk accidentally sketched out an idea for buses. [5]

Uber has “disrupted” the taxi and transportation markets. For its part, Amazon has “disrupted” most every other form of consumption. “Disruption” has become both a status to be achieved and a process to be defined: “undisrupted” industries are presumed to be flaccid and inefficient, whereas newly disrupted ones are regarded as leaner, more responsive, more attuned to the society in which they exist; this status is attained through innovation of some sort, though it is generally unclear what that might mean other than a vague orientation towards some new technology.

In addition to being intelligible as a business strategy and a marker of a particular understanding of how capitalism should work, the process of “disruption” can be understood as an exertion of power by the capitalist class against the working class through the removal of legal restraints on production and distribution. It is worth considering the substantive content of the process of “disruption” and how this process changes the society in which it occurs.

First, how do these “disruptive” firms come to exist and thrive? Uber, a relatively clear case of such a firm, has raised somewhere in the neighbourhood of $20 billion in debt and equity funding since it was founded. Its revenue, however, has consistently failed to cover losses, leaving a yearly deficit. Most recently, this deficit amounted to $2.2 billion in 2017 and $1.8 billion in 2018. [6] Despite this discrepancy, Uber has been able to undercut the prices of taxis and other transportation options radically by subsidizing each customer purchase of a ride with investment capital. [7] Recently, it has even begun to offer heavily subsidized helicopter rides. [8]

Second, what does this “disruption” look like to customers of the firm? Anecdotally, Uber rides are cheap. They tend to come quickly, are easy to arrange for the customer, and are fairly reliable, at least in most major urban areas. Taxis in similar urban areas are often more expensive and more difficult to arrange for the customer. But, of course, this state of affairs is artificial, and dependent upon context. Uber works well in concentrated urban areas because it does not have to serve more remote spaces, as taxis may be required to do. The rides, moreover, are not cheap because of some overwhelmingly effective advance in technology; they are cheap because Uber runs a multi-billion-dollar deficit from year to year, subsidizing each ride. This “disrupted” industry is dependent upon the acquisition of ever greater amounts of investment capital, without which it would collapse.

Third, what, if any, real change does this “disruption” achieve? Uber has been clear on this: its strategy was “built on the assumption that Uber could achieve a dominant position in many big cities quickly and eventually raise prices”. [9] The ideal situation for Uber, then, is to use $20 billion in “tech” funding to remove one industry and replace it with another, roughly substitutable industry. In this industry the ride providers are not taxis; they are “transportation network companies”, or “TNCs”. TNCs are defined differently in different jurisdictions, but the differences tend to focus on their status as brokers rather than ride-providers. In New York TNCs are defined as businesses that use “a digital network to connect passengers with TNC drivers who provide TNC prearranged trips”. [10] In California they are defined as businesses that “provide prearranged transportation services for compensation using an online-enabled application or platform (such as smart phone apps) to connect drivers using their personal vehicles with passengers”. [11] However, in operation, these two types of firm are not entirely dissimilar. Both use cars; each uses human drivers; most rides are arranged by phone, whether by text or voice call.  It is somewhat difficult to see what separates the two; TNCs use surge pricing, but the main operational difference is that Uber cars cannot be hailed as they drive down the street. Aside from that, they are substantially the same.

In a hypothetical world in which Uber has succeeded in forcing all taxis from the market, what will have changed in the newly “disrupted” industry? Despite being nearly indistinguishable in operation from a taxi company, Uber purports to utilize contractors, not employees. Since Uber drivers are termed “TNC drivers”, their cars do not fall under the regulatory purview of many states’ or cities’ taxi codes, which often mandate specific endorsement on drivers’ licenses, periodic inspection of vehicles, limited numbers of hours beyond which drivers may not work, and regulation of the number of drivers who operate in specific jurisdictions. Some cities, such as New York, Chicago, and San Francisco, require taxis to obtain medallions at costs that run into the hundreds of thousands of dollars. In order to obtain these medallions, taxis must meet the requirements of lengthy worker- and consumer-protection regulations. Chicago’s sixty-seven-page booklet of rules for medallion holders, for instance, covers wheelchair accessibility (mandatory for all taxis), security cameras for worker and rider safety (likewise mandatory), and even limits on the service fees that taxis may charge riders for using credit cards (no greater than 5%). [12] Beyond these rules, taxis are often required to accept rides that go to disadvantaged neighbourhoods, and to accept customers of all abilities, including those with wheelchairs, service animals, and other mobility aids. These laws are, of course, intended to protect customers and workers. 

In swamping this and other industries with vast amounts of capital, and essentially capsizing existing regulated industries, companies like Uber are able to create a specific space of exploitation, a new legal sphere in which surplus labour may be extracted with greater and more brutal efficiency, less encumbered by consumer-focused regulations. Uber’s mobile app is designed to use insights from psychological research to push drivers to increasingly greater numbers of hours [13]; its lack of licensing procedures exposes riders to risks like bad drivers and faulty vehicles; the absence of workplace protection allows drivers to be pushed far beyond the number of hours [14] they should be driving [15]; lack of regulatory oversight means that neither riders nor drivers have reliable avenues for complaints when they feel that they have been wronged, short of civil action or criminal prosecution. Uber drivers may discriminate based on a customer’s disability or the neighbourhood of pick-up or drop-off. 

Some jurisdictions have caught up and now regulate TNCs in ways similar to taxis. [16] But even if eventually closed off, this space of exploitation can yield both short- and long-term benefits for the company and the interests that fund it. It is, in effect, a new juridical space, one into which the interests of capital can throw significant legal and political resources in order to solidify and expand their gains. This space opens up a new terrain for neoliberal processes of employment and economic ordering, through neither electoral victories nor lobbying efforts but rather the coordination and deployment of massive amounts of capital within the market. This capital is not initially deployed to create more capital, but rather to clear-cut new pastures in which capital may eventually be allowed to roam freely. While this investment may eventually yield returns, the intent is not initially to do so. Rather, such investment is meant to crowd out regulated industries in order to create new, unregulated spaces. In the case of Uber, this new juridical space has taken the form of the transportation network company, an entity which is not subject to the laws that apply to taxi or limousine companies but which operates in similar ways, and which also happens to be subsidized by vast amounts of investment capital. Capital interests are able to contest the limits of TNC regulations in ways they could not in the case of taxis, and are thus able to exploit workers and consumers more efficiently.

As interest rates remain low and the broad coalition of political interests supporting the project of “disruption” remain in power, this process is likely to be replicated again and again. Since the real innovation of TNCs is not in fact technological but instead economic and sociological, it is endlessly reproducible. Every industry that is currently regulated is vulnerable to a monsoon of capital subsidizing a competitor.

Ultimately, frustrating these projects will require that we recognize that the innovations on offer are legal and sociological, and intended to accomplish what capital, “vampire-like”, has always sought to accomplish, as described in detail in Capital: extracting surplus value from workers, and furthering the interests of the capital-holding classes against the working classes.

[1] See, e.g., Kate Harrison, “Will One Of These 5 Companies Be The Next Uber?”, Forbes (23 December 2014), available at https://www.forbes.com/sites/kateharrison/2014/12/23/will-any-of-these-5-companies-be-the-next-uber/; Scott Austin et al., “Uber Jackpot: Inside One of the Greatest Startup Investments of All Time”, The Wall Street Journal (10 May 2019), available at https://www.wsj.com/articles/uber-jackpot-inside-one-of-the-greatest-startup-investments-of-all-time-11557496421 ; Avery Hartmans and Paige Leskin, “The History of How Uber Went From the Most Feared Startup in the World to Its Massive IPO”, Business Insider (18 May 2019), available at https://www.businessinsider.com/ubers-history.

[2]  Keith Cunningham-Parmeter, “From Amazon to Uber: Defining Employment in the Modern Economy”, 96 (2016) Boston University Law Review 1673, available at
https://www.bu.edu/bulawreview/files/2016/10/CUNNINGHAM-PARMETER.pdf; Benjamin Means and Joseph A. Seiner, “Navigating the Uber Economy”, 49 (2016) UC Davis Law Review 1511, available at
https://onlabor.org/wp-content/uploads/2017/01/49-4_Means_Seiner.pdf; Brishen Rogers, “The Social Costs of Uber”, 82 (2017) University of Chicago Law Review Online 85, available at http://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=1037&context=uclrev_online.

[3] John Thornhill, “Uber Has Been a Positive Force for Creative Disruption”, Financial Times (26 June 2017), available at https://www.ft.com/content/20cbed1c-5a58-11e7-b553-e2df1b0c3220.

[4] “Who’s Afraid of Disruption?”, The Economist (30 September 2017), available at https://www.economist.com/business/2017/09/30/whos-afraid-of-disruption.

[5] Terence Zhao, “When Silicon Valley Accidentally Reinvents the City Bus”, The Stanford Daily (9 April 2018), available at https://www.stanforddaily.com/2018/04/09/when-silicon-valley-accidentally-reinvents-the-city-bus/. Musk’s pitch: “1000s of small stations the size of a single parking space that take you very close to your destination [and] blend seamlessly into the fabric of a city….”

[6] Heather Somerville, “Uber Posts $50 Billion in Annual Bookings as Profit Remains Elusive Ahead of IPO”, Reuters (15 February 2019), available at https://www.reuters.com/article/us-uber-results/uber-posts-50-billion-in-annual-bookings-as-profit-remains-elusive-ahead-of-ipo-idUSKCN1Q42CI.

[7] Heather Somerville, “True Price of an Uber Ride In Question as Investors Assess Firm’s Value”, Reuters (23 August 2017), available at https://www.reuters.com/article/us-uber-profitability/true-price-of-an-uber-ride-in-question-as-investors-assess-firms-value-idUSKCN1B3103.

[8] Noah Kulwin, “Uber Made It Cheaper To Take a Helicopter Than a Car to the Airport”, The Outline (26 December 2019), available at https://theoutline.com/post/8467/uber-helicopter-airport?zd=1&zi=e2y3lufa.

[9] Ibid.

[10] See https://www.tax.ny.gov/bus/tnc/assessment.htm.

[11] See https://www.cpuc.ca.gov/tncinfo/.

[12] See https://www.chicago.gov/content/dam/city/depts/bacp/publicvehicleinfo/taximedallionlicenseholderruleseff09012018.pdf.

[13] Noam Scheiber, “How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons”, New York Times (2 April 2017), available at https://www.nytimes.com/interactive/2017/04/02/technology/uber-drivers-psychological-tricks.html.

[14] Drivers classified and regulated as “motor carriers” must, by law, refrain from driving more than a certain amount of hours within a preordained time period, in order to prevent driving errors due to exhaustion. The Federal Motor Carrier Safety Administration prohibits drivers from driving more than ten hours in a row without an eight-hour break, and prohibits driving more than sixty hours in any week. See fmcsa.dot.gov/safety/carrier-safety/hours-service-motor-carriers-passengers.

[15] While Uber has instituted limits on hours in service in response to city ordinances, this does not prevent drivers from switching from the Uber to Lyft app, as many drivers use both. See Alex Rosenblat, “Uber May Have Imposed 12-Hour Driving Limits, But It’s Still Pushing Drivers in Other Troubling Ways”, Slate (2 March 2018), available at https://slate.com/technology/2018/03/uber-may-have-imposed-12-hour-driving-limits-but-its-still-pushing-drivers-in-other-troubling-ways.html.

[16] See https://policy.tti.tamu.edu/technology/tnc-legislation/. Chicago’s code is particularly comprehensive: https://www.chicago.gov/city/en/depts/bacp/supp_info/transportation-network-providers.html.

Eamonn Gallagher is a policy advisor for the Minnesota Democratic-Farmer-Labor Party.