Big Smoke

'cause it's hard to see from where I'm standin'

Casual Labor

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Colin Tooze of Uber defended his e-hail system’s price gouging plan today as “beneficial to consumers.” He argued that without a cost incentive, demand would simply flood supply and result in a service quality reduction. It is this reasoning, he surmised, that explained why a single taxi ride costing half the average New York City rent was not only warranted, but necessary.

Leave it to a millionaire to devise a service where money is no object. However, it fails the basic sniff test of supply and demand. The way Uber’s e-hail app works currently can only end in one of two ways; each of which is dependent on how the taxi system of the city is laid out, and neither of which makes sense:

In the first method, anybody with a driver’s license and signed up to Uber can accept e-hails. This then hews to demand by allowing the supply of liveries available at any one point to be completely malleable: When demand goes up, people who would otherwise not be cabbies get in their cars and accept e-hails. When demand goes down, those people apparently do something else to make their daily bread. This is how Uber expects every city except New York City to run.

In the second method, you need a Taxi & Limousine Commission license to run a livery, and Uber then supplements your dispatches and/or street hails with an e-hail system. This then hews to demand by allowing the supply of liveries available at any one point to auction to the highest bidder: When demand goes up, the price of the ride goes up. When demand goes down, the price of the ride goes down.

Either system disrupts existing taxi dispatches heavily without major long-term benefit to anybody but Uber’s shareholders. In the first system, the professional class of cabbies turns into casual day labor. Full-time hacks have complained about the interloper’s lack of regulatory compliance as well as the increased competition from non-professionals driving potential wages below subsistence.

In the second system, consumers lose out as the entire regulatory system is compromised: In New York City, a standardized fare system keeps cabbies from undercutting one another for fares, as well as keep the consumer from losing out due to unethical price gouging. Street hail guidelines explicitly forbid a cabbie from “shopping” for the right customer, and most importantly of all, the chance of successfully hailing a cab is roughly equalized for all customers. This maintains a consistent standard of service.

The humor is, both Uber solutions fail Economics 101. If supply were so malleable as to match demand by flooding the system with non-professional cabbies, then the prices need never rise. If the supply of professional cabbies were relatively non-malleable, then price gouging has little effect and service is by definition not improved overall: Profits are, but only for Uber.

These are, of course, only a few of the unintended consequences of such “disruptors” from Silicon Valley. The latest spat, for instance, between Uber and NYC’s TLC involved their reticence from handing over electronic trip records, which show where cabbies are picking up their charges. The TLC collects these records largely to enforce tax law compliance but also to regulate traffic flow so as not to foster gridlock. Indeed, the entire point of the medallion system was to limit the number of taxis in the city so as to limit the potential for gridlock.

Such was an imperfect system – the eventual cost of yellow cab medallions rose to the point where cruising only the most congested areas were deemed profitable, having the exact opposite of the intended effect – but Bloomberg’s Boro Taxi system was a rather elegant and popular solution to such. Uber’s e-hail app – working as it is as a backdoor street hail medallion – serves to undermine this by potentially allowing a great many more taxis than there are medallions to pick up hails in a very limited space.

They can and have been dismissed by the executives of the company, who by nature would view them as externalities: Issues that, while they adversely affect the cities the company does business in, do not adversely affect the company. The potential damages and injuries to consumers due to nonprofessional drivers is an externality to the company: They have taken pains not to be held responsible for the system they have fostered. This is a common element of the neoliberal politics of said “disruptive” tech firms. Our “sharing” economy is mainly for the benefit of a rich few, and a tragedy of the commons for the rest of us.

Take AirBnB: While it provides a casual market for “bed and breakfast” types who don’t want to go to expensive hotels while offering those who live in central cities a potential revenue stream, every risk is externalized either to the host or the traveler. These include the risk of having one’s place trashed (and being saddled with repair costs or voiding one’s lease) or discovering that a host is dangerous, eventualities for which AirBnB has effectively washed its hands: Its ratings system is the only guide users of the system have to assess risk.

It also circumvents zoning laws (turning residences into ersatz hotels,) taxes (by not paying hotel taxes,) and most damning, can only have a deleterious effect on both the housing supply as well as the housing costs of any urban area: Rooms and apartments that were for rent to long-term residents must now compete with far more lucrative transients, and the landlords who are willing to exploit this fact can thus raise rents on spaces in prime locations to new heights. This has the potential to destroy neighborhoods.

On the ground, it’s a tragedy of the commons: Increased costs for consumers (in terms of higher rents and cab fares) and decreased income for providers (in terms of increased competition from unregulated part-timers) are the name of the game. In the headquarters of the companies that made this system, on the other hand, they’re practically printing money. The first question anybody should ask when it comes to companies like this that undermine existing regulations and working professionals: Is this a 21st century economy or a 19th century economy?

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