The "Uber Economy" is Devolution
by Michael Dorf
Because I live in a small town where I either walk, bicycle, or drive my own car wherever I go, I don't have occasion to use Uber (or one of the similar services, like Lyft) when home. A couple of years ago I downloaded the Uber app, thinking I would use the service when traveling but on each of my trips to major cities in the last couple of years I've ended up using mass transit or conventional taxis. Accordingly, I haven't felt a need to look deeply into the question whether the supposed advantages of such services over conventional taxi services are built entirely on their evasion of conventional regulations or whether they provide a genuinely different service. My friends who use Uber regularly--including some who consider themselves progressive on regulation and labor matters--claim that Uber is actually better for drivers without undermining useful regulation, but that could just be motivated reasoning.
In a post back in April, Prof. Buchanan laid out the case for thinking that Uber really is just a means of dodging regs and taxes that apply to taxis. As I noted in a comment then, some of the Uber advantage in places like NYC, which artificially restricts the number of taxis with a requirement of purchasing a medallion, is that Uber drivers--as livery services rather than taxis--don't need a medallion. That's an advantage over what is probably a foolish monopoly. We don't require one of a limited number of medallions to operate a bodega, a sporting goods store, or most other businesses; we allow any individual or firm that complies with the applicable regulations to operate such a business, with the number of such businesses operating being determined by the intersection of the supply and demand curves. But if Uber's great value is that its drivers don't need medallions, this advantage will either be eliminated by the market--as the price of a medallion gets driven down by competition from Uber drivers--or get eliminated (or perhaps phased out) for everyone.
Put differently, there is simply no good economic reason why people selling rides in their own cars are at a competitive advantage over people selling rides using dedicated equipment. In Prof. Buchanan's April post he noted but disagreed with the ostensible theory behind the Uber advantage: that it utilizes the excess capacity of private cars when they're not being used by the owner for getting herself from point A to point B. But this isn't really excess capacity. Cars are not like empty buildings. If you use a car when you otherwise were not going to, you have added marginal cost that is roughly comparable to the marginal cost of using a dedicated taxi: gasoline, maintenance, wear and tear, and of course the labor input.
A recent segment on The Daily Show that was highly critical of Uber made the point that some of the expansion of Uber-style services seem downright dangerous--like Uber pilots. But the flaw in the Uber Economy is even easier to see with relatively simple goods and services. Simple modern goods--like toasters and hammers--are much more inexpensively provided by specialists than by spare-time tinkerers and miners of the various metals that go into making the component parts. Likewise with many services. You could develop an app for finding people to teach your children what you want them to learn. Various instructors in math, science, reading, etc., would then show up at your house or some central meeting place that you and some others have chosen, and they could teach your kids. But in so decentralizing and "democratizing" primary education or toaster production or hammer production or whatever, you would be running away from the bedrock of a modern economy: comparative advantage.
I can't deny, of course, that Uber, Airbnb, and like services have enjoyed some success to this point. Perhaps there is even evidence that they would be profitable and popular even without the unfair advantage over more conventional businesses that comes from their falling within regulatory gaps. And I certainly wouldn't claim that conventional taxi businesses--which charge drivers high fees for the use of their vehicles and, where applicable, medallions--do well by their drivers.
Rather, my point is simply that the Uber or "sharing" economy that has been heralded as a new stage in capitalism made possible by advanced technology is in fact devolution to a form of economic organiztion that pre-dates the craft economy, which at least took advantage of specialization. The "new" Uber economy is barely more advanced than barter. Perhaps such devolution is what people want. But the fact that it utilizes a smartphone app does not make it revolutionary.
Because I live in a small town where I either walk, bicycle, or drive my own car wherever I go, I don't have occasion to use Uber (or one of the similar services, like Lyft) when home. A couple of years ago I downloaded the Uber app, thinking I would use the service when traveling but on each of my trips to major cities in the last couple of years I've ended up using mass transit or conventional taxis. Accordingly, I haven't felt a need to look deeply into the question whether the supposed advantages of such services over conventional taxi services are built entirely on their evasion of conventional regulations or whether they provide a genuinely different service. My friends who use Uber regularly--including some who consider themselves progressive on regulation and labor matters--claim that Uber is actually better for drivers without undermining useful regulation, but that could just be motivated reasoning.
In a post back in April, Prof. Buchanan laid out the case for thinking that Uber really is just a means of dodging regs and taxes that apply to taxis. As I noted in a comment then, some of the Uber advantage in places like NYC, which artificially restricts the number of taxis with a requirement of purchasing a medallion, is that Uber drivers--as livery services rather than taxis--don't need a medallion. That's an advantage over what is probably a foolish monopoly. We don't require one of a limited number of medallions to operate a bodega, a sporting goods store, or most other businesses; we allow any individual or firm that complies with the applicable regulations to operate such a business, with the number of such businesses operating being determined by the intersection of the supply and demand curves. But if Uber's great value is that its drivers don't need medallions, this advantage will either be eliminated by the market--as the price of a medallion gets driven down by competition from Uber drivers--or get eliminated (or perhaps phased out) for everyone.
Put differently, there is simply no good economic reason why people selling rides in their own cars are at a competitive advantage over people selling rides using dedicated equipment. In Prof. Buchanan's April post he noted but disagreed with the ostensible theory behind the Uber advantage: that it utilizes the excess capacity of private cars when they're not being used by the owner for getting herself from point A to point B. But this isn't really excess capacity. Cars are not like empty buildings. If you use a car when you otherwise were not going to, you have added marginal cost that is roughly comparable to the marginal cost of using a dedicated taxi: gasoline, maintenance, wear and tear, and of course the labor input.
A recent segment on The Daily Show that was highly critical of Uber made the point that some of the expansion of Uber-style services seem downright dangerous--like Uber pilots. But the flaw in the Uber Economy is even easier to see with relatively simple goods and services. Simple modern goods--like toasters and hammers--are much more inexpensively provided by specialists than by spare-time tinkerers and miners of the various metals that go into making the component parts. Likewise with many services. You could develop an app for finding people to teach your children what you want them to learn. Various instructors in math, science, reading, etc., would then show up at your house or some central meeting place that you and some others have chosen, and they could teach your kids. But in so decentralizing and "democratizing" primary education or toaster production or hammer production or whatever, you would be running away from the bedrock of a modern economy: comparative advantage.
I can't deny, of course, that Uber, Airbnb, and like services have enjoyed some success to this point. Perhaps there is even evidence that they would be profitable and popular even without the unfair advantage over more conventional businesses that comes from their falling within regulatory gaps. And I certainly wouldn't claim that conventional taxi businesses--which charge drivers high fees for the use of their vehicles and, where applicable, medallions--do well by their drivers.
Rather, my point is simply that the Uber or "sharing" economy that has been heralded as a new stage in capitalism made possible by advanced technology is in fact devolution to a form of economic organiztion that pre-dates the craft economy, which at least took advantage of specialization. The "new" Uber economy is barely more advanced than barter. Perhaps such devolution is what people want. But the fact that it utilizes a smartphone app does not make it revolutionary.