Sunday, 22 February 2015

Beneficial competition or attack on legitimate interests: What to make of Uber’s disruption of the taxi industry?


Imagine you are standing on the street and waiting for a taxi to take you home. While you are having second thoughts as to whether the convenience of a taxi ride is really worth the cost, a private car stops in front of you and the person at the steering wheel offers to drive you home for a price significantly below the taxi rate. Once you have convinced yourself of the driver’s competence and reliability, what could possibly speak against accepting the offer? Not much, it may seem.

Granted, the scene just described may appear too unrealistic to merit serious ethical reflection. In cities around the world, however, smartphone technology has recently led to a surge of structurally similar situations. Ride-hailing platforms that act as brokers between private drivers and potential clients have been experiencing rapid growth and offer rates that are often below those of established taxi industries. Uber, the most prominent example, has extended its operation to 54 countries and has created headlines by attracting more than $2bn of investment during the last two years. In many places, however, this expansion has been accompanied by fervent political controversy, and in a number of jurisdictions regulatory opposition has brought Uber’s operation to a halt.

Some of the criticisms voiced in opposition to Uber reflect concerns that seem relatively uncontroversial. For example, the enforcement of adequate safety standards in cars (including mandatory liability insurance for drivers) and appropriate forms of taxation appear to represent valid objectives, both from the point of view of public interest and in terms of ensuring a level playing field in Uber’s competition with traditional taxi providers. At the same time, these objectives do not necessarily conflict with Uber’s business model. Assuming that drivers are subject to the same safety and tax requirements as traditional taxi providers, Uber may still be able to offer lower fares. In the following, I would like to consider two additional concerns that are more fundamentally connected to the way Uber operates and that also seem more difficult to evaluate.

The first concern relates to the interest of drivers that rely on their job as a primary source of income. One of the prominent complaints of taxi associations has been that Uber’s competition threatens the ability of professional drivers to make a living from their occupation. While Uber argues that its drivers are able to achieve incomes far above the average income of taxi drivers, protests by Uber drivers cast doubt on the generalisability of this claim. Moreover, recent data shows that the majority of drivers do not treat Uber as their main source of income, which in turn may contribute to the preparedness of Uber drivers to work for lower rates. If it is indeed the case that Uber’s business model poses a threat to the interest of drivers in being able to make a living from their occupation (be it in the traditional taxi sector or after a switch to Uber), does this interest provide a legitimate basis for banning Uber?

On the one hand, Uber would appear to exemplify the general potential of freelance working arrangements to erode income levels. Given that earnings in the established taxi industry are already at the low end of the income spectrum, we may think that, if anything, policy should aim at improving wages in the taxi industry, e.g. through appropriate minimum wage legislation, rather than allowing income levels to be threatened by Uber’s business model which, in virtue of treating drivers as individual contractors, is not bound by wage regulations. On the other hand, the interest to make a living from taxi driving would have to be defended against the interest of those who are willing to offer their service at a lower price, if only as a partial source of income, and would be prevented from doing so through an ban of platforms such as Uber. Such a defence, it seems to me, cannot necessarily be taken for granted. A judgment on the issue would have to take into account the level of material well-being and the occupational alternatives of both groups.

Setting aside the interest of drivers, the second concern may be cast in terms of public or general interest. While taxi rates are legally regulated, ride-hailing platforms are free to set their prices according to demand and supply. Uber, for example, relies on rate increases in times of high demand in order to incentivize additional drivers to offer their services. As a result, on holidays or in situations of emergency, fares can increase up to fourfold, to levels far above standard taxi rates. Regulated taxi fares, in contrast, may be thought to serve an important public interest in the availability, in general, of rides at rates that are affordable for a relatively wide section of the population. To the extent to which the success of Uber and other ride-hailing platforms leads to an erosion of the supply of fix-rate taxis, people with urgent transportation needs may find themselves in situations without affordable options.

Is the interest in affordable rides compelling enough to justify a ban on unregulated services such as Uber in order to protect the supply of fix-rate taxis? The answer to this question does not seem obvious either. Among the countervailing interests to consider are the interests of customers who would take advantage of Uber’s service during times at which fares are below the taxi rate. Among them are equally going to be people with urgent needs, some of whom may in fact not be able to afford the regulated taxi fare. And to the extent to which the taxi fare is affordable for them, can they be expected to effectively subsidise the rides of others? One consideration that seems clearly relevant here is the existence of alternative modes of transportation that may serve to protect the interest in generally available affordable transportation. An answer thus appears even more context-dependent than in the case of the first concern. What do you think?

12 comments:

  1. Hi Florian, thanks for this great post - I think the topic is a really important one, because Uber might just be the first instance of a much broader trend. I want to throw in one more argument that is similar in structure to your second argument in the sense that it is also a kind of public goods argument. This has to do with health insurance and old age insurance of workers. As far as I know, Uber drivers do not get health insurance benefits or pension plan contributions from their company. They could of course insure themselves and safe for old age, but it seems reasonable to assume that many of them do not, or, more generally speaking, that the coverage is lower than among regular taxi drivers and that employers don't contribute. So if these people end up destitute, they need public support. It seems to be an instance of the "privatization of risks" that were formerly carried together. I saw the suggestion, somewhere, that anyone who earns more than 80% of their income through something like Uber should be treated as employee, not as freelancer, and this seemed very plausible to me. What do you think?

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    1. Hi Lisa, thanks a lot for your comment. I certainly agree that the issue of employee benefits is an important additional concern. To the extent to which costs resulting from the lack of insurance are borne by the public, as you suggest, the problem could also be described as the socialization of costs that arguably should be borne by the company in question, and one way to ensure the latter would be to require the company to establish formal employment relationships.

      The weightiness of this issue, it seems to me, partly depends on the first concern that I raised above, i.e. the level on income that drivers end up with. If the income of Uber drivers working as individual contractors was sufficiently high for them to be able to buy insurance and make pension arrangements at their own expense, we might be somewhat less concerned about the lack of the company’s contribution. To bring out the point more clearly, consider the example of high earning consultants in other industries. The issue may seem less pressing here. On the other hand, the possibility that individuals may fail to make individual arrangements, potentially leading to public costs, exists irrespective of the level of income, and we may also think of employee benefits as a general issue of fairness between potential employees and employers (to be).

      The rule that you mention is an interesting proposal. A friend of mine has drawn my attention to a recent post by Robert Reich (http://robertreich.org/post/111784272135) in which he suggests a similar principle. Both in terms of feasibility and in terms of practical consequences, it seems to me, the proposal raises questions with regard to part-time drivers who do not (and may not be interested to) rely on driving as their main source of income, but use Uber as an opportunity to earn money on the side. If their income through Uber is less than 80%, the rule in the version that you refer to would seem not to apply. In terms of feasibility, would there be a practicable way in this case for Uber to treat drivers above and below the 80% threshold differently? Reich proposes the following extended version of the rule: “Any corporation that accounts for at least 80 percent or more of the pay someone gets, *or receives from that worker at least 20 percent of his or her earnings*, should be presumed to be that person’s ‘employer.’” Given that Uber charges a commission of 20%, the second part would make the rule applicable to drivers irrespective of whether Uber is their main source of income. Depending on the kind of benefits that they would be required to pay, this could discourage Uber from doing business with part-time drivers. Such a result could appear positive, all things considered, or it may not be. It seems to me that we would again have to take into consideration the material situation of the part-time drivers who would lose an opportunity to earn money, compared to the employee benefits gained by others. Would you agree?

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    2. It seems right that income levels play some role here (and I fully agree that it is tricky to draw lines here - there is no fixed „standard Uber income“, so what are 80% of it?). I wonder, though, whether it is income levels as such, or the way in which they are correlated with outside options and hence, negatively, with dependency. This opens up a whole can of worms, of course, and although I have clear-cut intuitions about principles here, I find it difficult to apply them to this case because there seem to be rather different kinds of Uber drivers: for some, it’s a great opportunity in addition to other opportunities, for others, it’s the only option they have, and if the protection mechanisms that regulated taxi drivers enjoy are not available to them (and they in fact undermine them), this seems really problematic, doesn’t it? So it may be hard to find regulation that prevents the latter problems while leaving open the possibilities for the former group (this may be structurally similar to many forms of precarious employment, which seem innocent if done in addition to something else, but not so when individuals fully depend on them).

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    3. I agree that the availability of decent outside options seems relevant, in addition to the level of income alone. In light of the possible 'trend-setting' nature of Uber that you noted in your first comment, the availability of outside options may itself be threatened by Uber-style models of individual contracting in other industries. (See my response to Andrew below.) If this is the case, it would seem difficult indeed to think of a strategy that would allow for the opportunities provided by Uber-like arrangements while protecting the interests of those threatened by them.

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  2. Florian, thanks for the interesting post. Could I clarify something here: what are you, and what are you not, holding constant in analysing the question? Early in the post you suggest that some worries – ensuring safety and fair tax, for example – do not ‘necessarily conflict with Uber’s business model’, suggesting, I thought, that you meant to ask whether there was something objectionable about Uber even whilst assuming a reasonable governance structure. But it seems plausible that similar points could be made about the other arguments here. To clarify, it seemed that the issues you consider are quite possibly in the terrain of a common ‘double bind’ – a change that will make an unjustly less-advantaged group (non-Uber taxi drivers) worse-off whilst making some other unjustly less-advantaged group(s) better-off (e.g., Uber-drivers with no or small other income and/or those unable to afford standard taxi fares). My immediate instinct in such a case is to say: that we face such a bind shows the importance of altering social, economic, and political structures, changing the cause that presents us with the bind, by, for example, reforming wealth distribution or simply stimulating the economy in ways that will create better opportunities for various unjustly less-advantaged groups. If we made that move, it seems that some of the worries on either side of the double bind – reducing wages or opportunities from certain less-advantaged groups – would diminish. Perhaps, then, these worries too are not necessarily in conflict with Uber’s business model (or banning it). Hence my question: could you say a little more about the structural parameters you have in mind?

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    1. Thanks, Andrew, I think your comment is spot on and helps to shed light on the problem in more general terms. As you say, the premise of my discussion was to consider to what extent Uber may be thought to be problematic assuming an adequate mode of governance in terms of safety standards and tax compliance, and the problems that come to mind essentially take the shape of a potentially problematic trade-off or double-bind. I agree that the extent to which the trade-offs are indeed problematic (say, because an affected group lacks viable income alternatives) depends on the kind of background factors you mention. That was essentially the basis for my suggestion that a judgment on the matter should be expected to be context-dependent and sensitive to the way in which those background factors play out, which may, for example, differ from one country to another. Now, as you say, instead of pragmatically adjusting the regulation of Uber to the relevant background factors taken as a given, a more systematic way of approaching the issue would seem to be to work on the background factors with the goal of resolving the double-bind raised by Uber’s mode of operation. From an ideal point of view, this may indeed be the preferable (and possible more ‘economically efficient’) route to take. With regards to the premise from which I started, it just seems that the relevant forms of regulation are of a more general societal nature (distribution of wealth, opportunities, etc), compared to the kinds of regulation at issue when it comes to safety standards and tax compliance. And in the absence of sufficient background changes, restricting Uber’s operation may, depending on which interests seem more weighty given the circumstances, appear to be the pragmatic second-best. Is this more or less in line with what you had in mind?

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    2. Florian, thanks for the ideas here. I think we are on the same line of thought with it. I guess my further question would regard what is implied, or what work is being done, by the thoughts of an ‘ideal point of view’ and a ‘pragmatic second-best’. On the first, I read you (although please forgive and correct me if I am mistaken) as suggesting that the best response to Uber would be to address the background distribution of opportunities, but that, because such matters of a general societal nature, they can be thought less plausibly within our range of options than, say, ensuring people pay appropriate tax or banning Uber. I would be interested to ask how you reach this conclusion. It may be true that background opportunity distribution as an overall category is a general societal matter which may be somewhat beyond our current Overton Window. (I say ‘may be’ here because I am not sure I accept this claim, but could grant it if it is helpful for the sake of argument.) But do you also mean to imply that targeted policy interventions to assist redundant or lower-paid taxi drivers or those who would get into Uber-driving because they lack certain other opportunities are also beyond the Overton Window, and more so than getting people to pay appropriate tax or banning Uber? If so, I wonder if you could say more on the reasons supporting this view? If not, I am a little unclear why we would move to a second-best?

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    3. Thanks for the follow up, Andrew. You are right about what I meant by distinguishing between ideal and pragmatic or second-best approaches to addressing the problem, although I did not mean to express a strong view as to how realistic or feasible different strategies may be. My point was merely that it *may* be that conceivable solutions that would be consistent with Uber’s business model may be difficult to realize, in which case there could be a case (again, depending on how we weigh up the different interests at stake) for interfering with Uber’s operation more directly. I think this perspective also sheds some light on the anti-Uber protests staged by taxi driver associations. Although there may be a larger political picture and alternative solutions, it seems understandable that, to taxi associations, calling for a ban of Uber would seem like a more realistic strategy than calling for general structural reforms that lead to alternative employment opportunities. (Quite apart from the fact that many taxi drivers may prefer being able to make a living from their existing occupation to changing to a different line of work.)

      Now, you mention targeted policy interventions as an option. Would you be able to say a bit more about what you had in mind? One possibility would be to tolerate the low income that full-time drivers may be left with if Uber puts traditional taxi providers out of business, and to provide public income assistance in the form of a ‘top up’. There is an economic argument that doing so may be more efficient than the enforcement of a minimum wage, but even if the argument holds (which seems to depend on a lot of empirical variables), I am not entirely convinced that this would be an ‘ideal’ solution. For many employees, I think, there is going to be something ethically significant about being able to make a living from their job-related earnings, compared to depending on a combination of earnings and public benefits. (This possibility may not be what you had in mind. In either case, I would be interested to hear more.)

      At second thought, I am also a bit unsure what to think of the general idea that the concerns raised by Uber may be taken care of through background policy measures that leave Uber’s business model unaffected. This seems conceivable for Uber as an isolated case, but, as Lisa has pointed out, Uber may be an example of a much larger trend in which information technology facilitates the replacement of traditional employment relationships through contractual or freelance-type arrangements. If this is the case (future developments will show), it would seem that achieving the background goal of providing decent and stable employment alternatives may require banning or at least restricting Uber-like models, lest alternatives in other industries will be of a similar precarious form.

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    4. Thanks for the thoughts here, Florian. I think I am still a little unclear what role questions about pragmatism or realistic strategy have here. One way to approach this issue is to ask what concerns we have and which policy moves will help meet those concerns. From this perspective, we might specify a concern that people have a living income and say that the kind of policy you mention – topping up taxi driver income – or, say, work transition programmes seem defensible insofar as they help us meet this end (for taxi drivers or those who would be Uber-drivers). Banning Uber might be another proposal. It seems to score less well in terms of how it will affect potential Uber-drivers on low-income, but let us set that aside and say that the two policies will both achieve our aims. We could, then, ask: which of these policies is politically feasible? And here is where I am not sure I follow. I see that it ‘may’ be difficult to implement the former kind of policies, but it also seems that it ‘may’ be difficult to ensure people pay appropriate tax or to ban Uber. Given that we already have the former kinds of policies, whereas getting people to pay appropriate tax seems a perpetual difficulty and that banning Uber is a new suggestion with a fairly niche support group, I have some sense that the former would be more feasible than the latter two. (And to the extent that ideas about feasibility are what motivates taxi driver positions (of which I am unsure), perhaps they have misjudged the case, which may be so if they have conceptualised the choice as between banning Uber and general structural reform, rather than targeted policy interventions of the kind under discussion here.) But at any rate, I find it hard to see how the issue of feasibility can speak to question here without some further sense of what parameters are thought to make things feasible and quite a lot of empirical data.

      I think I have a similar instinct about the worry over long-term employment structures across an economy. Here, it seems more appropriate to say that addressing the worry would warrant general structural reform. But, to compare like-for-like, we must compare the feasibility of that move with the feasibility of banning all Uber-like models, and, again, I would imagine that any case to argue that the former is less viable than the latter would need a wealth of tightly specified empirical evidence.

      Another question, then, would be of the more directly ethical kind – what other ethical credentials might arbitrate between the policies? One issue here is the worry over long-term employment structures, but I am unsure what constitutes the ethical worry here if things like living incomes and non-precarious lives throughout the economy are addressed through other policies. (The question of feasibility re-appears here, but I think is captured in my previous paragraph.) Is the worry what you mention in your second paragraph – that there is an ethical concern regarding how income is derived? If so, I would be interested to hear if you have thoughts on what grounds the importance of making a living from job-related earnings. At least stated in that way, my initial reaction is that it is the kind of view we want to encourage people to move away from – partly because it is so often tied to an idea about desert and partly because it is this kind of reasoning that makes it so hard to get proper policies in place to distribute wealth to non-‘employed’ parents and care-workers. I think your thought may be correct that it is a key driving force in some arguments for protecting wages in certain industries, but do you think that argument has weight?

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    5. Thanks for these further points, Andrew. I appreciate your emphasis on avoiding any rushed conclusions regarding political feasibility in this context, and I don’t think we disagree in this respect. I generally did not mean to suggest that I have a conclusive view on the feasibility of possible alternative strategies that one may think of in relation to the issues that we have been discussing, and the tentative doubts that I expressed in the first paragraph of my previous comment were intended to refer to policy measures of a general structural nature, rather than measures targeted at the particular groups affected. As far as targeted measures are concerned, I agree that income top-ups, for example, represent quite a realistic option. At the same time, I don’t think a ban, or improved tax compliance for that matter, are necessarily any less feasible. You seem to be more sceptical here. So before turning to the issue of evaluating income top-ups from a normative point of view, let me add a few remarks regarding the feasibility of the latter – not in order to settle the question, but just to provide some background for my thinking.

      Regarding possible bans, it seems to me that feasibility is likely to vary depending on political context. Apart from one major protest by taxi drivers last summer that lead to the inclusion of black cabs as a booking option on the Uber app, opposition to Uber in the UK, for example, has been relatively limited and demands to ban the app altogether don’t seem to have played too prominent a role. In other countries, the situation is different. Germany and Spain have effectively stopped Uber from operating, and the French government has announced similar measures. Needless to say that at least in these national contexts, the option of a ban is eminently feasible. (Incidentally, the ban in Germany coincided roughly with the introduction of a legal minimum wage for formal employment relationships that has lead to slight increases in taxi fares.)

      Tax compliance, I assume, would remain a concern if the problem of income levels was addressed through the public provision of top-ups, and I agree that there are inevitably going to be practical difficulties. It is worth noticing, however, that one simple and effective measure to facilitate income tax compliance among Uber drivers would be for Uber to share records and driver identities with tax authorities. Uber didn’t do so in the beginning, but apparently has started to report payments to drivers, at least in the US.

      Regarding employment opportunities across the economy more generally, I share your view that we should avoid rushed assumptions about feasibility here as well. As a general matter, contractual arrangements such as Uber represent a way to bypass minimum wage legislation. One may be critical of the merits minimum wage legislation and advocate the provision of top-ups to low-income earners instead. I don’t necessarily see problems of feasibility with the latter option. But given that minimum wage legislation is in place in many jurisdictions, restricting the opportunities to bypass minimum wages either by banning Uber-like models or by requiring them to pay rates that correspond to the minimum wage level, seems like a similarly realistic alternative. (The latter option would, it seems to me, effectively come close to an ban of Uber and other companies as we know them, since it would presumably significantly reduce their competitive advantage.)

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    7. Now let’s set aside the issue of feasibility. Whether we consider the specific case of the taxi industry or the issue of income levels across the economy as a whole, in comparing a ban of Uber-like models with the provision income top-ups, the more fundamental question is, as you say, whether there are substantive considerations in favour of one policy option over the other. As you suggest, let’s assume for the sake of the argument that the interests of affected Uber drivers (or freelances in other sectors) don’t speak against a ban. I would be sceptical of the top-up option for two reasons.

      First, there is the idea, mentioned in my last comment, about the ethical significance of the source of one’s income. I feel somewhat ambivalent about this argument, partly for the reasons that you mention. Rather than relying on a fundamental notion of desert, however, I was thinking of a recognition-based argument to the extent that one should be able to make a living from what others pay for one’s work (which wouldn’t imply that one deserves however high a price one is able to command for one’s services). Understood in this way, the idea wouldn’t be that hostile to the demand for appropriate income levels for parents or care-workers. At the same time, it seems to me that the force of the argument ultimately depends on how we conceive of ‘top-ups’, i.e. whether we think of them as a form of economic assistance, or as a form of earned income that, merely for reasons of economic efficiency, is delivered through state transfers rather than employers or customers.

      Second, there is a further substantive worry about moving to a ‘top-up economy’ (compared, say, to pursuing a strategy based on the enforcement of minimum wages in ways that include payments to freelancers). The worry is that the result may be rather far off from the economically efficient ideal if firms take advantage of the availability of top-ups or other assistance schemes and lower the pay for workers that would otherwise have been hired at the minimum wage, pocketing extra profits as a result. The economically efficient solution would be to only provide top-ups for workers who would not have been hired for the minimum wage, but this seems difficult to ensure in practice. For the purpose of illustration, think of the controversy surrounding the fact that a large number of Wal-Mart employees in the US earn wages that leave them dependent on food stamps. This example, I think, shows the potential force of both the ethical significance to be able to make a living from one’s direct earnings and the problem of firms taking advantage of public income subsidies in order to increase profits. What’s your take on the second of these two issues?

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