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Uber Upstarts: Technological Progress and Its Discontents

Friday, July 18, 2014

The battle between new smartphone-enabled 'transportation network companies' and legacy taxicabs largely mirrors the age-old war over productivity, a war that only ever has one outcome.

“You working the whole day?” I asked my UberX driver en route to San Francisco International Airport, trying to make small talk. “Well, I’m driving for a few hours,” he responded, “but then I’m meeting my direct reports to polish off some time-sensitive projects.”

In my experience riding in the cars-for-hire of transportation network companies (TNCs) like Uber, Lyft, and Sidecar, my driver’s moonlighting — in this case, daylighting — has been typical. My drivers over the past six months have included men and women pursuing their own careers as consultants, software engineers, students, and used-car salesmen, yet exploiting the flexibility of app-powered opportunities to earn extra cash on the side.

If not quite the hunt-in-the-morning-fish-in-the-afternoon-criticize-after-dinner idyll set forth by Marx more than a century ago, the Uber-driven challenge to traditional transportation posed by TNCs nonetheless offers tremendous promise to workers and consumers alike.

Rideshare companies pair drivers — generally independent contractors — with passengers through smartphone apps with user-friendly interfaces. These outfits have been a godsend to many drivers, especially the part-timers. Uber “gives you the power to manage your own schedule,” as do its competitors.

Lyft drivers instantly receive in their bank accounts 80 percent of the passenger’s payment, an arrangement that the Lyft operators I’ve encountered praise to the heavens.

Drivers for Sidecar can set their own rates based on market forces. “We’ll provide information and recommendations to guide you,” Sidecar tells prospective drivers, “but you’re ultimately in control.”

Consumers, too, have benefitted tremendously from TNCs. All such services offer smartphone-enabled ordering, credit card-based payments, and interfaces that are prompt, transparent, and convenient. They have simple rating systems for drivers and customers and allow easy GPS tracking, record-keeping, and feedback. They universally offer riders clean, modern cars, bottled water, and even smartphone charging outlets. 

Taxicab owners and driver’s unions have furiously fought back against TNCs in cities around the world.

These companies’ fee structures are generally far superior to traditional operators. As a rule, lower cost UberX cars charge 40 to 50 percent less than prevailing local cab rates, while its tonier black-car service rates fall below those of typical town cars or limousines. (In certain jurisdictions, Uber also offers UberTaxi, through which users can digitally “hail” traditional cabbies; in addition, the service offers larger vehicles through its UberSUV and UberXL channels.) Sidecar, though available only in 10 U.S. cities, offers even greater price transparency and flexibility than its competitors, allowing riders to set their own price.

And most importantly, ridesharing outfits purport to place their highest value on passenger safety. For example, Lyft bars any drivers with major violations in the previous three years (e.g. driving more than 20 miles over the speed limit) or with “more than two moving violations in the past three years.” All services perform extensive criminal background checks on drivers and many require in-person meetings before hiring drivers.

Legacy transit resists competition

Of course, legacy transit companies have not let their new competition continue unchallenged.

Taxicab owners and driver’s unions have furiously fought back against TNCs in cities around the world. Last month in Paris, Madrid, Berlin, and London, cab drivers circled Charles de Gaulle airport, the Paseo de la Castellana, Olympic Stadium, and Trafalgar Square, respectively, in a successful effort to snarl traffic and enrage drivers. The services “are taxis without being taxis,” one Parisian cabbie said. “We are against them.”

Stateside, state and local governments have cracked down on TNCs using health and safety concerns as a pretext. For instance, in June and July alone:

  • Virginia fined Uber and Lyft for operating without a “passenger transportation broker’s” license and sent cease-and-desist letters before ironing things out.
  • The city council of Cambridge, Massachusetts — home to Harvard and MIT — introduced a measure that would have set a $50 minimum for non-taxi rides and barred any on-demand rides from any vehicle besides a taxi.
  • Two Pittsburgh judges enjoined Uber and Lyft from operating until they obtained a license from the Pennsylvania Public Utility Commission.
  • The University of California issued preliminary guidelines to employees stating that TNCs “should not be used because of concerns that these services are not fully regulated and do not protect users to the same extent as a commercially regulated business.” (The University later withdrew these guidelines.

Others have speculated that Uber may “destroy the driving profession,” as one New Yorker blogger put it. Old-school cabbies in cities like London and New York possess years of experience on the roads; in London, hacks must command “The Knowledge,” a 150-plus-year-old road manual, before operating an iconic black cab. Contrast these experts with your average consultant-turned-part-time-driver, these TNC opponents argue, who’re unlikely to know neighborhoods outside of their own.

Yet charming hidebound relics like The Knowledge have, for better or worse, been supplanted by GPS and other omnipresent mapping apps in every smartphone. Plus, the routing options presented by programs like Waze and Google Maps reflect accurate, detailed traffic information that even the most skilled veteran cabbies can’t compete with. These apps may be unlovely, compared to a dog-eared Thomas guide or an aging Cockney, but they unquestionably enhance the driving and riding experience.

Fortunately, the various TNCs have weathered, emerging from it stronger. Uber reported an 850 percent increase in signups following the London cabbie stunt; the worldwide publicity sparked by the protests has amplified the ridesharing companies’ own marketing efforts.

At its root, the TNC controversy revolves around technological progress and its discontents.

The Uber-driven challenge to traditional transportation posed by TNCs nonetheless offers tremendous promise to workers and consumers alike.

Sure, there are Republicans and free-market conservatives determined to embarrass the hidebound unions fighting their rearguard action, just as there are statist liberals battling the inequities they believe inherently attach to peer-to-peer applications. But ridesharing apps have been welcomed by many liberal pundits, perhaps most notably Matthew Yglesias of Vox, who embraced Uber and its ilk early on.

Instead, the battle largely mirrors the age-old war over productivity or, one might say, labor vs. capital. This war only ever has one outcome, even if the fighting rages on for years, and that outcome never favors the side forced to claim “it's not that we're against technology.

So Uber, Lyft, Sidecar, and its cousins seem to be here to stay, to the great delight of both consumers and providers.

Room for improvement

Of course, some criticisms, particular regarding insurance, have merit. Lyft boasts a million-dollar excess liability policy, applicable to both passengers and third parties, as well as other “contingent coverages” which “step in if a driver's personal policy doesn't respond and do not act as excess or in addition to the driver’s own personal policy.” Uber’s insurance policies are similar, although only its UberX and UberXL drivers are considered independent contractors.

But some justified controversy has arisen over the discrepancy in coverage between active driving and passive trolling periods. While circling for passengers, Uber drivers, according to Fast Company, are only “covered for $50,000 injury, $100,000 injury total, and $25,000 in property damage” — far lower limits than while shuttling riders to their destination.

This coverage gap has prompted legislative proposals, like California’s, that go too far. For instance, AB 2293, which would regulate all TNC operators like traditional cab drivers for insurance purposes. The bill, passed by the state Senate last month, dictates that a TNC “driver's personal automobile insurance policy may not provide coverage while the driver makes himself or herself available for transportation network company services” (emphasis added).

Big Transit applauded the move, with a spokesman for the Taxicab, Limousine, and Paratransit Association arguing that “these companies are attempting to provide taxicab service with the wrong insurance.”

Sacramento’s approach, however, would erode these companies’ price advantages, stifle their growth, and privilege legacy companies. A Sidecar rep said AB 2293’s “requirement of $750,000 for the time period when the app is turned on but no rider is in the driver’s car is excessively high because it is more than 20 times higher than what is required of taxi and livery services. Sidecar’s drivers drive their own personal vehicles, and it’s clear there is less risk when there is not yet a passenger in the car.” Whether or not 20 times is truly accurate, in principle, the insurance requirements should be of the same order of magnitude.

Moreover, it’s not exactly trivial to discern when a driver “makes herself available” for TNC services: when she turns on her smartphone? When she opens her Uber app? When she activates it? Some kind of increased off-duty insurance coverage may well be appropriate, but legislators should work with TNCs to craft common-sense legislation, as they seem to have managed to do in Virginia.

In the meantime, ridesharing apps will continue to bring technologically-driven free-market principles to the transit economy. And you don’t need to be a libertarian purist to applaud.

Michael M. Rosen, a contributor to The American, is an attorney and writer in San Diego. Reach him at michaelmrosen@yahoo.com.

FURTHER READING: Rosen also writes "Attorney Fees in Patent Cases: There is a Middle Ground," "Sweden's Swing toward a Free Market," "RX for R&D: Repealing the Medical Device Tax," and "The Right Way to Combat Patent Trolls." Mark F. Shultz contributes "Aereo Decision a Boon, Not a Bane for Innovation." Adam Gomolin considers "Crowdfunders' Losing Deal." Edward Tenner adds "Could Computers Get Too Smart?"

 

Image by Dianna Ingram / Bergman Group

 

 

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