Travis Kalanick built an iconic global business by offering unsustainably cheap Uber rides around the world.
And let’s be real: He got away with it. He’s netted more than $4 billion from selling his Uber shares. Now, the rest of us are left to wrestle with the moral consequences.
Proposition 22 is the ballot initiative meant to save Uber from the financial reckoning of making its drivers employees in California. Voting “yes” means denying drivers employee status and ensuring they stay independent contractors. Voting “no” means Uber drivers are likely to end up as employees.
The thought of supporting Uber while drivers sleep in their cars makes my stomach turn. Drivers work all hours to feed their families. They experience the terror of getting injured on the job without unemployment insurance. Drivers can work shifts that pay less than minimum wage.
In writing this, I’m worried about drivers, not Uber. The ride sharing company has a dodgy history that’s well known. But particularly relevant here is that the company flooded drivers with money in the early days. Investors from around the world helped the company pay drivers more than it could afford. At first the cash-burn proved a financial boon for drivers. But it was a high that wouldn’t last. Drivers invested in newer cars and began to build a life around working for Uber. Then new drivers entered the market, pushing down pay.
Uber tried to make rides as cheap as possible on the belief that it could convince customers to get rid of their cars. Uber pushed customers to share a ride with other passengers, hoping that somehow it could make the business model of unsustainably cheap rides sustainable. Drivers hated it.
Over time it became obvious that the promise of super cheap rides wasn’t going to materialize. Even before the pandemic, Uber started shifting away from pooling rides. Prices have been rising in the United States as competition with Lyft cools. Today, under the leadership of Dara Khosrowshahi, Uber looks more like the black car business critics thought it always was. Yet the losses have continued. In 2019, the company lost $8.5 billion on $14.1 billion in revenue.
Now there are no good options when it comes to Prop 22, which is on the ballot in California on Tuesday.
Voting against the ballot initiative and making drivers employees would likely guarantee a select group of drivers more money with a better safety net. But many drivers would lose their jobs. Uber has estimated that the number of drivers active on its platform would fall from 209,000 to 51,000. With an employee model, Uber wouldn’t want to keep paying workers who idly wait for desirable rides, who pick up passengers between errands, or who juggle multiple apps. Their time would be entirely on Uber’s dollar. I get that there’s plenty of reason to be skeptical of Uber’s calculus but the underlying logic makes sense.
Voting against Prop 22 would also mean that the price to profitably deliver a ride would rise. Higher prices mean less demand for rides. The less activity on Uber’s platform, the less efficient the network becomes as drivers must venture farther to pick up riders. It creates a destructive cycle. This is the other side of the coin to Kalanick’s maniacal race to push down the price of a ride. There are efficiencies at scale.
Fundamentally, Uber and many of its drivers’ interests are aligned. Both groups need Uber’s business to boom. Drivers generally take the bulk of a fare. This fight is as much about the size of the market as it is about how the fare is split between Uber and drivers.
According to Uber-funded studies and another by the Rideshare Guy, drivers say they support Prop 22. That more than anything makes me inclined to support it. As part of the ballot initiative, Uber and other companies would pay into a benefits pool rather than give drivers all the protections that the law grants employees.
It’s not just Uber drivers who could be forced to become employees if Prop 22 fails. The initiative applies to food and grocery delivery workers as well. The expensive ballot initiative is a response to a bill called Assembly Bill 5, or AB 5, passed by the California legislature. On its face, that union-friendly bill reaffirmed a court’s decision to apply employee status to all sorts of workers. But AB 5 ended up acting as a sort of protection racket. A bunch of traditional businesses – like barbers, lawyers, IRS tax professionals, securities brokers, real estate agents and graphic artists – got exemptions. Silicon Valley didn’t make the cut.
Lorena Gonzalez, the author of AB 5, has been carving out exemptions for old guard businesses. After AB 5 passed, a bunch of traditional businesses who didn’t get their own exemption panicked. Freelance writers, many of whom liked AB 5 for Uber drivers, flipped out that publications were capping how many assignments they could take. So writers got an exemption.
On Oct. 30, Gonzalez tweeted that the Recording Industry Association of America sent her a gold record, thanking her for their carve out.
Mike Maples, whose venture capital firm Floodgate was an early shareholder in Lyft, tweeted, “This level of overt corruption in California politics makes me sick.” Personally, I was shocked Gonzalez so openly celebrated exempting an industry from her signature law.
A former state assemblyman tweeted, “Stockholm Syndrome – a kidnapped industry comes to identify with its captors…” Gonzalez replied sarcastically with an emoji, “Um….. yeah, that’s how business works.” I’m not sure her tweets are doing her any favors.
Protecting old guard businesses while cracking down on new ones isn’t a good look for a state that’s probably about to see a bunch of technology businesses flee California for lower taxes and cheaper rents. Uber is the McDonalds of marketplace businesses, so its workers are particularly sympathetic. But Silicon Valley is pumping out companies that keep workers at arm’s length. (I’m writing this to you with the help of one such business.) Legislators shouldn’t just play whack-a-mole against new businesses while allowing old, familiar industries to skirt employee rules.
Ultimately, legislators should be spending their time passing bills that offer universal benefits, regardless of workers’ employment status. The tech industry should do more to support protections detached from employment. Given that Uber, Lyft, DoorDash and other companies have been willing to spend roughly $200 million pushing Prop 22, they could have dedicated more of that money to arguing for state-sponsored benefits instead.
In politics and policy there are no perfect answers. Despite Uber’s problematic early growth strategy, voting against the company’s interests now won’t undo the damage. The best outcome for drivers would seem to be: Vote yes on Prop 22.
*By Eric Newcomer via Newcomer*