Uber is trying to be like Amazon. It’ll fail

Uber in inaction. Image: Getty.

Following TfL’s decision to withdraw Uber’s license to operate in London, there has been a widespread picking over of the ride-hailing app’s recent history – and speculation about its future. A fairly common conclusion is that Uber needs to become more ethical if it is to survive.

I want to suggest that this may not be possible. After the calamitous year Uber has had, it should not be difficult for the company to improve its reputation – simply by avoiding many of the unnecessary embarrassments heaped upon itself in 2017. However, merely improving its PR will not get Uber out of the hole it has now dug for itself. It is looking as though, in many territories such as London, Uber’s survival will rely on concrete measures to better care for both its drivers and customers.

Herein lies the problem. It is not that Uber is incapable of such ethical measures. But for this company specifically, the additional cost that is required to look after drivers and customers is likely to be too great. It all comes down to the economic model on which Uber is built.

There is a great tendency among commentators to focus on the capabilities of Uber’s app, when making sense of its explosive growth across the world. This is a mistake. Figuring that Uber’s app explains its growth is like putting the birthday cake’s appeal down to the candle on top. The engine of Uber’s growth to date has been the $11.5bn it has raised from banks and investors. The company has never made a profit, and in 2016 alone lost nearly $3bn.

These are staggering amounts, and to make sense of them we need to understand that Uber’s business model is the same as Amazon’s. Amazon became the largest online retailer on the planet by burning through huge sums of investment on the way to becoming dominant in an ever-increasing number of sectors, and a de facto monopoly in some such as books.

Now Amazon is able to use its position to generate the vast profits expected by those that funded its expansion. Effectively, what both companies surely rely on is investors subsidising the prices customers pay in the short term, in return for a long-term monopoly with higher prices.


Trump card

In reaching this point, Amazon has itself received plenty of criticism, particularly around its tax arrangements and working conditions in its Orwellian “fulfilment centres” (warehouse to you and me). But Amazon has benefited, throughout its growth, from a trump card: its use of a virtual shopfront makes its overheads significantly lower than bricks-and-mortar rivals.

Uber’s fundamental problem is that it does not have this advantage. In his comprehensive critique of Uber, transport expert Hubert Horan made a key observation about the taxi business, which separates it from retail. While shops have used economies of scale to operate first nationally, then internationally, for over a century, taxi companies have remained highly localised. The reason for this, argued Horan, is that the economies of scale are not there for the taking in this market. Some 85 per cent of taxi company costs are drivers, cars and fuel, and this applies whether you cover one city or a dozen.

Not only does Uber not avoid these costs, its model actually introduces new ones. Most dramatically, the costs of becoming established in new markets is vast. This, particularly the artificial subsidising of passenger fees/driver wages to drive growth, is the source of the $3bn net loss last year. Ultimately – whether in the form of debt or equity – these sums will have to be paid back, and then some.

Eventually, this additional cost will be felt. Either the driver has to bear it, and so is motivated to look to rival employers, or the customer does, with the same outcome. Uber’s hope must be that when it gets to this stage there will be no alternatives left to chose from.

Elusive goal

So can Uber afford to become ethical? Its growth to date has been so costly that even after the raft of regulations it has managed to sidestep, and measures forcing down the income of its drivers, it is losing billions every year. In a properly regulated market, in which Uber has to give its drivers appropriate employment protections, and passengers the safeguards they need, its goal of apparently aping Amazon becomes even harder.

If Uber can achieve market dominance before it runs out of funding, the inefficiencies in its model cease to matter. Society will simply have to carry the cost of higher fares and lower driver wages.

If it fails to achieve near monopoly status and has to continue to compete against local firms, in my view it has little hope of ever repaying its investors. For customers that travel to different cities frequently, Uber’s scale gives them a clear edge. For everyone else, is an app slightly shinier than its competitors’ clones enough to outweigh the higher fares that should come with Uber’s model?

Should Uber ultimately fail, it would open up the possibility of a taxi company fit for the 21st century: one that harnesses the possibilities of digital technologies not to enrich venture capital, but drivers themselves, in the form of cooperatives like the one currently developing in the absence of Uber in Austin, Texas.

Murray Goulden is senior research fellow at the University of Nottingham.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

America's cities can't police their way out of this crisis

Police deployed tear gas during anti-racism demonstrations in Los Angeles over the weekend. (Mario Tama/Getty Images)

As protesters took to the streets across the United States over the weekend to express their anger at police killings of unarmed black Americans, it was hard to miss the hypocrisy coming from local authorities – including the otherwise progressive, left-leaning officials who are in power in most major American cities. 

Many US mayors and their police chiefs had issued public statements over the past week that seemed – only briefly, as it turned out – to signal a meaningful shift in the extent to which the Black Lives Matters movement is being taken seriously by those who are in a position to enact reforms. 

The sheer depravity of the most recent high-profile killing had left little room for equivocation. George Floyd, 46, died last Monday under the knee of white Minneapolis police officer Derek Chauvin, while three additional officers helped to hold Floyd down, doing nothing to aid him as he begged for them to stop and eventually lost consciousness. The officers had been attempting to arrest Floyd on suspicion of having used a counterfeit $20 bill at a deli. All four have since been fired, and Chauvin was arrested Friday on charges of third-degree murder and second-degree manslaughter. 

“The lack of compassion, use of excessive force, or going beyond the scope of the law, doesn’t just tarnish our badge—it tears at the very fabric of race relations in this country,” Los Angeles Police Chief Michel Moore told the Washington Post in response to the Floyd case. Meanwhile Moore’s boss, Los Angeles Mayor Eric Garcetti, on Friday claimed that he understood why his city, which is no stranger to police brutality, was protesting. “We absolutely need as a nation, certainly as a city, to voice our outrage, it’s our patriotic duty to not only stand up for George Floyd but for everybody who has been killed unnecessarily, who’s been murdered for the structural racism that we have in our country,” Garcetti said. 

Normally, US police chiefs and mayors tend to ask citizens to withhold judgment on these types of cases until full investigations can be completed. But a 10-minute video recording of Floyd’s killing had made what happened plain. Police chiefs across the country – and even the nation’s largest police union, which is notorious for defending officer abuses – similarly condemned the actions of the Minneapolis officers, in a rare show of moral clarity that, combined with the arrest of Chauvin, offered at least a glimmer of hope that this time things might be different. 

As the events of the weekend have since shown, that glimmer was all too fleeting. 

In city after city over the past three days, US mayors and their police chiefs made a series of the same decisions – starting with the deployment of large, heavily armed riot units – that ultimately escalated violent confrontations between officers and protesters. Images widely shared on social media Saturday and Sunday nights made it clear that members of law enforcement were often initiating the worst of the violence, and appeared to treat protesters as enemy combatants, rather than citizens they were sworn to protect. 


In New York City, two police SUVs were seen plowing into a crowd of protesters, while elsewhere an officer was recorded pulling down a young protester’s coronavirus mask in order to pepper spray his face

In Louisville, the city where Breonna Taylor, a 26-year-old black woman was fatally shot by police on 13 March, state police in riot gear were captured confiscating and destroying protesters’ supplies

In Minneapolis, forces opened fire with nonlethal rounds on residential streets, much to the shock of homeowners standing on their own front porches. 

Images of police pushing or shoving peaceful protesters were almost too numerous to count, including, in Salt Lake City, an elderly man with a cane

In many places, police also targeted journalists who were covering the protests, firing at clearly identifiable media crews with rubber bullets, injuring and even arresting reporters

Some protesters did commit acts of vandalism and looting, and the leaders of cities where that happened generally responded in the same ways. 

First, they blamed “outside agitators” for the worst protester behaviour, a claim that harkens all the way back to the civil rights era and for which the evidence is murky at best

Next, they enacted sudden curfews with little to no warning, which gave law enforcement an excuse to make mass arrests, in some cases violently. 

In a pair of widely criticized moves, Garcetti of Los Angeles closed the city’s Covid-19 testing centers and suspended the entire mass transit system Saturday evening, stranding essential workers on their way home from daytime shifts. Late Sunday night in Chicago, the city’s public school system halted its free meal distribution service for low-income children, citing “the evolving nature of activity across the city”.  

Governors in at least 12 US states, in coordination with city leaders, have since called in National Guard troops to “help”. 

At this point it’s clear that the leaders of America’s cities are in desperate need of a radically different playbook to respond to these protests. A heavily armed, militarised response to long-simmering anger toward the heavily armed, militarised approach to American policing is more than ironic – it’s ineffective. Granting police officers wider latitude to make arrests via curfews also seems destined to increase the chances of precisely the tragic, racially biased outcomes to which the protesters are reacting. 

There are other options. In places such as Flint, Michigan, and Camden, New Jersey – both poor cities home to large black populations – local law enforcement officials chose to put down their weapons and march alongside protesters, rather than face off against them. In the case of Camden, that the city was able to avoid violent clashes is in no small part related to the fact that it took the drastic step of disbanding its former police department altogether several years ago, replacing it with an entirely new structure. 

America’s cities are in crisis, in more ways than one. It’s not a coincidence that the country has tipped into chaos following months of emotionally draining stay-at-home orders and job losses that now top 40 million. Low-income Americans of colour have borne a disproportionate share of the pandemic’s ravages, and public health officials are already worried about the potential for protests to become Covid-19 super-spreading events.

All of this has of course been spurred on by the US president, who in addition to calling Sunday for mayors and governors to “get tough” on protesters, has made emboldening white nationalists his signature. Notably, Trump didn’t call on officials to get tough on the heavily armed white protesters who stormed the Michigan Capitol building over coronavirus stay-at-home orders just a few weeks ago. 

US mayors and their police chiefs have publicly claimed that they do understand – agree with, even – the anger currently spilling out onto their streets. But as long as they continue to respond to that anger by deploying large numbers of armed and armored law enforcement personnel who do not actually live in the cities they serve, who appear to be more outraged by property damage and verbal insults than by the killings of black Americans at the hands of their peers, and who are enmeshed in a dangerously violent and racist policing culture that perceives itself to be the real victim, it is hard to see how this crisis will improve anytime soon. 

Sommer Mathis is the editor of CityMetric.