A model holds up a phone showing the Uber app, in London. Picture: REUTERS
A model holds up a phone showing the Uber app, in London. Picture: REUTERS

A few years ago, I heard Travis Kalanick, the founder and former chief executive of ride-sharing company Uber, speak to a group of Boston business leaders. He predicted a world in which "traffic wouldn’t exist" within five years.

Last week, New York City passed a package of bills limiting new for-hire vehicles operated by Uber and its rival Lyft, in part to study whether ride-hailing has actually made traffic worse. The number of these vehicles on the road has nearly doubled in New York since 2015. Mayor Bill de Blasio signed the new law, which will also raise pay for drivers, in front of cheering union leaders and traditional cabbies under pressure from these services.

Uber, meanwhile, announced second quarter losses and increased spending in the "general and administrative" area, which includes the money it sets aside to wage legal battles.

They will need it. New York is only the latest city, following London, Paris and a number of others, to put restrictions on ride-hailing, which has turned urban transport upside down. I see it from both sides. In New York, finding rides in outer boroughs has become exponentially easier thanks to Uber and Lyft. I take multiple trips per week and I am considering giving up my car altogether (if you wonder why, read Calvin Trillin’s novel about parking in New York).

On the other hand, traffic does seem worse, and anyone who invested in a traditional taxi medallion — which used to sell for more than $1m and have since plunged to low six figures — has lost out. That is what technology does, of course. Just ask the Luddites. The problem is that while 21st-century technology has reshaped many industries, labour laws remain stuck in the 19th century. No wonder numerous despondent taxi drivers have committed suicide. If we want the "sharing economy" to live up to its name, the platform technology companies that benefit the most from it have to do just that — share.

Both technical and existential changes are required. At core, we should give up on the fantasy that the gig economy somehow eliminates issues of power between workers and companies. Contractors who work via Uber, or any other "on-demand" platform do have more independence, and surveys show they like it. Uber plays this up, with ads in which a prosperous-looking young white man smiles from a sunlit car, over the tagline "Freedom Pays Weekly". He might be a teacher on summer break making an extra buck in his spare time.

In reality, most Uber drivers are black, Asian or Latino and making below minimum wage. And, on the whole, algorithmic management puts dramatically more power in the hands of platform companies. Not only can they monitor workers 24/7, they benefit from enormous information asymmetries that allow them to suddenly deactivate drivers with low user ratings, or take a higher profit margin from riders willing to pay more for speedier service, without giving drivers a cut.

This is not a properly functioning market. It is a data-driven oligopoly that will further shift power from labour to capital at a scale we have never seen before. It is not only taxi drivers that are being "uberised" but radiologists, lawyers, contractors and accountants. All these services can now be accessed at cut rates via platforms.

Rather than wait for more regulatory pushback, platform tech companies should take responsibility now for the changes they have wreaked — and not just the positive ones. That requires an attitude adjustment. Many tech titans have a libertarian bent that makes them dismissive of the public sector as a whole. Uber became infamous for simply going into new markets guerrilla style, disrupting first and asking questions later. (It is now trying to change its reputation under Dara Khosrowshahi, who replaced Kalanick last year.)

Yet the potential benefits of ride-hailing and sharing — from less traffic to less pollution — cannot actually be realised unless the tech companies work with the public sector. One can imagine companies like Uber co-operating with city officials to phase in vehicles slowly, rolling out in underserved areas first, rather than flooding the most congested markets and creating a race to the bottom.

The same goes for other sorts of platforms, like Airbnb. That company often touts its ability to open up new neighbourhoods to tourism, but research shows that in cities like New York, most of its business is done in a handful of high-end areas — and the largest chunk by commercial operators with multiple listings, with the effect of raising rents and increasing the strains caused by gentrification. Officially Airbnb has a "one host, one home" policy in New York, but better enforcement is needed.

On the labour side, too, the platform companies must take responsibility for the human cost of disruption. New York University professor Arun Sundararajan has proposed allowing companies to create a "safe harbour" training fund that provides benefits and insurance for drivers and other on-demand workers without triggering labour laws that would categorise such workers as full-time employees (which is what companies want to avoid).

It is a hedge, but it would give both sides time to craft new rules of the road for the on-demand economy to ensure it does not become a zero-sum game.

© The Financial Times Limited 2018

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