Uber and the political economy problem

Obviously the Uber Files, published by the Guardian and other media organisations, didn’t tell us that much that we didn’t know from news reports down the years, especially of the years when Travis Kalanick was the CEO. But it helps us to think about Uber in a different way: as a problem of political economy.

Uber was a sociopathic company awash with venture capital dollars that operated at and beyond the edges of the law to get access to markets, to minimise regulatory and police investigations, and to maintain growth rates. It also co-opted leading politicians to help promote its growth. Emmanuel Macron in particular comes out badly, and George Osborne’s fading reputation dims yet further.

Via Oversharing, here’s a snappy Washington Post summary of the business model:

While users saw a handy app that brought rides to them with a few taps on their smartphones, executives behind the scenes were pumping billions of dollars of investor cash into an explicit corporate strategy of taking down “Big Taxi” and defeating other rivals. The money paid for hefty driver subsidies that were withdrawn once Uber got established, undermining earnings of those who had bought or leased cars to work for the company. It also offered deep, but temporary, discounts for passengers who grew accustomed to convenience offered at an artificially low price.

In theory, at least, Uber positioned itself as a “market-making” platform that connected customers to independent drivers. In practice, courts in multiple jurisdictions have found that this account of the Uber model was not the case. And at the same time, Uber was going to extreme lengths to rig the market that it had ‘made’.

124,000 documents

With 124,000 documents and a whistleblower to back up the story, some of the detail of how Uber operated, and the scale of it—and the active promotion of illegality by senior managers—still has the power to shock. Reading some of it, the culture reminded me of how the culture of Enron was described by whistleblowers. (For clarity this point is about business culture: I am not suggesting that Uber has committed financial fraud).

And although Ali Griswold at Oversharing, who’s been reporting ting on Uber for years, was obviously disappointed that there wasn’t more that she didn’t already know about, her summary of the things she was reminded of about Uber is still quite the list:

I started reading through story after story about how Uber broke rules and laws to expand its service globally; poured money into lobbying and public relations efforts to codify the ride-hail model; deployed venture-capital subsidies to lure drivers onto its network; and worked with prominent academics to build a body of research that legitimized its business and policy goals. All of these things are important chapters in the Uber story and vital to understanding how powerful and well-funded Silicon Valley startups can do business…. One of the big storylines from the Uber files is how Uber broke laws, lobbied governments, and leveraged violence and social unrest to advance its business model.

That was then

The company’s response was much as it has been ever since Kalanick was forced out of the company and replaced by Dara Khosrowshahi five years ago: that was then, but this is now. This is the official response:

“We have not and will not make excuses for past behaviour that is clearly not in line with our present values. Instead, we ask the public to judge us by what we’ve done over the last five years and what we will do in the years to come.”

Kalanick, who was instrumental in shaping the Uber culture, and who appears in many of the worst stories in the Uber Files, has issued the usual denials and special pleading via a spokesperson, probably carefully vetted by legal counsel.

So it was useful to see a piece in the Conversation by Jimena Valdez, who has researched the relationship between Uber and governments, assessing what has changed and what hasn’t.

What hasn’t changed

What has changed: the company is less aggressive:

The company has generally moved away from its original service towards one where licensed drivers use vehicles with specific permits to hail passengers (in other words, a taxi for the smartphone era), and introduced a food delivery wing, Uber Eats. It has also taken a calmer and more polite approach to expansion —- moving slower, breaking less stuff.

What hasn’t changed: it sails at the edge of regulation and expects to spend time fighting regulators (and drivers) in the courts:

Uber adapts to existing rules, but only as little as necessary to provide its services. Meanwhile, it continues to fight legislation everywhere – spending billions on lobbying and in crafting political connections – to push existing rules closer to its preferences… Though they are not openly breaking laws anymore, they continue to push for their preferred regulations through the courts or by finding legal loopholes.

The reason for this: the business model probably doesn’t work:

Uber’s executives know their business model might not be sustainable, and even less so if they are forced to classify workers as employees and pay for related rights and benefits. Fighting regulations is a survival strategy.

‘A sovereign state influence operation’

At The Blind Spot, and behind its paywall, Izabella Kaminska—a long standing Uber critic—reviewed the story. I don’t have access to that, but the free-to-air introduction in her weekly email is worth sharing:

(Transport expert Hubert) Horan and I argue that what Uber achieved in the marketplace was far more reminiscent of a political coup than a vanilla business deployment. Some might even say the company operated a sovereign-state-level influence operation, focused on capturing hearts and minds at all levels of society.

Reflecting on the many years I spent covering the company… I am inclined to suggest the company was always aware of the failings of its business model. Does this equate to it having misled investors? I do not know.

Elites love the elite

Some quick notes from me.

One: Rapacious companies aren’t new, and they tend to grow more quickly during the ‘deployment’ stage of a technological surge (borrowing Carlota Perez’ model here). What was different this time around was (1) companies like Uber were operating globally almost from the very beginning, and (2) that there was so much capital around that was cheap to the point of being free—and investors willing to believe any story about growth and returns to investment—that they could subsidise their expansion strategy and not worry too hard about the consequences.

Two: One of the reasons for our rolling political crisis, nationally and internationally, is that elites are closer to each other than they have ever been, and further away from everybody else. This is one of the reasons why there’s such a big ‘trust gap’. This is also a function of globalisation. But it is also a big political economy problem: politicians end up with a form of wilful blindness about the consequences of their actions.

‘Exploitation and corruption’

Three (related): Uber’s ‘innovation’, to the extent that it existed, wasn’t primarily technological. It was in connecting a sea of venture capital money with the ‘influence operation’ described above by Izabella Kaminska, which in turn made it harder for regulators to enforce regulation. Jimena Valdez says this:

Apps like Uber and the hundreds that followed promised innovation. Instead, they have brought a barely-disguised version of the exploitation and corruption that has always characterised capitalism. Given the allegations in the Uber files, one also has to wonder if there will ever be consequences for tech entrepreneurs with a taste for rule breaking.

Four: One doesn’t always want to blame consumers for their choices, since often they are locked into poor systems. In this case, though, we have known about most of this for about a decade, and there are decent alternatives to Uber, which have all improved over the last few years. As with Amazon, affluent consumers seem to be willing to overlook a lot in exchange for price and convenience.

Five: This is all another sign that the long digital wave is running out of momentum. (See also the collapsing fortunes of the online delivery companies.) If you are running a tech-enabled business, and your business model doesn’t work by now, you really ought to wind the thing up before you sustain more losses.

A version of this article was also published on my Just Two Things Newsletter.