Uber and the Taxi Industry’s Last Stand

Uber and the Taxi Industry’s Last Stand

Uber and the Taxi Industry’s Last Stand

What the rise of the app-based cab service says about the future of work in America


This article was adapted from a paper produced as part of the Future of Work Project, an inquiry supported by the Open Society Foundations.

Thirty-one years ago, I drove for Falls Church Yellow Cab in Virginia, just outside of Washington, DC. I had a history degree and radical politics, and taxi driving advertised itself as a way you could “work the hours you want and make the money you need.” The deal was straightforward: I paid “stand dues”—a fee that drivers pay to affiliate with a company or lease a company-owned car—and footed the gas bill. Anything I earned after that was mine. On a good day, I grossed $160; minus stand dues and gas, I might clear $100 in cash after twelve to fourteen hours. That was a living wage in 1983.

“Hacking” is slang for driving a cab, and it involves plenty of skill: reading maps, knowing back roads and shortcuts, anticipating where future calls will pop up and, of course, driving. In my case, that meant maneuvering a hulking Plymouth Fury with Slinkys for suspension and a bottomless pit for a gas tank.

I enjoyed the chesslike strategy of bidding on trips, anticipating when and where there would be business. I kept within a few feet of my cab at all times to stay in line on the stands or listen to the dispatch radio. I learned from industry veterans that one of the most important bidding skills was “long hooding”—essentially, fudging your car’s location by a few blocks or miles to make the dispatcher think you were closer to the potential passenger. There was a sense of accomplishment when I hacked a series of short trips (referred to as “jerks”) during slow periods. My goal: keep the meter running.

Except for some modest variations and technological improvements, the system I drove under is still in effect today. Virginia law treats taxis as a public utility, and the state is divided into over 95 counties, each with its own code. This has resulted in some important differences between jurisdictions. In Alexandria, over 90 percent of the cabs are owned by their drivers, while in nearby Arlington, the figure is just over half. But in either case, a car and its driver are affiliated with a single company.

In Northern Virginia, the number of taxis in each jurisdiction is capped by local law; in practice, one company controls a majority of cabs in any given area. So in Arlington, for example, 455 out of the district’s 787 cabs are affiliated with Neil Nichols’s Red Top/Arlington Yellow Cab company. All jurisdictions have rules prohibiting drivers from switching companies. By limiting the total number of cabs, the system guarantees work and promises drivers a living wage. Until the entry of app-based services, cab companies operated with all of their allocated “slots” either sold or rented to drivers.

In early 2013, Uber began offering rides in Virginia. A global business with investments from Google and Amazon’s Jeff Bezos, Uber allows consumers to order a ride via an app on their smartphones, track and read about their assigned driver, and pay with their credit cards. By automating the entire process, Uber reduces the search and transaction costs of getting a cab—the hassle of calling the dispatcher, of exchanging money—to nearly zero.

In less than two years, Uber has built a huge market for itself, operating in fifty-four countries. In the United States, it has 162,037 drivers in 141 cities who have given at least four rides in the last month; in the Washington, DC, metro area, it has amassed a workforce of 10,000 to 15,000 drivers. Uber has a particularly devoted following among millennials. In a recently released marketing study, 10 percent said they “couldn’t imagine [their] life without it” and 51 percent use Uber or would be likely to if it were locally available.

The rapid growth of Uber has profound implications for both taxi drivers and the industry. Are Uber drivers earning full-time living wages? Are they protected from arbitrary or discriminatory dismissal? Can they support their families? What does this mean for the future of work?

* * *

One must concede that the system that preceded Uber’s rise was itself no worker’s paradise. Almost all economic and political power was vested in the hands of cab owners. Even after investing up to $60,000 outfitting a taxi to meet company standards, drivers—for the most part immigrants from East Africa and South Asia—had no legal protection from arbitrary contract termination. There was no due process; their affiliation could be revoked for any or no reason. Stand dues and other fees—companies’ sole sources of profit—rose frequently and varied widely. Alexandria Union Cab, for instance, charges its drivers $175 stand dues each month, while the privately owned Alexandria Yellow Cab charges $210 per week. Drivers are ignored stakeholders.

The arrangement that ossified over the last thirty years was no better for consumers. Once a company had a locked-in majority of all cabs in a given jurisdiction, it had little incentive to modernize its operation or innovate. A customer’s experience was largely the same in 2014 as it was in 1983: he or she would call the dispatch number and slowly spell out the pickup information. The dispatcher typically told the rider that she or he would wait twenty minutes—a standardized estimate that had little relationship to how long it took the taxi to arrive. When the ride was over, the customer either paid cash or swiped a credit card, waiting several minutes for approval and a receipt. Drivers often resisted taking credit cards because company owners charged a 5 to 6 percent fee.

If a customer didn’t like the service, there was little alternative. In practice, cab companies made sure key customers—i.e., those most likely to vote—were happy, so that the businesses could avoid interference from local authorities. So long as seniors going to the doctor and businesspeople traveling to the airport could rely on getting a cab, municipal governments maintained a hands-off approach.

Uber made the entire process of ordering and paying for a cab frictionless. The payment is processed automatically after the ride is over, and the company tells users they don’t need to pay a tip. The drivers are rated at the end of each trip, and those with consistently low scores are removed from the service. The app also allows riders to get a precise estimate of the cost of the trip by inputting their destination. Users can choose from among several tiers of vehicles—standard taxis, car services and even limousines—each with different vehicle and licensing standards. UberX, which employs privately owned, late-model cars and is priced similarly to a taxi service, is particularly competitive with cabs. Uber turns a profit by skimming a percentage of the rider’s fee, typically around 20 percent.

For all the convenience that Uber may offer its users, one of its primary byproducts has been the degradation of working-class jobs that once generated a living wage. This past summer, the company claimed that the median UberX driver in New York City earned over $90,000 a year. But blogger and entrepreneur Justin Singer revealed this number to be highly misleading. Breaking down average traffic speed, rates and the number of trips, Singer found that drivers in the city netted around $50,000 per year, provided they worked seventy hours a week. The income level and hours are similar to what a standard taxi driver would enjoy.

But Uber has little incentive to build well-paying, stable opportunities with reasonable hours at salaries of $50,000 a year. Quite the opposite: by creating part-time jobs that are the equivalent of Walmart greeters on wheels, the company can keep wages low (benefits, of course, are out of the question). It’s little wonder why Uber fights regulations that would require it to insure its drivers’ vehicles, conduct background checks, pay fees or limit its workforce: without restraints on the number of passenger-serving cars, and with a very low barrier of entry to the profession, the number of drivers will continue to grow until the market hits a point of saturation, sending costs plummeting in the process. Because Uber has few operating expenses to speak of—the investment is all made up front in developing the app, after which maintenance is minimal—the company enjoys a substantial profit no matter how many drivers flood the market.

In Virginia, more than 4,000 cabdrivers once eked out a living wage by putting in long hours. The job itself was never particularly fulfilling or self-actualizing. For thirty minutes of work, including loading and unloading a passenger, a driver might earn $5—well below the minimum wage. But the trade-off for the relatively low pay was job security: stringent limits on who could pick up passengers and restrictions on the total number of cabs in a particular jurisdiction ensured drivers had enough work to make a living.

Uber shattered this old deal.

Taxi drivers whom I know see Uber’s effect on a daily basis: in the greater Washington area, UberX drivers flood the streets on weekends and in the evening when day jobs end. At other times, cabs sit on company lots because of decreased demand. Since 2012, cabbies in Arlington have seen the value of cabs they bought on the gray market for $30,000 to $50,000 dwindle to zero. Some have to simply give up their company affiliation, forgo paying somewhere around $200 in stand dues each week, and try to make it as Uber drivers.

* * *

In June, Virginia’s Division of Motor Vehicles accused Uber and Lyft of operating unauthorized cab services and asked the companies to “cease and desist” their operations. In response, Uber launched Operation Rolling Thunder, sending thousands of pro-Uber e-mails, texts and tweets to Virginia regulators and Governor Terry McAuliffe. The campaign worked: on August 6, the governor permitted Uber and Lyft to operate with the understanding that the 2015 General Assembly would need to approve new regulations to govern “transportation network companies.” Since Virginia’s forty-five-day legislative session started on January 14, all major stakeholders—Uber, taxi companies and drivers—have been engaged in a pitched battle for the future of the industry.

For drivers, Uber’s entrance into the market has been both a blessing and a curse. On one hand, it has disrupted the longstanding power imbalance between taxi drivers and cab companies, which are desperately fighting to keep in place the old system, with its embedded power relations. Companies’ need for allies in the battle against Uber has given drivers leverage in negotiations. “Uber is my friend; they are weakening taxi companies,” says Arlington driver Teguwaze Gabreselassie. “We can join with the companies to fight against Uber but only if the companies push for laws that respect our rights too.”

For the first time, there have been conversations that bear a semblance to negotiations between drivers and owners. While drivers have thus far been unsuccessful in pressuring cab companies to adopt fairer policies for resolving disputes—when disagreements arise, drivers still lack due process and have little recourse to appeal wrongful terminations—they have forged an alliance to try to level the playing field between traditional rider services, which are subject to heavy regulation, and Uber, which has thus far evaded oversight. As National Taxi Worker Alliance organizer Biju Mathew said, “It’s drivers and millionaires against the billionaires.”

To lobby legislators at the state level, cab company owners in Virginia have created the Virginia Taxicab Association, which has fought Uber’s casualization of labor by lobbying the legislature to require “transportation network companies” to follow rules similar to those for cab services. Under the guise of consumer protection, they have asked lawmakers to standardize fares for app-based companies, require that all drivers have 24/7 insurance coverage, establish a minimum level of qualifications for drivers in addition to requiring a background check, implement standards for safe and efficient cars, and enact privacy safeguards.

Owners know what they’re up against. A June 2014 packet for Virginia legislators, put together by the lobbying group, paraphrases the founder of Uber, who said the industry battle is “a political campaign, and the candidate is Uber and the opponent is an asshole named Taxi…obody likes him, he’s not a nice character, but he’s so woven into the political machinery and fabric that a lot of people owe him favors.” Besides hiring President Obama’s lead strategist David Plouffe as a “campaign manager,” Uber and Lyft have hired four of Richmond’s five largest lobbying firms for the 2015 legislative battle.

Whether or not the push for more regulation succeeds in the upcoming session, what drivers want in the long term is a system in which owners are not skimming off large percentages of the profits. For all its faults, Uber has provided a model and a technology that, if retooled, could do just that. “The world has changed,” said Spencer Kimball, the forward-looking owner of Alexandria Yellow Cab. “We have marriage equality, we have marijuana legalized, and the taxi industry can’t keep treating workers the way it has.”

Uber may have branded itself as an innovative, laissez-faire tech company, but behind that veneer, it uses old-style brute political power to create a regulatory regime to its liking. In Virginia, the company has the ear of Governor McAuliffe and Attorney General Mark Herring, who gave it a temporary green light back in August. This mix of traditional pocket-lining lobbying, slick PR campaigns and the bully power of billionaire backers has been moving bipartisan support for Uber-friendly legislation.

Taxis and ride services have long functioned as a sort of public utility, allowing people who cannot afford a car or have limited mobility to get around. As we move toward a world where more people choose to live without owning a car because of convenience, costs, improved mass transit and environmental concerns, this will increasingly be the case.

But Uber has no requirement to serve the public. Indeed, there is a strong race, class and age bias as to who can utilize the service. You have to own a smartphone, which has an average cost of more than $500. Uber requires customers to pay with a credit card, cutting off those with no or poor credit. Until recently, the company had no wheelchair-accessible vehicles in Virginia, and continues to lack adequate services for the disabled in many places.

What’s more, Uber’s “surge” pricing, in which rates jump based on the relative scarcity of drivers, makes this unaffordable to many in times of high demand, including emergencies like Hurricane Sandy. An attempt to mirror the actual “market value” of a ride at any given time, surge pricing does not serve the vehicleless public that is dependent on rides as part of daily survival. Drivers already rig the system by turning off their app and then jumping back when the price has risen. This is decidedly not operating like a public utility.

The high-tech billionaires who dominate the economy have developed an app that—without regulation—allows them to peel away the most lucrative part of the market for existing car and taxi services. But deregulating a public utility without developing a plan to serve the full population will create significant coverage gaps.

A different world is possible. The software that billionaires created to squeeze money out of drivers and consumers alike could be tweaked to serve working people. It is also possible to imagine an industry where workers own and operate it. The same technology that Uber employs could be used to create a system that preserves full-time jobs, reduces the amount of hours needed to earn a living wage, and provides good service to consumers. It is not hard to imagine a group of radical hackers developing an open-source version of Uber’s app. Such an app could be managed by a public entity or contracted out. If this new app-based taxi service were run like a utility with governmental oversight, it would be possible to efficiently cater to the public.

Such a system should monitor and reduce the amount of hours drivers are allowed to work, since hours driving with an app can be easily monitored. It could strike a balance between income earned and affordable and necessary travel. Implicit in these workers’ rights provisions is a cap on the overall number of app-based vehicles or taxicabs in a given market. Such a system should also have built-in consumer protections, including 24/7 insurance coverage, third-party in-person background checks of drivers, requirements for safe and efficient cars, and privacy safeguards.

But the other piece of the puzzle is giving drivers more power. Thirteen years ago in Alexandria, drivers organized. After a three-year campaign, they successfully changed the regulatory regime to allow moving between companies or creating their own, which is precisely what the 225 driver-owners of Alexandria Union Cab did. As a co-owner, each driver saves almost $7,000 a year in stand dues. By electing the board and voting on policy, they have a say in running the organization. The benefits of cooperative ownership for workers are significant, even though the number of cooperatively owned business in the United States remains relatively small. Even today, while battling Uber, drivers boldly talk of spinoff enterprises such as auto repair or insurance that they can create, own and operate.

The US Federation of Worker Cooperatives estimates that there are over 300 cooperatives in the United States today. Alexandria Union Cab ranks among the largest. According to a column in The New York Times from last March, “[worker] co-ops are back in style…they’re an effective way to battle income inequality.” The technology can support new models of ownership, fostering greater equality and economic democracy. Such a new organization requires a new political majority, a new regulatory regime, and a shared vision for the future of work and society.


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