Uber has Betrayed Drivers. Market Socialism Can Do Better.

By Jacob Essig ‘22

In the summer of 2020, Uber and Lyft spent millions of dollars lobbying state legislators and even their own customers fiercely fighting against a California bill, approved in the fall of 2019, that would require rideshare companies to treat drivers as employees rather than contractors. For months, messages popped up when Uber’s user opened the app to hail a car, “threatening that if voters failed to pass Proposition 22”, a proposition that classifies rideshare drivers as independent contractors rather than employees, “wait times and prices would ratchet up, and drivers would lose their livelihoods.” Uber was even accused of publishing its own voter guides under the names of fake advocacy organizations. Groups such as the "Feel the Bern, Progressive Voter Guide," the "Council of Concerned Women Voters Guide," and the "Our Voice, Latino Guide" all provided voters the same voting suggestions, including voting in favor of Prop 22. The proposition passed with the support of a 59% majority of voters, but in August of 2021, a California court ruled that it was in violation of the Constitution of California.

Given all this propaganda, we should ask ourselves, “what does Uber offer under Prop 22 that it could not if its drivers were employees?” One of the primary elements of their campaign for Prop 22 was the argument that if drivers were to become employees, prices for rides would rise significantly. However, they never mentioned that they would still increase ride prices across California after Prop 22 passed. This was in essence a bait and switch, as they fear mongered about price increases in order to avoid providing their drivers the same pay and benefits as traditional workers, and then instituted price increases and new fees anyways. Given this deception, we must also ask ourselves if consumers truly need to keep drivers underpaid in order to maintain affordable ride prices. The answer, of course, is no.

In December of 2015, the City Council of Austin, Texas passed City Ordinance No. 20151217-075, requiring all transportation network companies, including rideshare apps such as Uber and Lyft, to “conduct fingerprint-based background checks on their drivers in order to operate in the city,” a requirement already enforced upon traditional taxi, town car, and limo drivers. In response, representatives and spokespersons for Uber and Lyft argued that their own background checks already ensured sufficient safety and that fingerprint requirements would prove “overly burdensome and unnecessary.” Ordinance No. 20151217-075 was scheduled to take effect on February 1, 2016, but was interrupted when a committee organization called Ridesharing Works for Austin, supported by corporations including Uber and Lyft, garnered over 65,000 signatures in support of a petition to override the ordinance. The council voted on February 11, 2016, to allow Austin residents to decide whether the fingerprinting ordinance should remain in effect. On May 7, 2016, Austin citizens voted down Prop 1, the ballot initiative resulting from the successful petition that would have overturned the city council’s ridesharing regulations (specifically the fingerprint-based background check requirement) by a 12 point margin, allowing for the new fingerprinting requirement to be implemented as law.

On the night that Proposition 1 failed to pass, both Uber and Lyft announced that they would completely and indefinitely cease all operations and services in the city, with Lyft shutting down operations at 5AM and Uber following suit only three hours later. Around the same time, several local entrepreneurs began developing a nonprofit ridesharing app called RideAustin, which they claimed would be capable of providing the same types of rideshare services in the city as Uber and Lyft had previously provided. However, 100% of profits would be directed toward driver compensation. Only five weeks later, on June 16, 2016, the RideAustin app was launched on the iOS App Store, offering a user interface, rideshare services, and pricing very similar to those of Uber and Lyft. The service assured users that it would follow the new fingerprinting and other rideshare regulations supported by Austinites via their rebuke of Prop 1, offering to cover the cost of fingerprinting and background checks for all drivers who signed up to drive with the app.

Drivers for RideAustin received significantly higher compensation than their counterparts driving for Uber. RideAustin drivers received approximately 69% higher wages than their Uber driver counterparts for the average ride, while RideAustin riders paid only 19.4% more for the average ride relative to their Uber rider counterparts. This is significant given that the median Uber driver in Austin, Texas earns only $35,902 annually, far below the estimated $53,225 annually needed to live comfortably in the city. By contrast, RideAustin drivers working the same number of hours would earn almost $61,000 annually, allowing them to live comfortably with money leftover to invest in the future. The flat fee model of RideAustin allowed drivers to benefit significantly more from their increased work productivity and/or hours of work, given that they earned 100% of the fare for each additional mile or minute driven beyond the $0.99 flat fee per ride that they paid to RideAustin. Meanwhile, Uber drivers earn only approximately 69% of the money paid for each additional mile or minute of work, meaning that they participate far less in the economic benefits of working more productively and/or working longer hours. This difference is vital because rideshare drivers across the country do not even have the right to a minimum wage, and many live below the poverty line and/or do not have access to healthcare.

Understanding the differences between worker compensation for Uber drivers as opposed to RideAustin drivers illustrates a connection between the stakeholder model of RideAustin and increased economic institutional inclusivity and between the shareholder model of Uber and increased economic institutional extractivity. While RideAustin focused on maximizing worker compensation, extracting only a flat fee to fund app development and operations costs, Uber focused on maximizing shareholder benefit, maximizing market share at the expense of driver salaries, and extracting a significant portion of fares before compensating drivers. As such the stakeholder model demonstrates significantly increased focus on and delivery of economic value for drivers, while the shareholder model demonstrates significantly increased focus on shareholder value, providing lower economic value to drivers.

Workers cooperatives, focused on a stakeholder model of corporate governance that is democratically owned and controlled by the workers, will more often make corporate decisions that are better for drivers and their communities, while limiting unsustainable growth and avoiding the need for sudden price hikes that strain already reliant consumers. Given this focus on achieving healthy and sustainable economic growth that benefits workers and consumers alike in the long-term, cities with large numbers of gig workers such as rideshare drivers should act to support and aid the creation and successful operation of gig workers cooperatives in their local gig economies.

While some may argue that workers’ cooperatives should compete with for-profit counterparts without government support, this neglects the unique nature of workers’ cooperatives' ownership structures that make acquiring startup capital from traditional investors almost impossible. While most companies, such as Uber, operating local gig economies can acquire startup and development capital from investors in order to operate at a loss in the short-term to gain market share in the long-term, workers’ cooperatives cannot raise capital in the same manner. These enterprises are owned by their workers, meaning the workers have equal ownership stakes in the company, benefit equally from increased profits, and decide democratically upon management and operation decisions. As such, they cannot raise capital necessary for initial startup costs in exchange for equity as most other startups would. Therefore, cities that desire to promote these healthy enterprises should offer startup capital to workers’ cooperatives in the form of low or zero-interest loans, to allow them to build the necessary infrastructure to begin operations. Once workers’ are able to begin working through the cooperatives, loans can be repaid to the loan fund, and then reallocated to other new cooperatives.

A loan program for workers cooperatives designed for this purpose would quickly pay back into the city through sustainable good-paying jobs for residents, increased tax revenue, and, of course, repaid loans. This will prove beneficial to the cities’ workers and consumers alike, and foster a more sustainable local gig economy based on natural growth rather than the heavy speculation and loss-fueled rapid expansion of companies like Uber that can easily result in a disastrous boom and bust.