Uber arrives in Wellington

Uber recently launched in Wellington. It’s a service where you use an app on your phone to arrange a location for a pickup, and a driver comes and takes you to your destination. Uber intially started as a luxury car service, but eventually ended up launching UberX, which is essentially a normal taxi service except provided through their app. It’s a big and fast growing service: it’s available in 130 cities, and the company is worth around $18 billion USD.

I had my first ride (for free!) from the airport into town the other day, and apart from the driver taking a while to set off to pick us up, it was a great experience. Judging by the car and the ID pass on the dashboard, it looked like our driver used to be a taxi driver, which seems to be the case for most of the Uber drivers in Welly. I think they have about four drivers in Wellington at the moment. The ride, and reading about the launch, got me thinking about the benefits and drawbacks of Uber more generally.

The underlying technology of Uber is way ahead of traditional taxies, and has a number of distinct advantages:

  • You can see where your driver is, and how long until the car is going to arrive
  • You can see how much it will cost before you set off, and you can split the fare with a friend easily
  • There’s no messing about with cash or eftpos at the end of the journey
  • Uber emails you receipts, which include a map of the route you took
  • Ratings system for drivers and passengers – provides a way for customers to give feedback on how their ride has been, and also enables drivers to give passengers a bad rating if they’re unpleasant
  • Surge pricing is somewhat innovative

More broadly, the much heralded ‘sharing economy‘ has the potential to reduce waste in the economy, as people ride in other people’s cars rather than owning a car that remains unused 95% of the time.

Below are some thoughts about the less positive aspects of Uber.

Surge pricing

Surge pricing, while I’ve included it in the pros list, could also be quite a negative. The service utilises what’s called ‘dynamic pricing’, where that in periods of high demand, uber automatically increases the price of catching a car, reportedly by up to seven times. This has the effect of reducing demand for the service, but also supposedly encouraging more drivers to start working as they’ll get paid more. It’s essentially supply-and-demand fluidly in action, and it’s probably how you would design a taxi system if you were an economist starting from first principles (there’s an essay online praising it from this angle here).

The problem with surge pricing is that it potentially adds a degree of unpredictability to the experience – while there is a function whereby you can see how expensive the ride is going to be, people might not use it and get stung by a higher price than they were expecting. There’s also been controversy overseas when surge pricing has come into effect when there’s been storms or disasters and people have really needed to get around, only to discover that it costs way more than normal to use Uber. Is that right? Coming from the perspective of fixed pricing for taxi products, it seems pretty screwy, but maybe we’ll eventually get used to it. The co-founder Travis Kalanick has said: “…because this is so new, it’s going to take some time for folks to accept it. There’s 70 years of conditioning around the fixed price of taxis.”

If you think about it another way, we’re already paying in a different way when we try and catch taxis at peak times – it takes ages for your taxi to arrive as the services get swamped. For now, the allure of a fare which doesn’t change seems pretty appealing, but as long as there’s always an alternative to Uber cars, I don’t see a problem with surge pricing.

Safety concerns

There are some questions about the safety of using Uber. A female friend I talked to said she wouldn’t use the service by herself because she couldn’t really know if the driver was safe. Tom Beard of Wellingtonista points out that there have been some bad stories coming out of the states, and Uber has even introduced a $1 ‘safe ride fee’ there. The money would go towards backround checks, education and training of drivers etc. As a number of poeple have argued, it seems pretty screwed that the cost wasn’t initally rolled into the normal rate. I guess the fundamental principle which they’re following is that if any of the drivers are dodgy, they’ll get bad ratings pretty quickly and eventually be locked out of the system. But that stakes seem substantially higher than in normal purchases, and I think Uber will need to prove itself in the safety department if it’s really going to take off.

Lack of regulation

Stepping back a bit to think about Uber more broadly, Beard goes on to say that the business practices of Uber have been far from stellar overseas:

On top of that, Uber have fought against insurance and safety legislation, been accused by their drivers of exploitation, and used what seem to be extremely underhand anti-competitive measures. While we wouldn’t suggest boycotting a company because of its CEO’s politics, it would seem that Travis Kalanick makes Cameron Slater look like Laila Harré, and his libertarianism manifests itself in the company’s anti-unionism and contempt for public safety legislation. As anyone who remembers the Green Cabs Wars on the Wellingtonista will know, the Wellington taxi industry isn’t exactly a host of angels. But in a city that is already overrun with cabs, is there much need for an even less regulated alternative?

If you go to Uber’s Wikipedia page, there’s a huge section detailing the regulatory pushback from governments and their taxi industries around the world. It’s clear that established taxi players don’t just allow a new player to come in and disrupt their industry without a fight.

The position of Uber in relation to drivers

The Dominion Post reported that the WCC welcomed the introduction of Uber, with Councillor Andy Foster saying the existing taxi services in Wellington are too expensive. The article goes on to say that: “[regional general manager Michael] Brown said the Uber model would shake up traditional taxi firms because it cut out the middlemen and put passengers in direct touch with drivers.”

However there’s a pretty compelling peice in Jacobin magazine about the downside of the ‘sharing economy’, of which Uber is an example. It details the much less positive underside of Uber in it’s more established markets. Drivers are not employees but independent contractors who pass on 20% of their fares to the company. In response to competition from other services like Lyft, Uber has cut it’s prices substantially in the US, thereby cutting drivers wages, and in the current situation there’s essentially nothing they can do about it. It’s a tenuous relationship between drivers and Uber, and one with a huge power imbalance.

As a driver from Los Angeles says in the Jacobin article:

“Uber takes 20 percent of my earnings, and they treat me like shit — they cut prices whenever they want. They can deactivate me whenever they feel like it, and if I complain, they tell me to fuck off.”

Uber drivers are increasingly banding together in an attempt to bargain collectively “even though Uber’s business model discourages collective action”. But the company seems very dismissive of any attempts of its workers to organise – the LA director of the company has said that “Uber would never negotiate with any group that claims to represent drivers.”

The overall situation, which the company likes to describe as a sort of partnership with drivers, is very worrying and in some way exploitative, as Avi Asher-Schapiro argues:

“But that is just empty spin: drivers aren’t partners — they are laborers exploited by their company. They have no say in business decisions and can be fired at any time. Instead of paying its employees a wage, Uber just pockets a portion of their earnings. Drivers take all the risks and front all the costs — the car, the gas, the insurance — yet it is executives and investors who get rich.

…under the guise of innovation and progress, companies are stripping away worker protections, pushing down wages, and flouting government regulations. At its core, the sharing economy is a scheme to shift risk from companies to workers, discourage labor organizing, and ensure that capitalists can reap huge profits with low fixed costs.

There’s nothing innovative or new about this business model. Uber is just capitalism, in its most naked form.”

What the Jacobin article underlines for me, is that when these new “disruptive” technologies are introduced, it’s important to think about not just whether the final outcome is better, but also the effects of the disruption on people in the process. As danah boyd points out: “Disruption, a term of endearment in the tech industry, sends shutters down the spine of many, from those whose privilege exists because of the status quo to those who are struggling to put bread on the table.” Sure, we might have cheaper taxi rides if Uber takes off in a big way, but in doing so, are we being complicit in the causualisation of a whole lot of people’s jobs? Are we harming the poeple who are ‘struggling to put bread on the table’? While ‘cutting out the middleman’ might be an attractive thing to do, as consumers and citizens, we need to always keep in mind the impact of our choices.

Conclusion

It’s pretty indisputable that Uber is a useful product. But once you begin to think about its pitfalls and potential impacts it stops seeming like such a benign technology underdog, and more of a worry. Do we really want a foreign company coming into New Zealand and disrupting our established, (somewhat) regulated system?

What I would like to see is local taxi companies adopting the technology, while also staying grounded as small New Zealand companies. (There’s some indication that this is happening already, I noticed Green Cabs already has a booking app, although I haven’t tried it out.)

What I don’t want to see is the New Zealand taxi industry becoming atomized and de-unionised to the point where taxi drivers—not exactly privileged members of society—are squeezed by a foreign company with little interest in their welfare.

Update

It also turns out Uber is illegal under the Land Transport Act, with reports in January 2015 of people being forced to get out of Uber vehicles by police, and a couple of taxi drivers charged “with determining a fare other than by way of a set fare or an hourly rate agreed with passengers at the time of booking, and with using a taxi meter to determine a fare.”

It will be interesting to see how this regulatory issue will pan out! I’m not sure about Uber’s strategy of “launch first, sort out the legality of the launch later!”…

Further reading

Last updated 25 July 2015

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