Uber is in a crowded club

Online me­tered-taxi ser­vice is not re­ally the dig­i­tal dis­rupter it is por­trayed to be, writes Dewald van Rens­burg

CityPress - - Business -

Imag­ine a com­pany whose providers of cap­i­tal, sup­pli­ers of con­sum­ables and work­ers all com­pete with each other to guar­an­tee their master a gross profit mar­gin of 20%. Imag­ine a com­pany that has tens of thou­sands of work­ers, but is ex­empt from labour laws – and com­mands bil­lions of rands worth of cap­i­tal in­vest­ment in the form of ve­hi­cles, with­out putting up a cent of eq­uity or tak­ing on any debt. Such a com­pany ex­ists. It is called Uber. It is easy to get fix­ated on the gad­getry. The smart­phone in­ter­face and cash­less billing sys­tem are un­de­ni­ably a ma­jor im­prove­ment on tra­di­tional me­tered-taxi ser­vices, but the revo­lu­tion be­ing wrought by Uber and all its peers is a lot more old school than that, and it re­volves around costs.

The key el­e­ments that make up Uber, be­sides the app, are tried and tested in old in­dus­tries where ex­per­i­ments with all sorts of out­sourc­ing and ca­su­al­i­sa­tion strate­gies have been hap­pen­ing for decades.

A sig­nif­i­cant trail­blaz­ing South African ex­am­ple is SA Brew­eries (SAB) and its cooldrink sub­sidiary Amal­ga­mated Bev­er­age In­dus­tries (ABI), which pro­vides much of the lo­cal Coca-Cola sup­ply. Both con­verted their em­ployed driv­ers into in­de­pen­dent “owner-driv­ers”, start­ing in the 1980s.

By now, ABI doesn’t em­ploy any of its 314 driv­ers – or own any trucks – while 400 or so of SAB’s 500 driv­ers are owner-driv­ers. For­mer em­ploy­ees be­come “part­ners”, just like Uber driv­ers, who are hooked up with bank fi­nance to buy the trucks they drive.

In­ci­den­tally, the road freight in­dus­try’s col­lec­tively ne­go­ti­ated labour rules and min­i­mum wages ex­empt trans­port com­pa­nies that have fewer than five em­ploy­ees.

The 400 SAB owner-driv­ers em­ploy 1 200 crew­men, mean­ing that, by and large, the whole dis­tri­bu­tion sys­tem falls be­low the thresh­old.

These driv­ers can’t strike or bar­gain for wages and, although the com­pa­nies claim high suc­cess rates and earn­ings for the driv­ers, the crew­men may not be so lucky.

To be fair, these schemes come with gen­er­ous truck fi­nanc­ing and more or less guar­an­teed work.

Uber takes this idea to a log­i­cal end point – stay­ing out of the fi­nanc­ing side of things and en­cour­ag­ing all-out com­pe­ti­tion be­tween its “part­ners”.

While a lot of the crit­i­cism of Uber fo­cuses on the driv­ers, another key to the model is the way it dis­trib­utes a vast taxi net­work’s bal­ance sheet to any­one but it­self. The risks are com­pletely so­cialised.

The driv­ers hardly ac­tu­ally own the cars, de­spite the rhetoric of an in­cip­i­ent “shar­ing” econ­omy.

In­stead, there is a third role player in the Uber sys­tem – the car own­ers who lease the cars to the driv­ers, who in turn are Uber’s “part­ners”.

They take on the debt to buy cars and set the di­vi­sion of rates with driv­ers af­ter Uber has taken its 20%. A driver can get out 25%, with the owner lay­ing claim to 55% of the fare you pay. This sets up the ba­sic vul­ner­a­bil­ity of the sys­tem. The cars have to be rel­a­tively new – four years or younger. The cut of the fares taken by the car owner has to cover the fi­nanc­ing of that car: the petrol, in­sur­ance and main­te­nance.

All the ex­ter­nalised in­vest­ment go­ing into the Uber net­work is in­vis­i­ble to the com­pany.

It is en­tirely pos­si­ble that Uber is cre­at­ing a bub­ble of ve­hi­cle in­vest­ments, hurtling to­wards a bust by swamp­ing the net­work with more cars and driv­ers than it can sup­port. This threat is ex­ac­er­bated by Uber’s habit of pe­ri­od­i­cally slash­ing rates with no ref­er­ence to the cost of cap­i­tal in­vested in its net­work by “part­ners” – or the abil­ity of driv­ers to make ends meet. If you use Uber, you will prob­a­bly have heard the com­plaints about there be­ing too many other Ubers around.

The com­pany con­stantly stresses that it is not a trans­port com­pany – a le­gal con­ceit at the heart of its model be­cause it can avoid taxi reg­u­la­tions and labour laws.

In a re­cent Cal­i­for­nia court case that may yet de­stroy the com­pany if not ap­pealed to death, Uber’s mantra that it is merely a “tech­nol­ogy com­pany” was dis­missed as ridicu­lous. “It strains credulity to ar­gue that Uber is not a ‘trans­porta­tion com­pany’,” said Judge Ed­ward Chen.

Uber can hire and fire driv­ers, set their work­ing con­di­tions, pre­scribe their be­hav­iour and de­ter­mine their fares.

It is an em­ployer and the driv­ers are its em­ploy­ees. Full stop.

In Cal­i­for­nia, the Uber case was one of many hing­ing on the dis­tinc­tion be­tween em­ploy­ees and “in­de­pen­dent con­trac­tors” – a re­cur­ring le­gal bat­tle that closely echoes the South African fight about labour bro­ker­ing.

It is true that labour laws have os­si­fied in the face of work­place in­no­va­tion. It’s been hap­pen­ing for a long time and the main prob­lem is that labour law is premised on work­places that barely ex­ist any more. What is needed is a re­turn to the ba­sic found­ing im­pe­tus be­hind these laws: check­ing the ef­fec­tive power of one group of peo­ple over another, gen­er­ally far larger but less pow­er­ful, group of peo­ple.

Uber has per­fected this kind of power, but it is just the fan­ci­est new ar­rival in a crowded club.

The cur­rent con­tro­ver­sies about Uber are mostly driven by other taxi com­pa­nies.

Ul­ti­mately, the real bat­tle will be be­tween Uber and its part­ners.

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