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
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.