Uber and Lyft are the lit­mus test of sup­port for a mar­ket econ­omy

Ride-shar­ing plat­forms ap­pear to be los­ing a fight to con­tinue run­ning in their cur­rent form

The Daily Telegraph - Business - - Front Page - Ryan Bourne

‘The vast ma­jor­ity of driv­ers pre­fer in­de­pen­dent con­trac­tor sta­tus than the le­gal sta­tus of em­ploy­ment’

An hour af­ter ar­riv­ing, I re­mained stranded at a train sta­tion in the Cotswolds, work­ing through the long list of ad­ver­tised taxi num­bers. The first op­er­a­tor asked, with all se­ri­ous­ness, “What day do you want this for?” An­other in­formed me that he was on a Heathrow run and could pick me up in two hours. A third call di­alled through to some­one who seemed to have no idea his phone was even listed for taxi ser­vices.

At­tend­ing that ru­ral wed­ding last year brought home the value of the con­ve­nient ride-shar­ing plat­forms I’d taken for granted in cities. Out in the sticks, busi­nesses such as Uber or Lyft will prob­a­bly al­ways be un­vi­able. But their ab­sence made me pine for the read­ily avail­able, safe, door-to-door ser­vices that op­er­ate in oth­er­wise badly trans­port-served cor­ners of ma­jor cities.

Such ser­vices now risk be­ing un­der­mined or even de­stroyed. Not, sadly, by forces of com­pe­ti­tion, but by lawyers, law­mak­ers and reg­u­la­tors. In

London, Uber faces the ver­dict of an ap­peal against a rul­ing by Trans­port for London that it is not a “fit and proper” op­er­a­tor. Across the world, ride-shar­ing plat­forms ap­pear to be los­ing a big­ger fight to con­tinue run­ning in their cur­rent form.

Most re­cently in Cal­i­for­nia, but in an on­go­ing UK Supreme Court case too, their busi­ness model is be­ing threat­ened by le­gal claims that driv­ers should be treated as em­ploy­ees rather than in­de­pen­dent con­trac­tors. Urged on by trade unions and com­peti­tor trans­port in­ter­ests, the cases rep­re­sent an at­tempt to shoe­horn driver-plat­form re­la­tion­ships into tra­di­tional em­ployee-em­ployer forms, mak­ing driv­ers el­i­gi­ble for “rights,” such as sick pay, hol­i­day pay and the min­i­mum wage.

Who doesn’t want more rights? Well, most of the com­pa­nies’ driv­ers, it seems. Yes, a pan­demic that has hol­lowed out in­ner cities has seen many re­assess their pref­er­ences for se­cu­rity and flex­i­bil­ity. Some driv­ers do want more of the for­mer. But sur­vey af­ter sur­vey both be­fore and dur­ing the pan­demic shows the vast ma­jor­ity of ride-share driv­ers pre­fer in­de­pen­dent con­trac­tor sta­tus than the le­gal sta­tus of em­ploy­ment.

A re­cent poll in the US, for ex­am­ple, found that 66pc of even “full-time” Uber driv­ers favour their ex­ist­ing sta­tus over be­com­ing em­ploy­ees. A 2017 sur­vey here in the UK found 80pc sup­port for that sta­tus among all driv­ers.

The rea­son is clear: most driv­ers value flex­i­bil­ity. They have no set hours – with com­plete free­dom to de­cide how and when they drive. In fact, 86pc of US driv­ers say they opted for app-based work pre­cisely be­cause of the flex­i­ble sched­ule. Faced with the choice be­tween guar­an­teed in­come and rights or flex­i­bil­ity and higher pay when they do work, they favour the lat­ter, by mar­gins of at least three to one.

These driv­ers that op­pose for­mal em­ployee sta­tus know that such a move would mean rigid hours and greater em­ployer con­trol over lo­ca­tions they serve. This would negate their abil­ity to fit in earn­ing in­come with other pur­suits, whether stud­ies, par­ent­ing or their pri­mary jobs.

If mov­ing to em­ployee sta­tus would be bad news for driv­ers, it would also clearly harm cus­tomers. Bear­ing higher fixed costs of em­ploy­ment would see Uber and Lyft op­er­at­ing in fewer cities and re­strict­ing lo­ca­tions served within them. Ba­sic rides would cost more and be less read­ily avail­able, mean­ing higher prices for day-to-day con­sumers and a smaller net­work.

Con­sumers would find them­selves then fac­ing worse ser­vices that are less af­ford­able. Less flex­i­ble driver num­bers would worsen the re­spon­sive­ness of car avail­abil­ity to sup­ply and de­mand through the dy­namic pric­ing Uber and Lyft are fa­mous for, and that economists find in­creases con­sumer wel­fare.

Much ink has been spilt on the le­gal ar­gu­ments over whether driv­ers re­ally fit the bill of con­trac­tors or em­ploy­ees un­der ex­ist­ing law. There will be long de­bates that cen­tre over how much con­trol driv­ers cur­rently have or should have over things such as pric­ing, to meet the con­trac­tor def­i­ni­tion. Al­ready, to try to squeeze into Cal­i­for­nia’s stric­tures, Uber had be­gun to al­low driv­ers to see des­ti­na­tions of jour­neys and be able to re­ject them with­out penalty, for ex­am­ple.

Yet these de­bates ob­scure the more im­por­tant eco­nomic one. By ar­gu­ing over how driv­ers fit into cur­rent worker def­i­ni­tions, we risk ig­nor­ing whether laws that risk mak­ing pop­u­lar ser­vices un­vi­able are them­selves the greater prob­lem.

These plat­forms fa­cil­i­tate mu­tu­ally ben­e­fi­cial trades be­tween driv­ers and rid­ers. Reg­u­la­tory or leg­isla­tive en­force­ment that, in ef­fect, bans some of these vol­un­tary trades is eco­nom­i­cally de­struc­tive. If will­ing adults want to trans­act their labour in this way, then who ben­e­fits from go­ing to such lengths to make the ac­tiv­ity con­form with ex­ist­ing em­ployee def­i­ni­tions?

Rather than try to place square pegs in round holes, leg­is­la­tors should work with the op­por­tu­ni­ties new tech­nolo­gies af­ford. That’s not just my view, but that of for­mer prime min­is­ter Tony Blair. In a piece pub­lished last week he ar­gued for over­hauls of ben­e­fit sys­tems to al­low more peo­ple to work flex­i­bly, by reimag­in­ing so­cial in­surance pro­grammes to com­pen­sate for down­side risks.

In com­pet­i­tive mar­kets, com­pa­nies such as Uber are al­ready fi­ness­ing their own pack­ages as driv­ers’ pref­er­ences evolve. The com­pany’s own sur­vey sug­gests driv­ers over­whelm­ingly sup­port their most re­cent pro­pos­als to de­velop driver ben­e­fit funds in the US rather than turn them into em­ploy­ees. And that’s the point: why shouldn’t work­ers be able to con­tract their labour on the terms that they wish through free ne­go­ti­a­tion like this?

How pol­i­cy­mak­ers re­act to these cases, es­pe­cially if Uber loses, will pro­vide a lit­mus test of their at­ti­tudes to in­no­va­tion. Plat­form tech­nolo­gies come along that pro­vide pop­u­lar ser­vices for users and providers. Will pol­i­cy­mak­ers pro­tect such in­no­va­tion by al­ter­ing laws, or sac­ri­fice our eco­nomic wel­fare on the al­tar of tra­di­tional em­ploy­ment re­la­tion­ships?

‘Bear­ing higher fixed costs would see Uber op­er­at­ing in fewer cities and re­strict­ing lo­ca­tions served in them’

Ride-hail­ing apps such as Uber and Lyft are al­ready fi­ness­ing their own pack­ages as driv­ers’ pref­er­ences evolve

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