Uber’s dangerous drive to serfdom

Senator Josh Hawley, a rising star of the Republican Party, recently announced that he had introduced a bill that would penalise firms for using slavery in their supply chains. Hawley made the obvious case that “If you consider yourself an American company … you should not be profiting on slave labour, particularly not to the detriment of American workers.”

We can all agree that slavery is morally abhorrent. But Hawley’s legislative focus, however admirable, is somewhat myopic: he and other policymakers also need to focus attention on other forms of labour exploitation occurring right under their collective noses in America’s “gig economy”, in which benefits and protections that were key components of our employment laws for many decades are now being rapidly unwound.

No company better exemplifies this trend than Uber. The company’s exploitation of workers is symptomatic of the rise of what author Albena Azmanova has called “precarity capitalism” in her new book, Capitalism on Edge, a condition that Professor James Galbraith has described as “a minority ensconced in a diminishing set of safe career paths or sufficient wealth not to bother worrying about [economic insecurity], and a majority living in persistent anxiety over the costs of health, housing, education, the quality of public services and other formerly ordinary attributes of middle-class life.”

What makes this trend particularly galling is that the main economic drivers of this transition to 21^st-century serfdom fancy themselves as enlightened, socially “woke” corporations, but in fact embrace employment practices worthy of the 19th century Gilded Age.

The company uses retrograde tactics to circumvent existing labour law via the “independent contractor” loophole, which allows them to deny their work force traditional employee benefits, such as healthcare, sick leave and holiday pay, themselves the products of many decades of hard-earned reform. And even with these 19^th century work practices, Uber still can’t generate positive cash flow, let alone sustain profitability. There’s no reason why a company with this kind of business model should exist.

In a genuinely independent contractor relationship, the quid pro quo is higher pay as an offset towards the lack of paid benefits. But companies such as Uber don’t operate this way: drivers earn around $9-$10 per an hour, and they can’t expand revenues because they haven’t got the ability to set their own prices or unilaterally expand their customer base. That’s left in the hands of Uber’s management. So, the only option drivers have is to drive more hours.

But when a driver is making less than the minimum wage, driving more hours considerably impinges on one’s alleged work-time flexibility. It also adversely impacts the ability to generate sufficient earnings to afford decent benefits, such as adequate health insurance (which is not a public good in the US), let alone enjoy any kind of leisure that the alleged “flexible” working hours purportedly facilitate. Out of economic necessity, all “free time” is effectively commercialised.

The much vaunted “independence” allegedly derived from Uber’s model, therefore, is more apparent than real: as the National Labor Relations Board report notes, Uber’s so-called “entrepreneurs” have “no control over how they deliver rides… are ‘supervised’ by semi-automated and algorithmic systems that track their acceptance rates, time on trips, speed, customer ratings, and other factors, and drivers can be ‘deactivated’ based on these factors”.

It’s a modern day version of Jeremy Bentham’s “panopticon”, a disciplinary concept which was originally brought to life in the form of a central observation tower placed within a circle of prison cells. Uber has now taken the idea one stage further, importing the concept into their workforce via 21^st century surveillance technology.

In many respects, Congress is lagging the courts, which are moving quickly to rectify loopholes that have allowed the employment conditions at companies like Uber to become a form of indentured servitude. A California superior court judge recently denied injunctive relief to both Uber and Lyft. This means that they will be forced to comply with earlier rulings, and a California state statute, which mandated them to reclassify their workers as employees, rather than “independent contractors” (although the California Court of Appeal has recently pushed back the original 20 August deadline to October while it considers Uber’s full appeal). The original court decision also confirms a similar ruling made by a New York federal judge last month.

These are also consistent with a growing number of decisions in other countries, such as the UK, where Uber is now appealing a lower court ruling that its drivers should be classified as employees “entitled to employment protections such as a minimum wage and holiday pay”, and in Canada, where the country’s Supreme Court has recently ruled that Uber drivers were entitled to sue for traditional benefits and vacation pay. In spite of the Canadian Supreme Court decision, Uber is still trying to keep its Canadian drivers from joining or starting class-action lawsuits against the company in the hope that the drivers will be intimidated by the contract to avoid seeking legal remedies, even though Uber legally cannot prevent them from pursuing class action lawsuits.

What is key about the judgments is that they comprehensively demolish the myths championed by gig economy employers like Uber’s CEO, Dara Khosrowshahi, confirming what many of us already knew: any concept of independence is nonsensical, given the massive imbalance in the relationship. Indeed, the UK Court of Appeals went even further, characterising Uber’s description of the work relationship as “a sham”, because the company exercises full control over its employees but attempts to escape the reciprocal obligations of that relationship by designating them as independent contractors.

The legal side accords with economic reality: the fact is that the existing business models of companies such as Uber were unsustainable by any measure, even before their now exploitive labour practices were challenged in the courts. Uber continues to lose a lot of money, only surviving by virtue of an ongoing high IPO bubble that has infused it with cash to staunch the red ink. It’s a form of “Ponzi finance,” a condition that the economist Hyman Minsky defined as “the cash flows from operations [being insufficient] to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations”.

Minsky’s definition fits Uber perfectly. Over the past four and a half years, Uber has lost $23.2 billion and the company has higher operating costs than the taxi companies it is seeking to displace. In other words, without illegal exploitation models, the rate of financial losses would far exceed their ability to raise cash from the credulous finance and investment world. That IPO bubble also sustains the stock price, which has turned Uber’s upper management into millionaires.

None of this seems to matter much to Khosrowshahi. In a piece for the New York Times, the Uber CEO decried the lack of flexibility in current labour law which he claimed denies workers the freedoms to choose the way they work and when they do it. He went on to argue that the pay versus benefits argument was a “false choice” and that “our current employment system is outdated and unfair”.

In reality, the trade-offs between traditional employment and the gig style labour practices that Khosrowshahi lauds in his article are gradually disappearing. Covid-19 has created a situation in which many of the extolled benefits of the gig economy, such as working from home or choosing one’s hours of employment, are gradually being imported into a multiplicity of jobs, without subverting the protections and benefits afforded by traditional employment practices.

It is true that many of these jobs will ultimately revert to office environments. But a recent report from the Stanford Institute for Policy Research persuasively argues that working from home and other such features of the gig economy are likely to be expanded in other businesses that are not reliant on a medieval labour model to sustain profitability.

Ultimately, Uber hopes to render the debate on their employment practices moot: management’s long-term goal is to use their “contractors” to establish a consumer base, while they work to perfect the robotic technology that ultimately enables the company to replace their workforce with self-driving cars. That is their only plausible path to profitability (assuming of course, that their self-driving cars eventually develop the capacity to recognise a pedestrian, so that they don’t kill them).

Courts around the world have started to close the loopholes exploited by companies such as Uber. But that’s not enough: governments must build on those judgments, eliminate the loopholes, and thereby reaffirm the rights and protections for gig economy workers built up over decades. If Uber threatens to cease operations, fine. Much as we prevent sweatshops or exploitive child labour, no business that sustains serf labour practices should be allowed to operate in a civilized society just for the sake of fattening the pockets of a few.