The Market Fairy Will Not Solve the Problems of Uber and Lyft

Here is the thing about Uber and Lyft (and much of the “sharing economy”).

They don’t pay the cost of their capital.

The wages they pay to their drivers are less than the depreciation of the cars and the expense of keeping the drivers fed, housed, and healthy. They pay less than minimum wage in most markets, and, in most markets, that is not enough to pay the costs of a car plus a human.

These business models are ways of draining capital from the economy and putting them into the hands of a few investors and executives. They prey on desperate people who need money now, even if the money is insufficient to pay their total costs. Drivers are draining their own reserves to get cash now, but, hey, they gotta eat and pay the bills.

This sharing economy shit works in a shitty economy. In a good economy, where people have what they need, it doesn’t work.

The cab company model, with medallions and so on, was exploitative. It wound up charging customers too much, but it did cover its own costs–mostly. Uber and Lyft charge too little and siphon too much of what they charge back to themselves.

The model which made sense was the model of car-sharing, where company-owned cars could be used by those who had bought memberships in the company. This meant that the actual cost of the cars had to be covered. It was far cheaper than cabs, but not as cheap as Uber or Lyft (and you had to drive yourself). Something like that, but with drivers, could have worked.

For that matter, Uber- and Lyft-style apps could work with regulated wages sufficient to pay costs in particular markets.

The market will not miraculously produce a capital-replacing living wage. If it should do so in any particular market, that is happenstance; luck, not social physics.

This is a social action problem; a race to the bottom issue. It makes sense, individually, to race to the bottom. Company execs and investors get rich, consumers get cheaper rides and drivers get money they need. But this isn’t win, win, win. It’s a long con. And not a very long one, either.

The cheaper wages paid to drivers, and thus the cheaper rides, also drive business with capital structures which make social sense out of business. They can’t compete with, “Drive your car into the ground, make less than minimum wage.”

Because it is a social action problem, what needs to be done is to take a game which leads to some people winning while destroying capital and people and move it to a game where everyone wins and capital and people are not destroyed. This can only be dealt with socially, by government.

“Thou shalt pay at least the capital replacement cost + a living wage for the market and shall take only an additional X percent for providing your app. If thou dost not we shall toss thine ass into prison.”

That is the social solution. It is not “The Market Fairy of supply and demand will make sure that fair, sustainable solutions always occur. All praise the Market Fairy.”

Until we stop pretending the Market Fairy is going to solve social action problems, we won’t actually solve those problems.

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