Super Uber or Uber Stupor?

Is Uber taking us for a ride? That's the concern on a lot of folks' minds as this international company which is currently valued at more than $50 billion moves to transform and dominate the car-for-hire transportation business here in the United States and around the world.

There is no question that Uber became the darling of tech savvy early adapters and millennials and is now earning rave reviews from a large group of cost-conscious individuals who want to get the best bargain for their bucks when they order a vehicle to take them from point A to B. There is a real question, however, about what business Uber is in and the nature of its business model.

Uber asserts that it is in the software app or ride-hailing business. That would be easy to accept if it sold its software to a purchaser and then drove away from the scene of the sale.

But, it does not. It stays in the game. The driver who buys its software operates under the Uber brand and Uber gets a percentage of every paid trip that driver makes.

It would also be easy to accept if Uber was hands-off in terms of the marketplace for consuming services delivered by those using the Uber app. But, it is not.

Uber aggressively intervenes in municipalities, states and even countries to try to change the existing rules and regulations that cover ground transport for a fee. According to Karen Weise's article in Bloomberg Businessweek, Uber has 250 lobbyists and 29 lobbying firms registered in state capitols around the country and that doesn't include its municipal lobbyists.

Uber has been called innovative and its software is. What may be more innovative though has been Uber's ability to position and frame itself as a business.

When it was founded in 2009 by Travis Kalanick and Garret Camp the company was called UberCab. What's in a name? Possibly everything.

By 2011, Uber had secured substantial investor funding. In that same year, it changed its name from UberCab to Uber.

Dropping Cab from the name, certainly made it easier for Uber to argue that its business is about software rather than transportation. It also makes it easier to contend that the Uber drivers are not employees.

While that may be true, on its own website, Uber proclaims that its drivers are independent contractors. It makes one wonder for whom do those independent contractors work.

There is a class action case currently pending in California in which a group of Uber drivers maintain they are employees and should be reimbursed for things such as expenses and withheld tips.

Uber has responded to the case by declaring that its driver base in the U.S of over 160,000 people is incredibly diverse and this small number of plaintiffs does not represent its wishes. Uber marshaled testimony from over 400 California drivers to defend its contention.

It is hard to predict how this case will be decided. Courts at all levels in our judicial system sometimes work in mysterious ways.

What is easy to determine, on the other hand, is that not being an employer of drivers gives Uber a significant competitive advantage in this space. Traditional taxi and limousine companies are required to meet minimum wage standards and overtime laws; pay drivers' payroll taxes; and, in some instances provide health and other benefits.

Uber's advantage extends well beyond avoiding employee costs. It basically avoids most of the regulations governing "cab" companies and other costs of doing business such as vehicle acquisition and maintenance to comply with state regulations; buying taxi medallions, purchasing of insurance; payment of fees to do business in the locations where the drivers operate, payment of government taxes; ensuring training and background checks for drivers; and, the operating expense and overhead of running a business on a day to day basis

This is a sweet deal. Uber recognizes this and that is why it has spent so much money on paid lobbyists and social media to organize users and citizen advocates to contact governments on its behalf, as it did in Portland, Oregon and New York City.

Edward Walker, associate professor of sociology at the University of California at Los Angeles, labels this mobilization of the masses by a corporation as "The Uber-ization of Activism."

Walker sees this as a bad thing, citing examples of how for-profit colleges used their students for "political pressure," Comcast got its philanthropic beneficiaries to support the Time Warner merger and the beverage industry hired protestors to oppose soda taxes. He states that "Technology may be neutral, but grass roots should be bottom up, not top down."

Kemal Dervis, vice president and director of global economy and development at Brookings Institution takes the critique of Uber's business model a bit further in a provocatively-titled opinion piece, "Is Uber a threat to democracy" published by the American think tank.

Dervis sees some benefits from Uber in areas such as "price setting" and "job creation." By contrast, he sees definite problems in areas such as Uber's impact on the traditional taxi drivers and transportation companies that have to abide by rules other than those imposed on Uber.

The "final problem" that Dervis identifies is an interesting one. It is the fact that in

"innovative companies like Uber is that the financial returns overwhelmingly accrue to the company's leadership, rather than service providers. Whether or not that is justified, such companies' contribution to rising income inequality - and thus to regulatory capture, media bias, and disproportionate influence in elections - cannot be ignored."

Here's the bottom line: Uber may have a new-fangled tool but it appears to be winning the battle for market share in an old-fashioned way. That is to play the game by a different set of rules and use leverage to change the rules to give your business a decided advantage

We guess that's one side of the American and capitalist way. The other side is the concept of full and open competition.

As Dervis notes, "In a democratic system, the challenges that such disruptive technologies bring must be confronted in a way that ensures fairness, without impeding progress." He hits the nail on the head.

And, progress or reform is needed as two Brookings-related studies have highlighted. One study commissioned by the Brooking Institution's Hamilton Institute found that state licensing requirements covered 1 in 20 jobs in the 1950's but cover more than 3 in 10 today. The study estimated that this state licensing reduced national employment by as much as 2.8 million jobs.

The other Brookings study of "business dynamism" drawing upon census data showed that there has been a steady and fairly dramatic decline of new firm creation since 1978.

Forbes contributor Elaine Pofeldt points out that studies of this type frequently do not count the self-employed, or what she calls "solo entrepreneurs," and that we need to accelerate their ability to start businesses in order to stimulate our 21st century economy.

The taxi industry has been closely held and tightly-controlled by both its providers and government regulators. It is definitely time -- past time -- for deregulation or re-regulation. As Justin Fox of Bloomberg View comments, in the main "...local taxi and car service regulation has long been a classic case of narrow interests prevailing over the public interest."

It is time for the public interest to prevail. Uber is making an important contribution in this regard.

It is transforming the nation's car service transportation for hire landscape. This transformation presents the opportunity to revisit and reform the social and regulatory policies that govern this industry.

If this is done in a "fair and balanced" manner and everyone is allowed to play by the same new set of rules, consumers, companies and employees will all win. If it is not, then the very essence of capitalism in a democracy is called into question.

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