If and when Uber drivers unionise…

What makes Uber such a disruptive force in the taxi market?

Is it its app technology?

Or is it the fact that its business model transfers the ball and chain costs of capital, vehicle rental and maintenance, risk, tax and insurance costs over to taxi drivers, who often don’t appreciate the all-in operating costs until they’re far too invested in the scheme?

Perhaps, alternatively, it’s because the notoriously “asset light” taxi company pays scant attention to local licensing rules or regulations and sometimes even likes to spy on where its customers are going .

Or maybe it’s because Uber disregards the laws of supply and demand by having an entirely open-ended policy with regards to the size of its driver network.

Or perhaps still… it’s because the app removes awkward cash transactions from the process and in the same instant removes the potential for a tip or a “keep the change” additional earnings opportunity for the driver.

What we do know is that thus far, in the push back against Uber, all the attention has focused on protests from the licensed and regulated market who understandably feel undercut by a company which has decided to ignore regulations unilaterally.

Nowhere near as much discussion, however, has befallen the topic of whether the Uber drivers themselves are being shrewdly exploited.

And yet, word reaches us, that Uber drivers in London are finally beginning to wise up to how they’ve been duped.

Discussions in the back of taxi cabs and across the community are finally focusing on how the job in many cases amounts to minimum-wage or barely break-even work. We also hear about how ruthless things are getting on account of market saturation in the expensive-to-run executive saloon and Toyota hybrids segments, which customers are mostly not bothered to pay more for.

The London airport hubs are the best example of the increasingly cut-throat practices in play. As supply grows, hours worked — i.e. circulating and being plugged into the “on-demand” app — are having to increase for drivers to cover their costs. But the more they circulate the more petrol they burn, the more it eats into their overall profits but also the tireder they get. It is in many cases a vicious circle.

For many, a guaranteed job from one of the major airports is the best way to secure a minimum £50-100. But airports happen to be among the strictest taxi jurisdictions in the country, with regular taxis — which have to join a complex and lengthy holding system to get a job — understandably up in arms over Uber drivers’ ability to bulldoze their way straight to departure drop-off points for instant pickups.

Uber has been rightly told off about how it operates in these areas. As a consequence the company now runs its own airport catchment system which plugs drivers into a virtual queue for airport-related pickups. Drivers simply have to enter the relatively wide zone, circle/rest somewhere within these boundaries, and wait their turn for a job to be autonomously dispatched to them by the app.

Problem is… it can take anywhere between 3-6 hours to get a job , according to drivers. An Uber spokesman told us that the company believes the average wait time is closer to one hour. Either way, the extended wait times appear to be breaking down the effectiveness of the app — which is supposed to send drivers to clients on a no questions asked basis. But drivers, who naturally want to cherry pick the longest and most profitable routes to ensure the wait has been worth their while, attempt to game the system by screening passengers via private calls to ascertain just how far they’re going. Local jobs are dropped or in personal experience long-routed “accidentally” on purpose. And while Uber bans this practice, there’s nothing much it can do. The drivers are desperate because they have no way of knowing how big the virtual queue is ahead of time. It’s pot luck.

The final straw for many came on New Year’s Eve when unlike the rest of the taxi market the Uber market was so oversupplied many couldn’t benefit from double rates or surge pricing at all. Uber contradicts this, telling us surge pricing was in effect, but the drivers we spoke to were adamant the rates were well below market.

As a consequence drivers are finally beginning to wake-up to the need for self-regulation — especially if they’re to cover their costs and make a dependable wage.

This is doubly the case given that Uber doesn’t really care about how many drivers are in the market at any particular time because the company is more concerned about taking a commission linked to total utilised capacity than ensuring supply and demand is ever properly matched. Nor do customers care about market imbalances since they are the temporary beneficiaries of the app’s arguably unsustainable cost structures.

Uber drivers uniting

As a result, we are told, efforts are quietly under way in some corners of the Uber driving community to create rival mobile technologies which can help drivers organise themselves more efficiently. In the first instance, the Uber drivers working on these systems aim to withdraw supply en masse if rates go below their average break-even rates exposing customers to surge pricing more regularly. But the aim eventually is to gain collective bargaining power against Uber in all sorts of worker-rights disputes.

Whether such efforts succeed, of course, is an unknown. Organised or not, the key challenge for drivers remains open-ended supply and the low barriers to entry to their profession, a problem which won’t go away without more complex licensing or minimum standard requirements. Consequently, unless the unionised drivers promote their cause loudly — pointing out the poor returns of the market without supply and union control to new entrants — they might just end-up shooting themselves in the foot.

It’s also quite possible that Uber (which is yet to cap the size of its network in any market according to the company’s spokesman) would act equally ruthlessly in retaliation, banning all striking or unionised drivers from its network at first chance. Though, we suppose, at least then the true nature of Uber’s “free lunch” would be revealed: it comes at the cost of network organisation, minimum wage and basic human worker rights.

To wit, here’s US senator Mark Warner, a democrat from Virginia, laying out the true nature of Uber’s disruptive market reach and at what cost it comes at in an interview with Business Insider this week at the Consumer Electronics Show.

Warner said that the 20th-century social contract, where employers offered benefits like health insurance in exchange for a promise of full-time job commitment from the employee, is breaking apart as the economy changes. And some of the old classes of benefits no longer make sense for a workforce that values flexibility.

“For example, one of the big concerns in the debate has been unemployment insurance. Unemployment insurance if you’re an on-demand worker isn’t really relevant. On the other hand, income insurance might be relevant. If you’re an Uber driver or Lyft driver in Boston and a hurricane comes and you can’t work for two weeks, that’s not your fault.”

And in particular this:

“I do think there needs to be some joint contributions of platforms, companies, and employees,” he told us. “If you were an actor or you were a carpenter — the on-demand economy’s been around a long time — you had an hour bank that you paid into that was not managed by the government, it was managed by a third party. In that case it was a union. So could that be reenvisioned for the 21st century.”

According to Warner some of the big on-demand companies are beginning to understand that minimum standards for employee security will probably have to be set, and they’d rather participate than have rules forced upon them.

But still, what remains truly shocking, are the scores of VCs, consultants and analysts who gave these “disruptive” companies ridiculously high valuations on the back of what are clearly unsustainable labour-supply cost structures. As is the fact they failed to grasp that these sorts of free lunches don’t and won’t last forever.

Uber says it’s working to add transparency to its virtual queue system so that its 20,000 driver partners in London can better regulate themselves. It’s also thinking about restricting executive class new entrants to support the market. But we don’t think any of this will help. Spare supply will simply be diverted to areas so oversupplied drivers are already prepared to wait three hours at airports to avoid them. That or the idle capacity will have to be funded at the driver’ own cost.

The fundamental truth being ignored in the “sharing economy” is that exploited labour always wises up. That open-ended supply markets always form licensed communities to protect jobs and minimum wages. That unregulated markets inevitably self-regulate from the bottom up. And that workers always have an interest in aggregating and sharing the cost of risk and insurance between them, which is ultimately factored into the cost of service.

In the end, equilibrium around the true break-even price of providing the service always prevails. Whether customers order the service via an app or not doesn’t make one iota of difference. The underlying costs of the market relate to: minimum wage lifestyle cost, fuel cost, car cost, insurance cost, dispute risk cost and maintenance cost. Furthermore, the market can only be perfectly matched in a scenario where there’s enough supply to meet peak-demand perfectly if some portion of supply agrees to hold itself back from the market at in off-peak hours at a cost to themselves. (See Opec for how well that strategy is working out for them in the crude market).

The core point really is that taxis can never serve customers as well as outright ownership of a private car in optionality terms — because taxis can never be perfectly supplied to meet peak rate time demand without somebody somewhere carrying the cost of off-peak idle capital. Nor can they, for that matter, ever be as cost effective as public transport.

If and when Uber drivers efficiently unionise to reduce the scale of oversupply in the market, we’ll finally understand that.

Related links: ‘This house proposes that we nationalise Uber’ – The Long and Short Leigh Day Legal Action For GMB Uber Drivers To Secure Rights On Pay, Holidays, Health And Safety, Discipline And Grievances – GMB, July 2015