The main thesis here - that an Uber-like service requires people who will work for less money than customers are prepared to pay for - is a truism, and probably the #1 principle of any business.
There's a definite relevance that the current inequality leaves people with less other choices for work; I'm sure a lot of Uber-drivers would not be Uber-drivers if they had other, better paying work, but similarly, a lot of Supermarket checkout staff, or bartenders, or waiters, or other low-paying jobs, would not be doing those jobs if other jobs were available.
In the current age, driving is unskilled labour, and so the supply pool of workers is very large. It is not surprising that driver wages are low.
The bigger issue with Uber is one of monopoly effects and competition. The interesting part of Uber - the middle-man part run by Silicon Valley technologists - is the ride allocation part, which by virtue of network effects probably tends towards monopoly. If Uber gains too strong a market share, which it looks like it might be doing, that is when the real problems begin.
In a way, the best thing might be if the cities themselves licensed and ran the ride-ordering technology, as a public good.
Municipalities everywhere are notoriously inefficient at running anything sensible that isn't burdened by politicking, group-pandering, graft and ultimately riddled with short-sighted reactive decision-making.
Perhaps we should ask why our governmental - local or federal - bodies are prone to these kind of malaises.
Could it be that our best minds are increasingly not wanting to serve in the public sector? [1]
[1]
'Pro-Government' Millennials Take Government Jobs, Discover They Suck, Move to the Private Sector
Part of it is also the political climate. If everyone in government is stereotyped as incompetent and corrupt, who do you think would want to soil their reputation by entering a government job? That's right, the people who already are incompetent and corrupt. As for the people who aren't, what are their incentives for doing their jobs honestly? They're going to be accused of incompetence and corruption anyway. (some jobs, like teaching, social work and partly policing, attracts people with idealistic personal incentives, but I'm talking about the administration)
Distrust in government is a self-fulfilling prophecy. "Trust but verify" seems like a better strategy.
it's certainly a self-reinforcing prophecy, but you don't suppose there is something inherent about being able to force people to do things that attracts moralizing ninnies and those with corrupt intentions in the first place?
Power in any form (government, church, big business) corrupts and power attracts corrupt people, yes. Thing is, power is incredibly resistant to egalitarian distributions, so someone has to have it. We just have to make the best we can out of it, and the best is substantially much better than the US government.
economics is not a zero-sum operation, though, if two people exchange money for a service or good it is only because a person values the service or good more than the money, or vice versa.
Moreover, in order to wield money as a form of power you have to be willing to give it away. This is not necessarily true of the other types of power.
That's only true for small and medium business. If businesses become big enough, they practically speaking become part of the government except with private profits. Then there are monopolies and competitors who are a bit more coordinated than they should be. Big business' power is more limited but in return they get less oversight and a lot more independence. It evens out.
There are many situations where corporations can take your money without permission. A monopoly in a sector you can't do without or a company willing to work the government are obvious examples. Far more insidious are companies who own media, as shown by Berlusconi, Greek oligarchs, Fox News et. al.
The palatability of service jobs can vary a great deal. One thing that struck my wife about living in Germany was that even cashiers took pride in their work. They want to vocational school for service jobs, and felt like they had a role and a place. I'd imagine it's a lot more fulfilling than making a few bucks here and there being a task rabbit.
> even cashiers took pride in their work ... and felt like they had a role and a place
I suspect the cashiers' attitude is partly influenced by how they're treated by others. It's hard to stay motivated if others subtly signal that your job makes you a lesser form of life. I've often wondered how the world might be different if everyone treated everyone else with more respect.
> which by virtue of network effects probably tends towards monopoly
Uber could dominate their market the way that Google dominates search, but for both companies (and unlike, say, Facebook), the switching cost for users is essentially zero.
Drivers would lose their built-up reputation by switching, and would have to spend the time to be vetted by their new agency, but these are somewhat low switching costs.
Maybe I'm wrong, but I'm just not seeing network-effect-driven monopoly power here. I can see advantages coming from a strong brand driven by nationwide (and international) reputation, and from battle hardened business practices and from economies of scale...
Drivers won't move to a new service that has no demand. Customers won't use a service that has 15+ minute wait times when they could be in an Uber in 3.
Google can reasonably claim not to have a forcing monopoly because they and their competitors are directly providing all of the relevant value, so a competitor (Microsoft, Yahoo) could provide exactly the same service even while Google continues to exist. Uber and co. don't directly provide anything, and only work with the existence of a driver/consumer network.
If they paid drivers directly for their time and not just on commission, it would be different, but then it wouldn't be Uber.
Drivers can run more than one app and be in more than one network. Similarly, customers can check NewApp for drivers, and if no driver is close enough, use OldApp as a fallback.
I don't want to argue that there is no network effect at all, but it's not clear to me that the lock-in is strong.
The network effect becomes very large if you start introducing significant discounts for carpooling, as Uber has done. The chance of finding a carpool partner and getting a 40% discount are much higher for Uber than a competitor, and will be a big hurdle to market entry.
More generally, any business requires the net inputs (labour, materials, processing, etc) to cost less than the customer is willing to pay for.
Poorly paid market-driven unskilled labor is the foundation of many positions.
Aside: Waiters and bartenders can do really well for themselves. I know people who've gone from part time waiting to full time call center at 15$/hr and have less take home now. In my city, wait/bar staff are entitled and insanely compensated for their labour in comparison to their peers.
hmmm. i thought the main thesis was basically : uber etc aren't doing anything new; what is new is the inequality that allows it to occur at scale in places it couldn't have before
Massive wealth inequality combined with few jobs leads to servants. Servants more-or-less stopped being a job in the US after the last Gilded Age with the rise of the middle class, but with Uber and other service apps, they are back, fractional reserve-style.
There's a corollary to this, which is that if the economy starts growing again (for regular people, not just programmers) people now doing 1099 piecework employment are going to find better options, and these services are going to have to increase their prices to attract workers. The cheapness of Uber has been subsidized by investors and made possible by desperation.
When my family lived in Bangladesh, we had servants, and never managed to get comfortable with the arrangement. I have a deep and visceral reaction to anything like that arising in the U.S., but I fear that increasing wealth inequality might lead to that outcome. I'd rather have lower GDP, less money in my own pocket, etc, than go back to living in that kind of society.
The interesting bit of this article comes right at the end: in the comment on how middlemen like Uber create a barrier-of-entry for workers who want to become small business owners. The easiest place to see this is in house cleaning services, where capital investment to start a business is low. The path from worker to small business owner is one that allows (allowed?) one to build some equity and entry into the middle class. To the extent that technology-based middlemen like Uber create a barrier to this, they may worsen income inequality.
Particularly galling is Uber's contention that it helps its "partners" run their own small business. Yeah, right. A small business that Uber can take away from you at any time for any reason. Uber drivers are employees in all but name and tax treatment.
From the article: In my hometown of Mumbai, we have had many of these conveniences...This narrative ignores another vital ingredient, without which this new economy would fall apart: inequality.
Only one problem with the narrative: India (Gini 33.9) has considerably less inequality than the US (Gini 48).
A country where everyone is equally poor has a lower (better) Gini co-efficient than a country where few are poor and few are very rich.
How is "equally poor" bad from the point of view of inequality enabling services like Uber though? In the extreme case, if everyone in India was "equally poor" as you put it, no one should be able to do jobs as cheaply as the author mentions.
Which points out that income inequality is not useful on an absolute scale. In other words if you make 1M a year and your neighbor makes 2M a year your lifestyles are very similar. However, if you make 10$/day and your neighbor makes 20$/day your lifestyle can be very different.
Just because a number is useless on its own does not mean that it's useless in all circumstances. Generally, we know both inequality and average income.
He isn't getting paid well, I agree with him there. However, factoring your car payment and car insurance into your hourly wage just because you happen to work from your car is kind of silly. If I work from home do I factor my house payment into my hourly wage?
Are you serious? Imagine if you are a programmer but your computer takes an obscene amount of maintenance (like a car: tires, oil changes, preventative maintenance) to keep it running so that you can keep freelancing as a programmer. If you didn't factor this into your costs of being a "freelancer" you would be an idiot.
Everyone needs a car. If my car breaks down I would likely have to take a sick day to get it to the shop. No one factors that into their pay. I need to wear pants when I go into the office, do I get to allocate pants into my wage?
A car is something almost everyone needs. He's going to end up factoring it into his hourly wage and then getting a car for free.
b. the amount you drive even with a lengthy commute is nowhere close to what a person driving 8 hours a day 5+ days a week does. the amount you spend on gas alone is huge never mind maintenance and having the right insurance for driving that many miles (many drivers don't and can get totally screwed over if anything happens and the insurance company finds out they don't have the right coverage).
I definitely agree he should factor in costs that he wouldn't have been paying before. I thought his including his entire car was a little disingenuous, that's all.
To be fair, it's not just wealth inequality that makes these services affordable (although that certainly plays a big part) - there's also subsidy from investors who think they're investing in the next big thing.
The article is filled with loaded terms but misses the consequence that is very important. The end effect is wealth transfer from the wealthy to the poor.
Let's rephrase the thesis in this way, based on my personal experience. My secret of ridesharing is that I was once part of an exploitative, hierarchical, socialist organization (academic science) that kept me in a cycle of poverty[0] intended to depress my wages, limiting my growth opportunities and discouraging out-of-the-box thinking.
I then quit my job, and began working for 'ridesharing'. First, lyft, then uber - and gave myself an immediate runway to launch a nonprofit science organization to cure cancer. Not only did it afford me the independence to pursue this, but I also gave myself a pay raise and began investments. Then, I moved from San Diego (which has an economic climate that makes ridesharing difficult in the 'equilibrium' condition, which had been reached) to San Francisco (where drivers are in high demand and low supply) and gave myself even more of a pay raise (almost 2x) affording me even more of a safety net and more free time to work on the science.
Hell, I even have investments.
[0] spam the populace by telling them they ought to get degrees in STEM, create an oversupply of PhDs, which lets you pay them 30k to work 80 hours in a lab, and then restrict their ability to be promoted to professor so they're constantly struggling.
I think what the article is also saying is that you need an imbalance for this new "model" to work. I agree that there is a slight net effect of wealth transfer but if the gap was smaller to begin with then there would be no need for the wealth transfer.
On the other hand, it's not only the rich that use Uber (and certainly not Lyft), so the OP's argument is a bit hyperbolic. There is this very interesting effect that DUIs have a disproportionately negative consequence the poorer you are; and the price point for both services is low enough that it makes using those services very attractive for people outside the top income bracket.
You've made some good moves by going where the market values your skills. The system that enables efficient/cheap access to your labor is facilitating, but not causing your increase in wealth.
In san francisco i've been making $40/hr gross (but I expect it to average out to $30-35. My n=3 days, which are all in december and have been amazing because it's rainy), with a cost per hour of about $5-10 and that is an overestimate. Expenses here are very low. I don't count depreciation because my car had 90k miles on it to start (but it's not a clunker! I've maintained it very well).
Nobody is commenting on the middleman insight? Something I don't understand about uber is it sounds like a dating service. If I met my wife on a dating service, I'd pay for the privilege at that time, but I wouldn't continue paying the dating service a piecework fee every time we have sex after 14 years of marriage.
Likewise whats the middleman solution to "Oh thanks for the ride, I'll pay uber $10 and you say they pay you $5... well how about you come by my house exactly a week later and I'll drop you personally $7 cash tax free and heres my phone number to coordinate and ..." The middleman cannot be avoided in top 40 pop music 99 cent song downloads, but it seems pretty easy to work around for taxi-like service.
Technology also allows 1 person to do the work of 10 creating a larger supply of unemployed people. Since right-to-live-well is tied to "productivity" and holding a job, technology in the abstract has also enabled this large pool or workers indirectly.
The part about middlemen is interesting. IMO uber is a better/smaller middleman than the previous one with taxi medallions. The technology that uber provides is connectivity at large scale due to low cost. The article is correct in that if there is nothing to connect, the business doesn't work. It's still comparatively better though, and that's how improvements are made, step by step as people want better and better.
Can anyone else literally not load this article, getting continually redirected to other articles based off of Quartz's facockta ad mechanisms and scrolling to get to new URLs?
Income equality helps businesses and the economy grow. Consider the extreme case of inequality where all the wealth is concentrated in just a few people... there'd be no market for Uber.
I don't like Uber or its founder, but I find it fascinating.
I'm starting to think that technological growth's self-limiting dynamic might be the generation of cheap labor. Ultimately, technical progress isn't needed if labor is cheap. You're not going to find much audience for modern agriculture in countries where farm laborers can be paid $5 per day. Sure, there are things that the very rich might theoretically want (just as Henry VIII would have had a better life with antibiotics) but since they tend to measure prosperity and status in relative terms, they don't have the imagination to push anything forward. Instead, elites retrench and block progress. It's only when labor is expensive (or in a war, which will make labor expensive if it carries on for long enough, due to depopulation) that anyone in power is willing to fund technology. Of course, those with the resources would rather find cheap labor overseas if that's an option; excluding a small set of celebrity visionaries who are less than 1% of the elite, they only invest in technical growth as a last resort.
Uber isn't at fault for the abundance of cheap labor that has made "the Uber Economy" possible, but poorly managed technological progress is. If technological progress slows in the 21st century (I don't expect it to halt or regress, but it could slow to an uninspiring crawl and give us a disappointing "lost century") it will be due to the demotivation of investment encouraged by an abundance of cheap labor. For all the complaint about "talent shortage" by Silicon Valley executives, the fact is that no such thing exists; there are plenty of unemployed or underemployed PhDs out there. If there were a real talent shortage, the classism and sexism and ageism that characterize the contemporary VC-funded culture wouldn't be affordable, and you'd see all sorts of people (currently below a ceiling) getting coveted opportunities.
In an ideal world, we'd stop this from happening by training people up, out of the jobs no longer needed, in order to be ready for the new jobs created by technology. In practice, this doesn't seem to be what's happening. Laid-off factory workers in Detroit (and Ferguson, MO) aren't being sent to school and trained for the new jobs; they've just been abandoned.
Uber seems to capture the next phase of the Silicon Valley society. There's no basic research or fundamental innovation, but we're seeing new ideas around what to do with the abundance of dislocated and unemployed or underemployed people. Zynga's another one: capitalizing on middle-class ennui. Ultimately, this might explain, in part, the increasing dislike of Silicon Valley that we've seen in the past five years. Silicon Valley isn't singularly or even mainly responsible for deindustrialization and cultural decay, but the modern incarnation seems to be most strongly oriented toward profiting from it.
> For all the complaint about "talent shortage" by Silicon Valley executives, the fact is that no such thing exists; there are plenty of unemployed or underemployed PhDs out there. If there were a real talent shortage, the classism and sexism and ageism that characterize the contemporary VC-funded culture wouldn't be affordable, and you'd see all sorts of people (currently below a ceiling) getting coveted opportunities.
The problem is that unemployed or underemployed PhDs usually have all of the technical skills, but none of the tradecraft. Things like how to work with a version control system, working knowledge of one or two commercially used development frameworks, security basics, etc.
Silicon Valley has a talent shortage, but I would argue it's self-inflicted. Companies in the valley expect their developers to be rockstar coders who know a lot of languages and tools (Scala, Docker, nodejs, etc) that have very little commercial adoption outside of startup culture. At the same time, few startups have the time to let you learn on the job, so they'll overpay someone who does have the skills. And if you think it's difficult to find a good Ruby or Scala developer in the valley, you should try finding one somewhere else. They either don't exist or aren't looking for work.
The reality is that, globally, your average developer probably isn't a comp sci genius. They probably know Java pretty well, along with a few commercial frameworks, but you wouldn't expect them to have the architecture skills that many developers in the valley are expected to have. There are plenty of those guys. But yeah, there's a talent shortage when you limit your pool of applicants as much as a lot of companies in the valley do.
The problem is that unemployed or underemployed PhDs usually have all of the technical skills, but none of the tradecraft. Things like how to work with a version control system, working knowledge of one or two commercially used development frameworks, security basics, etc.
Those skills can be learned. Incidentally, I'm not especially impressed by most PhDs... but I do think they've shown enough intellectual mettle to learn how to use Github.
Companies in the valley expect their developers to be rockstar coders who know a lot of languages and tools (Scala, Docker, nodejs, etc) that have very little commercial adoption outside of startup culture. At the same time, few startups have the time to let you learn on the job
That suggests that talent has a very weak bargaining position. If talent had leverage, being able to learn on the job would be part of the deal they struck. There may be a strong bargaining position inured to one with the luck of a 100% match between one's technical experience and the trendy technologies du jour, but banking on always having a 100% match to the trends isn't a sustainable career strategy.
Companies demand purple unicorns because they believe they can get them, and that people will work 80 hour weeks or steal time from their employers (risking job loss before they get the next gig) in order to meet their pre-existing knowledge requirements, and that's probably because people do. This indicates a low bargaining position for software talent (not some startup exigency that is largely fictional). Everyone else gets to learn on the job. We don't, because even though what we do is important, we suck at organizing for our own interests.
so they'll overpay someone who does have the skills.
Overpaid software engineers are very rare. Most of the good ones are underpaid relative to what they can do. A good engineer is easily worth $250,000 per year (and, I'd argue, several times that) and very few get even close to that number.
They probably know Java pretty well, along with a few commercial frameworks, but you wouldn't expect them to have the architecture skills that many developers in the valley are expected to have.
Whatever the expectation may be of them, I actually find the average Valley developer to be pretty unimpressive. The Valley may have more of the Jeff Deans, but the 90th-percentile Silicon Valley programmer isn't any better than the 90th-percentile programmer in the general population.
> That suggests that talent has a very weak bargaining position. If talent had leverage, being able to learn on the job would be part of the deal they struck. There may be a strong bargaining position inured to one with the luck of a 100% match between one's technical experience and the trendy technologies du jour, but banking on always having a 100% match to the trends isn't a sustainable career strategy.
I would argue that a significant portion of that compensation is essentially a gamble that the company is going to blow up and become huge. Companies with momentum or a founder with previous success have a lot easier time hiring good people at the same salaries because there is this expectation of explosive growth. That's the area where people do have leverage, because startups are cash flow constrained and can't afford huge salaries - but that doesn't mean you won't get rich (that's the line they sell us, anyway).
> Overpaid software engineers are very rare. Most of the good ones are underpaid relative to what they can do. A good engineer is easily worth $250,000 per year (and, I'd argue, several times that) and very few get even close to that number.
They're not that rare - there simply aren't enough founders to support the astronomical housing prices in the valley otherwise.
I would argue that a significant portion of that compensation is essentially a gamble that the company is going to blow up and become huge.
Sure, because many engineers don't ask "the tough questions" about what their equity actually means, or even how many shares there are. They gamble poorly, taking a $40,000 pay cut, and working long hours, for equity less than 0.1% of the company.
My attitude toward equity is that, unless you're a founder, you shouldn't let it change what salary you accept, how hard you work, or how you prioritize your career goals. If you want to work 70-hour weeks because it's helping your career, go ahead. But don't make sacrifices unless you're a founder. Otherwise, it's not going to be worth it. These days, founders and VCs don't offer equity at a level that would justify any attitude other than free agency.
That's the area where people do have leverage, because startups are cash flow constrained and can't afford huge salaries - but that doesn't mean you won't get rich (that's the line they sell us, anyway).
Of course, there are people who get rich on startup equity. It happens often enough to keep the myth alive. However, there are much better and surer ways to get rich. Valley engineers take it as an extremely fortunate windfall. VCs take it for granted. And honestly, I don't think there's much to recommend the VC-funded founder career over being a VC if you've got the connections for the latter. A founder is a mid-level product manager in what is the first postmodern corporate organization; but VCs are executives.
Silicon Valley is a fine place to spend your 20s while you figure out what you want to do with your life, but if you want to stay in that world for the rest of your career, the best way is to become a VC and be a real first-class citizen.
They're not that rare - there simply aren't enough founders to support the astronomical housing prices in the valley otherwise.
Software engineers aren't buying those houses. That's a mix of VCs, career executives in the startup world (who don't program and don't found, but get paradropped in, by their buddies in VC and private equity, to companies with executives) and house-rich natives and corrupt overseas officials.
Sure, there are a lot of rich people (managers, founders, VCs) in Silicon Valley. There are also a lot of programmers in Silicon Valley. The intersection between the two groups is very small. From Game of Thrones: "there are old sellswords and bold sellswords, but no old bold sellswords."
The Valley is constrained by the extreme NIMBYism and that, combined with price inelasticity and low interest rates, is what makes house prices so high.
Funny you mention not having the leverage to learn on the job. Hedge funds like D.E. Shaw will go so far as to create a job for you if you have shown exceptional talent. Just goes to show the difference in career channeling for given domains that this weird market we are in has created.
> In an ideal world, we'd stop this from happening by training people up, out of the jobs no longer needed,
This is really interesting. I'm concerned that this wont happen in a "freelance world". When im constantly asked to outsource to freelancers/contractors the implication is they're already experienced and have exactly the skills i need now. ....well where does the on the job training and mentorship come from for junior people?
IPhones are affordable because of wealth inequality.
Oil is cheap because of wealth inequality.
Organic food is purchasable because of wealth inequality.
Hipster clothes can be owned because of wealth inequality.
And yet, none of these goods are targeted because those who use them are susceptible to pro-union shilling.
Stop the painfully forced guilt complex from this out-of-touch middle class white perspective. I wish I could have easily sold my spare time for more money when I first moved here with P2P labor systems like Uber... but I had to wait for a central bank's liquidity push to eventually intice small business hiring, some union to not bump a new guy for someone's seniority, or some corporation wonk to figure out a new growth market. Oh, yes, I just felt so equal in that system of waiting for people "smarter" than me to justify needing me.
People should have access to the means to sell their time and labor where ever and when ever they want. Period.
I don't know how you missed the recurring outrage about the wages and conditions of iPhone workers. And the article isn't against your last point. In fact the article isn't even blaming Uber for the problems. It's just pointing out that Uber (and other services like it) only work where inequality is pervasive.
Globalism works due to inequality. Nationalism works due to inequality. Tribalism works due to inequality. The dirty secret of civilization is that someone has to dig the graves. Why pretend it's an evil from your middle class morally righteous soap box instead of allowing people the means to participate as simply as possible?
So, I'm kind of ambivalent about this thread so far, but it sounds like you have thought about this a bit. What sort of moral framework do you find preferable over the 'out-of-touch white middle class' one?
Agreed. I don't see why that comment, in particular, got killed. I think some groupthink was at work, in that case. This is an unfortunate trend on HN.
Notice a pro-union/pro-mercantilist/pro-nationalist comment is at the top, while this comment was flagkilled. It is very possible some entity outside of the community hivemind is intentionally crafting a narrative... and this isn't the only thread they are targeting. Why? Because this post isn't even on the front page anymore.
In my experience (on HN and other places) economics orthodoxy is always unpopular. People like to believe "if only if weren't for X assholes, the world would be much better". Economics teaches that the assholes are us: the primary thing preventing the world from being much better is the political and economic barriers to redistributing wealth.
Redistributing wealth is hard. Much easier is to invent schemes like unions which enrich certain lower class people, while (silently) making other lower class people poorer.
As you point out, globalization and outsourcing has made Chinese and Indians much richer. But they are not very visible, so who cares about them? They should have waited their turn, and eventually Western unions would have granted them jobs with "fair" wages ;-)
I don't know why this keeps being brought up. Do China and India cheer when the economy picks up in the U.S., for reasons other than the increased demand they'll experience? Does GE include Microsoft's performance in its reports to shareholders?
I mean, fewer people starving is always awesome. But it is not the question being asked.
There's a definite relevance that the current inequality leaves people with less other choices for work; I'm sure a lot of Uber-drivers would not be Uber-drivers if they had other, better paying work, but similarly, a lot of Supermarket checkout staff, or bartenders, or waiters, or other low-paying jobs, would not be doing those jobs if other jobs were available.
In the current age, driving is unskilled labour, and so the supply pool of workers is very large. It is not surprising that driver wages are low.
The bigger issue with Uber is one of monopoly effects and competition. The interesting part of Uber - the middle-man part run by Silicon Valley technologists - is the ride allocation part, which by virtue of network effects probably tends towards monopoly. If Uber gains too strong a market share, which it looks like it might be doing, that is when the real problems begin.
In a way, the best thing might be if the cities themselves licensed and ran the ride-ordering technology, as a public good.