“The idea of a discount luxury is an oxymoron,” Sarah Maslin Nir said recently on the Longform podcast. “And it’s an oxymoron for a reason: because somebody’s bearing the cost of that discount.”
In this case, Maslin Nir was referring to wage theft and harsh working conditions at New York City nail salons, the topic of her latest investigative series for the New York Times. But as she made clear, the rule applies to just about anything that comes with a suspiciously cheap price tag. Wage theft, in one form another, is a broad epidemic. Most American workers haven’t had a raise since the 1970s and have seen their benefits and labor protections erode.
Whether it’s cut-rate Facebook content moderators toiling in Southeast Asia, millions of people submitting free restaurant reviews to Yelp, or TaskRabbits lowering their prices in a race to the bottom, today’s most celebrated companies are built to extract maximum value from vast networks of worker-bee users at minimum cost. In this arrangement, free or discounted labor isn’t an accidental byproduct; it’s a main catalyst for growth. (And growth is the highest value of every VC-funded company.) At the same time, these companies preach democratic values, economic independence, and the importance of trust and entrepreneurship.
No company better embodies this exploitative model—and its tacky veneer of hypocrisy—than Uber. The taxi company’s expansion has been premised on denying that it is a taxi company, as well as denying, despite regulatory rulings to the contrary, that its drivers are employees. Instead, Uber claims, its drivers are independent contractors—self-directed micro-entrepreneurs, really—using the Uber platform to facilitate private transactions between consenting adults. Or at least that’s one version of the fairy tale being spun by the fabulists in Uber PR. Such delusions are baked deep into the company. Its very name, Uber Technologies, Inc., reflects its determination to be seen as something other than a transportation outfit.
This is a matter of cost-savings and regulatory evasion, not of mere self-image. Uber can add more drivers more quickly if its relationship with them is thin, mediated through a piece of software and a company-friendly terms of service agreement. Were Uber to prioritize background checks, insurance, training, benefits, healthcare, or stable pay for its workers, it would not be the $40 billion industry darling we know today. This is how you get to be the biggest, most valuable startup in history.
Despite its loud insistence that it creates a neutral marketplace, Uber is known for constantly manipulating the terms of engagement. Whether it’s paying competing drivers to switch over, encouraging drivers to stay off the road, or employing real-time surge pricing, Uber is intimately involved in determining who works for them and how much they get paid. Last year, not long after Uber opened in China, the company introduced something called People’s Uber in Beijing and Tianjin. Most tech sites—perhaps following the press-release-to-publish paradigm that rewards whomever can get their post up first—dutifully reported that Uber was starting a “non-profit” ride service. But People’s Uber is non-profit only in the sense that drivers don’t make much money. The base fare is nothing—zero—and riders are then charged enough to cover the driver’s expenses. Drivers may be compensated with bonuses several times the fare, but that’s at the discretion of Uber, which has positioned the service as socialist-inspired (the cars are even colored red in the Uber app).
The result has been sensational. Because People’s Uber is nominally non-profit, it doesn’t qualify in China as an unlicensed taxi operation (the company has been tussling with authorities there, as it has all over the world). Uber loses money on each fare, but that has allowed it to undercut existing taxi companies, devastating their business, while capturing the Chinese market, where Uber reportedly provides one million rides per day. Once Uber has dethroned the incumbents and fended off some of its well-funded rivals, it can consolidate its control over urban transportation by jacking up fares, shedding its “non-profit” service, or really, doing whatever it wants. In this it is cribbing from the playbook of Amazon, which achieved its current monopoly by combining logistical prowess and a willingness to lose lots of money to send competitors out of business. Customers will enjoy low prices, and Uber can manage driver issues through aggressive expansion, recruiting new drivers, and investing in self-driving cars that will one day end this labor problem once and for all. (For Amazon, the equivalent salvation lies in warehouse robots and delivery drones.)
Of course, Uber does have bona fide employees. They’re just not the drivers who provide the company’s main service and source of revenue. These programmers, executives, marketing reps, accountants, and city coordinators make good livings while earning all the benefits of being employed at a rich, fast-moving tech company. They enjoy their luxuries thanks to the slim margins of Uber’s drivers.
This scheme may not be sustainable. A startup is essentially a product of shared hallucination, and Uber’s profitless mirage depends on courting regulators, disseminating propaganda of libertarian economic empowerment, and finessing its way around local laws. That’s why Uber is investing heavily in its public policy, communications, and legal departments. If they fail to win on those fronts, Uber might finally have to do what some of its critics have begged all along: own up to its sprawling force of underpaid workers.