Yesterday Colorado’s legislature passed the first bill in the country to authorize and regulate Uber and Lyft, two of the new technology companies that have recently sprung up connecting drivers with passengers.
Ridesharing has been available in Colorado since September of last year, when Lyft officially began offering services in Denver.
In theory the two companies merely provide apps connecting supply with demand. But in practice they have been able to act as unregulated cab companies, without being required to follow the laws and regulations (and carry the subsequent overhead costs) that cabs do.
As Matt Stoller points out, Uber has actively been lobbying to do business in places with regulated cab markets, attempting to destroy those markets:
A healthy cab ecosystem relies on expectations of a market (with price-fixing by political authorities, mostly taxi commissions). There have to be people trying to hail cabs, and cabs driving around to find customers. As more people use Uber, there will be fewer people trying to hail cabs, and fewer cabs picking up people, which will lead to reduced expectations cabs will be available, and so on and so forth. Gradually the ‘open cab market’ will be displaced by a closed Uber service. I’ve already noticed it’s harder to hail cabs where I live, capacity is often taken up by Uber riders.
The new Colorado legislation requires Uber and Lyft to screen drivers more carefully, and as of January 1 of next year provide primary insurance for drivers. Until now, they have offered secondary insurance after the driver’s own kicks in, and only when the driver is carrying a passenger.
The new regulations, however, don’t address the larger problem that Uber is presenting in cab markets across the country, thanks to its budding monopoly. On Valentine’s Day this year they sent a controversial text message to drivers, telling them to stay home — and drive up prices.
“Some passengers have paid hundreds of dollars to go a few miles on exceptionally busy nights” according to Business Insider.
Furthermore, you have to have a smart phone and a credit card to use Uber. With cabs driven out of the marketplace, that puts service out of reach of people who don’t have smart phones and credit cards — namely, the poor and minorities.
Uber is also exerting almost feudal power over their drivers. As Stoller notes, they’ve recently started a financing program to help drivers purchase vehicles:
And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits. I guarantee you, if Uber thought its capital would be best used to run a fleet of cars, it would simply hire people straight out to be drivers. That it’s not doing that suggests something.
With their new legislation, Colorado is beginning to impose some of the same costs and responsibilities on Uber (like carrying insurance) that cab companies have to bear. But it doesn’t seem like cab companies will be able to compete with this business model much longer, leaving the public at the mercy of Uber’s monopoly-sized algorithm that is something less than transparent.
But Uber is just one of the new tech companies that has been able to establish a virtual monopoly faster than regulators can catch up with them, wiping out entire industries in the process. (Google’s monopoly over online advertising is another.) The Colorado legislature may be the first to take action and regulate these companies, but the problems and controversies they present are far from over.
Photo by Cory Dalus under Creative Commons license