The Western experience with increasing economic inequality cannot be generalized worldwide.
Uber is a company under attack by politicians and the media. Many politicians, like Bill De Blasio, want to restrain its growth to protect incumbent cab companies. Others want to undermine its business model by requiring that its drivers using its devices be employees rather than independent contractors. The New York Times recently ran a story clearly suggesting that the company is using unfair psychological tricks to keep drivers picking up customers.
These complaints lack merit. Protecting incumbents against new forms of competition is a classic harm to consumers. Uber drivers do not meet the traditional criteria for employees because, among other factors, the company does not control their hours or place of doing business. And as Geoffrey Manne shows, the management innovations Uber introduces through the understanding the psychology of workers have benefits to consumers and drivers alike.
But the assault on Uber also ignores a hugely important effect of company and similar services: they reduce inequality— which these same politicians and mainstream media argue is the most important issue of our time. Uber improves both the material condition of the middle-class consumer and the lower-middle-class driver. First, the consumer gets a service that starts looking more like having a chauffeur than a taxicab driver. For instance, he can summon a driver without previous notice and within minutes by pushing a button on his phone in the comfort of home rather than hail a taxi in a storm.And like those with chauffeurs he becomes less anxious about moving around even in unfamiliar cities. Moreover, because of the ratings systems for drivers, he gains more confidence that the quality of the driver will approximate that of a chauffeur with whom he has a long-term relationship.
Drivers too benefit from Uber. The best evidence is that they generally make more money even after expenses than taxis drivers. How much more depends on the place they drive. But that is not their only advantage. A recent economics article has shown that their flexible work hours are worth an huge additional amount to them–about 150 dollars per week on average.
And flexibility is not the only kind of non-cash benefit (called by economists a compensating differential) that Uber provides. Many Uber drivers have mentioned to me how much safer they feel than when they were taxi drivers. Their customers are traceable because they have had to leave a credit card to get the ride, thus greatly decreasing the risk of robbery and violence. And I would add that the lack of anonymity also reduces conflict between drivers and passengers. Both realize they can be rated badly for behaving badly. The one percent have always inhabited a world where they can avoid the petty conflicts of daily life, but Uber eliminates at least one important arena for such conflicts–that between drivers and passengers.
Uber’s contribution to equalizing our condition reflects more general equalizing trends from information technology. Real time communication and information is a substitute for the kind of personal service that only the 1 percent could previously afford. For chauffeurs, substitute Uber, for a personal librarian substitute Google, for a secretary substitute Siri or Echo. These are to be sure not (yet) perfect substitutes, but they move us toward an equality of consumption. And better information services permit flexible working schedules for employees as well, which has also generally been the preserve of the well to do. Honest politicians who worry about inequality should be celebrating Uber and other tech innovators.