Editor’s Note: This is a guest editorial written by John Kadar, President of Ithaca Dispatch and Total Transportation of Elmira. It was not written by the Ithaca Voice, but subheadings have been added for better readability.

Submit guest columns to msmith@ithacavoice.com.

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It’s an enticing message but the narrative is short on facts and high on double-talk. There is no evidence to support Uber’s claims about congestion, pollution, and deaths caused by drunk drivers (in small cities like Ithaca). Or that Uber’s presence results in a net increase in total income. Total part-time employment probably but at the cost of the loss of full-time taxicab employment. Consumer choice is likely increased but only until regulated taxicabs are driven out of business.

Uber: unburdened by the costs of regulation

Because UberX has been able recruit an (over) supply of drivers to ensure rapid response times, it is winning the competition with taxicabs. The glut of UberX drivers is driving out conventional taxicab service in many municipalities where UberX currently operates. So what is the problem, you ask? Should the prize not go to the competitor delivering the public’s service of choice?

No, not when the winner wins because it found a way of operating cost free while its competitors are weighed down by the costs associated with lawful operation. Since those costs are the consequence of regulations which were put in place to ensure safety, fairness and affordability of service, it may be bad public policy to abandon them for a small gain in arrival time.

Uber’s use of innovative technologies such as GPS, smart phones, electronic payment processing, applications facilitating the transporting of passengers is not new. Many taxicab operators already employ these technologies, as will Ithaca Dispatch before Uber arrives in Ithaca. The real innovation Uber brings to for-hire transportation has little connection to technology. It is the deployment of unregulated personal vehicles, used as de facto taxis, to convey passengers.

Unlike municipally regulated taxi companies, Uber does not incur the high costs associated with buying, maintaining, and properly insuring fleets of for-hire vehicles. These costs and others are passed down to UberX drivers who use their personal automobiles to pick-up and drop-off passengers. Uber’s success is the result of illegal operation and the outsourcing of costs and risk, not the application of technology. Unburdened by the costs of regulation, Uber can flood the streets of any municipality with un-regulated or minimally regulated cabs that can respond quicker than regulated taxicabs to calls for service.

In addition to having faster response times than taxicabs, there is another thing that the use of unregulated, personally owned vehicles allows UberX to do which has met with public approval. It can charge a cheaper fare than taxicabs can. Even charge no fare. Because UberX, unlike taxi companies, does not have to spend capital purchasing, insuring, fueling and maintaining its fleet, it has been able to flood the streets with drivers operating their personal vehicles at lower fares than taxicabs. The billion plus dollars it has accumulated from investors allows UberX to side-step demand-supply forces when it undercuts taxicab fares in many municipalities.

These competitive advantages have endeared UberX to the public. It has also caused passengers, despite warnings from municipalities, to ignore the risks associated with UberX’s failure to provide full coverage commercial liability insurance and finger print based driver background checks using the national FBI data base. Uber uses name and social security number to perform background searches on Google. This process has failed to properly vet applicants as attested to by a long list of allegations of assaults, rapes and other felonious acts allegedly committed by Uber and Lyft drivers.

Uber’s new excess insurance policy, offered in a few selected municipalities/states, was forced on a defiant Uber (first in California) because UberX drivers’ personal auto liability policies did not cover claims which arose while a personal auto is being driven for hire. A fact dismissed initially by Uber as irrelevant.

Also overlooked is the fact that the UberX excess liability policy does not cover the driver’s injuries or damage to their vehicle in the event of an accident as the policy covers only damage to the passengers in the UberX vehicle and to other injured people and damaged property. It is not even clear if additional passengers who are members of the party paying for the service are covered in the event of an accident. Regulators and city officials have not always been able to reconcile the fine print of Uber’s insurance policy with its public relations double-talk and Uber’s insurer, James River, has been stalling on paying claims.

Taxi drivers in Portland rally against Uber with slogans like “Same city. Same rules.” Photo credit: Aaron Parecki (https://www.flickr.com/photos/aaronpk/)
Taxi drivers in Portland rally against Uber with slogans like “Same city. Same rules.” Photo credit: Aaron Parecki (https://www.flickr.com/photos/aaronpk/)

Working for Uber

While UberX’s low overhead ensures high gross revenues for the company, many UberX drivers complain that they hardly earn the minimum wage after they pay for gasoline, repairs, maintenance of their personal vehicles and quarterly deposits for state and federal taxes and other required witholdings such as disability insurance and Social Security. Drivers’ earnings are being further reduced because UberX in January of 2015 decided to undercut taxi fares by as much as half in many cities. Additionally, Uber has been increasing its cut from 20% to 25% to 28% in some cities and its fee for insurance from $1.00 to $1.50 per trip.

In response to having their pay reduced, UberX drivers have been organizing protests against the company. Uber’s response has been to intimidate its disaffected drivers by ‘de-activating” those who publicly express their concerns. Some drivers are exploring unionizing.

Uber’s own data shows that when estimated 2015 total payment to drivers of $8 billion dollars is divided by the total number of Uber drivers of 1.1 million, the sum is $ 7,200.00 income per driver per year. And that is gross income. Actual take home pay after adjusting for expenses is at most 50% of that amount or $3,600.00!!! In a few cities, New York, Chicago, Los Angeles, San Francisco Uber drivers’ income likely exceeds by far the above paltry amount but in most places where Uber operates, especially small cities, drivers are probably not earning enough to make the job worthwhile.

So, it should not be surprising that Uber is a very short term ” gig “. But as long as Uber can hire new suckers faster than the driver attrition rate, it will continue to win the competition against taxicabs.
Uber’s founder, Travis Kalanick, regularly boasts that UberX will replace taxis as the preferred choice for on-demand, for-hire transportation. There is data to indicate he is right. In every city where UberX operates, demand for taxis is declining; in San Francisco where Uber started, the volume of taxi trips has declined by as much as 65% according to a recent report. In many cities where UberX is not regulated or minimally regulated taxi companies are going out of business.

If you imagine what taxi service would look like if UberX was the last remaining taxi service provider, a disturbing transportation scenario emerges from the heady pro-Uber rhetoric produced by Uber’s public relations apparatus. It is one where there are likely to be gaping holes in service.

Why taxi services are still important

In some large cities, including San Francisco, Seattle and DC, taxi service has not been very good but no critic seriously disputes that even in these places, regulated taxi services do many things better than UberX. Provision of service is 24/7, it is available to the entire population (not only to those having smart phones and credit cards) and, unlike UberX, price is fixed and transparent.

Waiting times may be a source of frustration to customers but in every other way service is reliable and robust. With UberX there is no guaranteed service because UberX drivers are allowed to work when they want to and to cherry pick trips, no guaranteed price (UberX customers do not know the exact charge for the ride until it is over), and no guarantee of comprehensive liability insurance or criminal background checks to ensure public safety!

A city cannot not rely on UberX as its primary for-hire transportation provider and expect to meet its diverse transportation and public safety needs. UberX can supplement taxi service during peak demand periods. It cannot effectively supplant it!

As previously noted, UberX drivers cannot serve individuals who do not own a smart phone and a credit or debit card with a positive balance. So, that part of the general public who uses taxis most frequently is excluded as customers. It so happens that this part is made up of a municipality’s poor.

UberX service is discriminatory because it is not available to the general public. Discrimination is inherent in UberX’s “DNA”. This is a flaw in UberX which is often overlooked by UberX’s supporters. A small gain in individual satisfaction for one part of the public should not be at the cost of the abandonment of service for another part, a larger part.

The relationship between a city and its regulated taxi service providers is, actually, a social contract. This means taxi companies, in addition to compliance with safety rules, provide service to the poor, the elderly, the disabled and those who live in inconvenient locations, even if the service is only marginally profitable.

Since Uber disclaims responsibility to serve a public purpose, it leaves many prospective customers unprotected as well as underserved or without service. UberX serves mainly the transportation need of a young and moderately well-to-do segment of the general public. That group uses taxis recreationally to reach restaurants, bars, movie theaters and airports. The working poor and the elderly use taxis out of necessity to access social services, to go to grocery stores, medical appointments, and, in case of the former, to get to places of employment.

The regulatory battle

Uber executives and supporters like to invoke the (questionable) benefits of unconstrained technological advance and “creative disruption” as weapons to bludgeon into submission uncooperative municipal and state regulators and critics. Really, the Uber inspired free-market rhetoric is just a clever ruse for getting a free-ride.

The reason UberX fights regulation tooth and claw is that remaining above taxi laws (Uber means “above” in German) gives it a big and potentially decisive competitive advantage vis-à-vis lawful taxi companies. Not very long ago the word “uber” had a negative association, being linked to Nietzsche’s amoral supermen (ubermensch), to Nazi racial theories and more recently to novelist Ayn Rand’s self absorbed heroes. It was used pejoratively.

Not so today. Today, for many it evokes extra-ordinary effort by entrepreneurs to overcome regulatory barriers. What is left out is that the need for regulation arises because in the absence of it, businesses, including taxi companies, have shown, over and over again, their disregard for the public interest.

Currently, Uber is riding high, propped up by a frenzied horde of investors led by Google, Amazon and Goldman Sachs who anticipate a huge pay-day when the company goes public. Financial analysts are assuming that Uber is or will soon be abundantly profitable. But not all signs point to Uber’s success. Bloomberg has reported that between 2011 – 2014, Uber lost hundreds of millions of dollars.

Initially, UberX was able to overrun the regulatory defenses of the cities it entered. That is starting to change as regulators are realizing that UberX service is not different in kind from conventional taxi service despite the contrary claim of the company’s founder, Jason Kalanick. As cities and states increasingly push back by insisting on regulating UberX on the same terms as taxicabs, Uber is having to rev up its spending on lobbying, public relations and litigation. At some not distant point in the future Uber’s investors may become less optimistic about Uber’s ability to reward its investors.

If Uber is allowed to operate without regulation or insufficient oversight, as it does currently in many cities and states, it will continue to pose risks to the public and will also drive out of business legal taxi companies. This is a given because of the decisive financial advantage made possible by Uber’s business model which transfers most operational expenses of doing business and all risk to its so-called “driver-partners”.

Perhaps some taxi companies deserve to fail but Uber’s success is not a guarantee of better service. In fact, any municipality that allows UberX to operate on its own terms can expect service to a large part of the public to deteriorate or vanish. It should also expect Uber to raise fares without restraint. That’s what monopolies do!

John Kadar, President of Ithaca Dispatch and Total Transportation of Elmira.

The above arguments are not meant to be a defense of taxicab companies against public criticism for failing too often to provide quality service. Such rebuke is often justified. Municipally regulated taxicab companies can and should do much better even given the limitations which cost factors associated with regulations place on providing good service during busy periods of demand.

New York State legislators would be smart to shift their focus from giving Uber a free-ride and to direct their interest to improving regulated taxicab service.

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Michael Smith

Michael Smith reports on politics and local news for the Ithaca Voice. He can be reached via email at msmith@ithacavoice.com, by cell at (607) 229-0885, or via Google Voice at (518) 650-3639.