Archive for December 16, 2014

Could Uber be Collectivised?

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A provocative piece in The Nation suggests turning the so-called “ride-sharing” company known as Uber into a worker-owned enterprise. In “Socialize Uber: it’s easier than you think, Mike Konczal and Bryce Covert argue that since Uber owns only the proprietary technology that coordinates the glorified taxi rides and processes payments, and drivers own their own cars, Uber is an excellent candidate for conversion to a worker cooperative.

Collectivisation of Uber is a tempting notion, but the authors’ conclusion that it’s the “obvious transition” for Uber is hard to fathom. First, they curiously fail to note that it would be virtually impossible (in a legal and technical sense) for the drivers to acquire Uber. The company is privately owned, with equity held between the founders, many employees, and a huge array of venture capitalists, individual investors, and other firms. These shareholders have complete legal prerogative to hold their equity until the company goes public or sells off (and beyond). The only way the workers could buy Uber is if they pooled their money and acquired the company, which would cost way more than its current $40 billion valuation. Indeed, due to the special circumstances of needing to acquire every last share and option from current holders, this would constitute, by a factor, the most expensive acquisition in the history of venture capitalism.

But let’s just play make-believe and look at Uber as if the workers could assume the reins overnight. I believe in worker cooperatives, not just as an organizational model for firms, but as a transformational force for our economy. That said, Uber is not merely a bunch of hard-working drivers coordinated by technocratic drones. If Uber establishes itself as a dominant, static force in the taxi economy, it might eventually become nine parts technocracy for every one part human ingenuity. But for now, it’s a new kind of craft in very uncertain conditions; autopilot is not an option.

The authors note, “It takes an entrepreneur to start up ride-sharing, but not to run it as a firm.” In truth, it takes a handful of entrepreneurs as well as venture capital to bring a startup of this kind to scale, and it takes a team with exceptional business sense to see it through the growth stage. Even as a staunch advocate of collectivism, I am willing to concede that successfully introducing a disruptive product into a market of this kind is beyond the reach of collectives or self-funded worker-run enterprises. At the very least, they would have to seek investment capital and empower managers with extraordinary vision to navigate this crucial phase. These are two very problematic necessities.

We all know what happens when workers empower managers to use their exceptional talent—those managers demand exceptional compensation. I’m not saying capable people don’t exist who would do this for humble wages, but they’d be exceedingly hard to find. Anyone with a proven track record has far more lucrative options. So whom would workers hire or promote to steer the company? This is where CEOs and other executives command what appear to be rentier compensation packages. It isn’t the actual scarcity of talent, but the scarcity of pedigree, that they’re leveraging. Even the ones with relatively poor records exercise the terrific advantage of having a resumé that shows they know anything at all about running a big company. While it’s surely far easier than they would have us believe, it’s not perfectly intuitive; not just anybody can pick it up overnight. Leadership isn’t an insurmountable obstacle, but it highlights a major problem and a significant gamble.

And then there’s the capital. Even if they don’t need $100B in up-front cash, Uber would need regular influxes of investment capital in order to grow while competing with other venture-backed companies in the ride-hailing app market (not to mention the main competition: taxis). We’re talking no less than tens of millions of dollars on a semi-regular basis. It’s difficult for worker cooperatives in conventional industries to get loans or other traditional forms of cash infusions; this is basically impossible for venture startups in unproven markets.

You might say, why not reinvest profits as capital for growth? Besides the fact that worker-owners would have to consistently forego dividends to grow the firm (a conventional co-op dilemma) the biggest reason is really that it puts tremendous pressure on creating big margins in the first place. Competitors will meanwhile enjoy the relative breathing room of not having to scrape every ounce of profit out of their model while growing strategically. Some of these companies pay no attention to profits at all as they spend investor money improving their position in the market.

This is why venture capital exists—to take seemingly insane risks seeking commensurate returns on the rare wins. For startups, they provide the ability to grow without cannibalizing revenues. I cannot imagine a VC firm wanting to invest in a labor-managed startup, and it wouldn’t be a cooperative if such a firm did decide to invest.

But why wouldn’t an investor want to back a democratically managed startup? We know a lot of these new Silicon Valley firms are relatively flat. Here we get to Konczal and Covert’s claim that at its core, Uber is just a technocracy:

And these workers [drivers] labor individually, doing the same tasks, so there’s no need for a management class to control their daily operations. The capital owners maintain the phone app, but app technology isn’t the major cost, and it’s getting cheaper and easier by the day.

Developing successful technology isn’t just writing code, and most of the supposedly “flat” tech startups are neither nonhierarchical nor equalized in pay scales. Even if the code and the coders came with the acquisition (which they would), consider that all these years a relative handful of people at Uber have been figuring out what to make all that code do. There’s institutional knowledge and specialized skills behind that, some of which might be maintained beyond collectivisation, though that’s doubtful (why would a CTO or senior engineer or product manager stick around—why even would a junior developer who can start anywhere at $75,000 plus equity?). Could the right workers collectively do this under the right circumstances? I believe so. But not coders who weren’t hired for these propensities, and definitely not overnight.

Okay, so forget Uber (seriously, Uber is awful). What if all the Uber drivers wanted to set up their own competing co-operative? Maybe even do something innovative and offer regular customers shares in the company! Unfortunately, the above problems would persist.

There’s that pesky problem of the technology and infrastructure. The overhead costs for such a venture are not trivial, but replicating the model is conceivable. Uber’s trade secrets would be pretty hard to obtain, protected as they are by nondisclosure agreements that could keep even sympathetic insiders from aiding the dissident worker-owned venture. Still, I think most of the model is in plain view. So they’d have to get the right developers working for the right reasons. It’s theoretically possible, but I’d rank it as highly difficult.

It remains harder still to figure out where the capital would come from, and how the organization would work such that drivers, technologists, and business development workers would be on the same page at equitable wages and equal stakes of ownership and control. The irony, of course, is that this company would be competing with Uber and all its infrastructure and those piles of venture capital. My conclusion is precisely the opposite of Konczal and Covert’s: Uber is among the worst candidates for the cooperative model on a large scale.

Now, all this being said, if someone were to create open-source software for the ride-hailing industry, I bet small collectives of highly motivated driver-owners could perhaps eek out nice livings in the right markets. I would love to see that, and in fact I’d lend my expertise to such a project. But this sadly isn’t the place we’re going to kick capitalism’s ass.

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