Takeaways for policymakers from the Uber Files
In the aftermath of the 2008 financial crisis and the era of low-cost capital that followed, the ride-sharing app Uber emerged as the poster boy of a very particular startup ethos: to grow at all costs and worry about the consequences later. To upend the ride-sharing market, Uber relied on a bare-knuckle approach that disregarded local regulations to establish a foothold in a market and then tried to appease regulators once consumers already relied on the app. Armed with a massive war chest supplied by venture capital firms, the company could disregard profits and slash prices in the pursuit of growth.
Uber’s breakneck style of corporate growth has been well-chronicled but is back in the news with the release of the Uber Files—a huge trove of internal documents, reports, and messages documenting the company’s aggressive efforts to lobby policymakers around the world from the period between 2013 and 2017 when the app became a global phenomenon. With global interest rates rising, that period of cheap startup capital has come to an end. But as the world economy stands at the brink of yet another transformation, it’s worth reflecting on this period of tumultuous growth for Uber and the lessons it holds for policymaking communities.
Corporate oversight. As tech companies have capitalized on network effects to build massively influential online platforms, all too often policymakers have struggled with how to oversee them. In the devastation that followed the financial crisis, Uber pitched itself as the vanguard of a new form of economic coordination—the “sharing economy.” To make its case, the company paid high-profile academics to author research showing that the company could provide a “route out of the French banlieues,” as one Financial Times article based on that research put it. For policymakers—including an ascendant young minister in France named Emanuel Macron who helped smooth Uber’s entry into the French market—these promises of economic transformation offered hope of economic renewal.
Nearly 15 years after Uber’s founding, policymakers are still struggling with how to govern large technology companies whose businesses are premised upon skirting traditional economic relationships. In the United States, federal lawmakers remain deadlocked on how to protect the personal data of Americans that power the business models of large platforms. And while recent legislation in Europe has made some progress on this issue, there still exists no structured way for researchers to access platform data and answer pressing research questions, allowing companies to continue controlling the narrative around their economic impact.
The end of cheap capital. With the benefit of hindsight, it’s easy to see that Uber’s financial strategy was premised on network effects and technological advances (like self-driving cars) that were never going to arrive in time for the company to deliver on its promises. Even now, the company has still not reached profitability, and its CEO, Dara Khosrowshahi, has embarked on a cost-cutting effort to prepare the company for lean times ahead.
This represents a remarkable reversal. In a May memo to the Uber employees, Khosrowshahi wrote that “we have to make sure our unit economics work before we go big.” This represents the exact opposite of the company’s early strategy when it was happy to invest in money-losing endeavors. In the company’s early days, for example, it would in some cases pay up to 90% of drivers’ wages and incur huge losses in order to break local taxi markets.
This willingness to take staggering losses was only possible due to huge injections of venture capital—$25.2 billion over 33 investment rounds. As interest rates rise, this type of cheap capital is likely to come to an end. As VC-funded companies lay off workers and industries consolidate, policymakers will have to reckon with the effects of restructuring policy around companies with often unsustainable business models. And the revelations of the Uber Files should raise a question: What unsustainable business models are currently occupying a central role in how we are conceiving of the future?
Labor rights. Perhaps the biggest takeaway of the Uber Files is the way these documents depict the company’s cavalier attitude toward its drivers. When protests against Uber in France turned violent, the documents reveal that company executives saw assaults of the company’s drivers as a way to gin up support for the app. When an Uber driver would get beaten, stabbed, or attacked by taxi drivers, managers would alert media in the hopes of free anti-taxi publicity and lobbyists would exploit the incident to secure meetings with ministers and government officials. "Violence guarantees success," as Uber founder Travis Kalanick texted his colleagues.
Today, the tension between the app and its workers remain, as Uber drivers complain of opaque pricing models and low, variable pay. Yet Uber continues to lobby both state and federal legislatures considering overhauling labor laws to extend greater protections to gig workers. Uber's drivers are famously "independent contractors"—rather than full employees—a distinction that allows Uber to deflate its potential labor costs by between 15% and 23%.
What had been promised as a revolution in how employees interact with their employers has instead evolved into a far more traditional labor rights battle, as gig-working drivers seek better conditions in the terms of their work for the app. The outcomes from these battles will be critically important for millions of people over decades to come. By some estimates, the number of gig workers in America will increase by 110% to 86.5 million over the next five years.
Uber insists that the company of today in no way represents the free-wheeling days of Kalanick’s leadership. Khosrowshahi has brought in a more buttoned-up management approach, and few employees from the Kalanick days remain with the company. But for policymakers trying to govern innovation, Uber’s transformation into a more responsible company is cold comfort and only illustrates the importance of critically evaluating the claims of companies promising economic revolution and to build the appropriate governance structures to do so.
– Elias Groll (@EliasGroll) and Dylan Hanson (@dylanhansononhere)