Way back when the phrase “new economy” caused economists to swoon, cynics made sport of them and the idiocy of the dot-net boom. I recall a conversation with a friend who was involved with a dot-com back in the 1990’s. I kept asking him how they made money and he kept talking about hits and stickiness and other nonsense. I kept trying to get an answer and he finally got frustrated with me and said I did not get the new economy. The company burned through all of its cash in about six months and went bust.
The tech boom was driven, in part, by free money from the credit boom. It is not an accident that the tech boom quickly followed the Louvre Accords, which codified the floating exchange rate currency system we enjoy so much today. All of a sudden there was cheap money for all sorts of crackpot ideas. Some turned out to be revolutionary, while others turned out to be insane. The information grid is an example of the former. The financial services industry is an example of the latter.
This post at Marginal Revolution and many others like it at various other places make me laugh. The new buzz phrase is “sharing economy” which is as devoid of meaning and value as the people who like to use it. The vapid hipsters love prattling on about Uber and how it is “disruptive” as if that is always a good thing. Earthquakes are disruptive. The Black Plague was disruptive. Like everything else today, Uber is about signaling. You are a beautiful person if you think Uber is the best. You are a loser if you think it sounds like a handful of sharpies convincing hipsters to be gypsy cab drivers at below market rates.
That is the thing about the “sharing economy.” It is not new. Ross Perot got rich doing much the same thing in the 70’s and 80’s. In the old days, computers were expensive. Companies would sell their idle time to guys like Perot who would find customers in need or processing power but lacking the money to buy their own mainframe. It was the technological equivalent of the oxpecker bird and rhino. The bird picks ticks and parasites from the hide of the rhino and functions as a warning system. The rhino can live without the bird but lives better with him.
Perot and others could make a business out of renting processing capacity because it was very expensive in the old days. When processing costs plummeted in the 80’s and 90’s that “sharing economy” went away. In other words, the “sharing economy” was just a transitional phase, not a desirable economic arrangement. The companies renting their mainframes rented them out to defray the cost of ownership. The renters wanted their own mainframe, but they could not afford it. The solution was a temporary one until the preferred solution was available.
Ride sharing “works” now in the same way. In most cities, taxi service is regulated by the municipality. That means lots of costs on the taxi company. They are real companies so that means they have to abide by labor laws, zoning laws, OSHA regs, insurance regs, etc. Of course, it is not cheap to maintain a cab. The cabs take a lot of abuse and they need a lot of service. The end result is a price for cab service the hipsters in these cities think is too high, so they are searching out alternatives. In steps Uber.
Unlike the old sharing economy, the new sharing economy borrows from the new new economy or economy 2.0 or whatever. That is, the money is made in shifting the cost onto unsuspecting third parties and/or by not complying with the laws that govern everyone else. Amazon avoided sales tax. Google and Netflix shifted costs to non-customers. Media companies taxed people through their cable bill. In the case of Uber, they are not abiding by the municipal laws that govern the livery business. Instead of having cabs, licenses, insurance, and employees driving the vehicles, they shift those costs onto their customers.
If you look at the Uber website, they make the claim that you can drive for them without incurring the wrath of your local government or your insurance company. Neither is true. My insurance specifically says it does not cover me as a hired driver. They will not cover my car if it is used for hire. Similarly, my state does not permit me to rent my car without a permit and a special license plate. But that’s not Uber’s concern. They will not be paying the fines or the insurance premiums.
That is what gets missed in the gushing over companies like Uber. If your wife gets raped by the Yellow Cab driver, the company pays the price. Not only does their reputation suffer, but they also get investigated by the authorities and they get sued by the victim. Therefore, they have a strong incentive to keep their cabbies from raping their fares. If the Uber guy rapes your wife, that is your problem. Uber is not accountable. That is an extreme example, but that is the point. We have these laws because of extreme examples in the past. No law sprung from nothing. Every one of them is there for a reason.
To wrap this up, let us circle back to the old days of renting our mainframe time. Back then, the companies renting the time had an expensive asset they want to maximize. The renter was looking for a lower cost alternative to the million dollar mainframe. Cabs are cheap. No one gets rich driving a cab. How desperate do you have to be to be an Uber driver? How hard up are you if you want to take a ride from some hard up weirdo you met on-line?
Forty years ago, a symbiotic relationship between mainframe users was a temporary solution to bridge the gap between the now and better future. Uber represents a desperate attempt to squeeze the remaining juice from the lemon of the modern economy. It is the equivalent of a widow taking in laundry and borders in order to pay rent. It is not something signaling a better future. It is a desperate attempt to delay the inevitable decline. Maybe they should have named the company “Unter.”