Sunday, April 30, 2017

As With Anything Involving Uber, Follow The Money (plus Karl Marx swings by)

Izabella Kaminska shows us an aspect of Uber's business model that will probably have some unintended consequences going forward.
(looking at you, trial attorneys)

From FT Alphaville:

The gig economy’s cash management issue
Over the last few years, labour practices in the gig economy have triggered a heated debate over where the boundaries of self-employed status should begin and end.

The feeling among many critics is that corporations are exploiting the classification simply to save money by not providing the rights and benefits that come with traditional employment. This is contributing to a major power shift in the social contract that was hammered out during decades of strife between labour and capital, they say.

But there is another thing possibly being missed in the debate as it stands. It relates to the role cash management plays in the gig economy.

Take the taxi market in the UK as an example.

Companies such as Uber like to claim they’re busting open an uncompetitive licensed taxi cartel, which operates against the interests of consumers.

But in the case of the UK market, this is a slightly disingenuous claim. Black cabs have always been forced to compete with private hire and mini-cab rivals.

So, one might ask, why is competition from Uber deemed intolerable from a labour and incumbent perspective but not from the private hire or mini-cab market?

Two factors arguably dominate.

The first, and most written about, relates to Uber’s scale and capital advantage. Unlike local mini cab firms or even relatively centralised players like Addison Lee, Uber’s well funded status alongside its immense scale means it can undercut incumbent players with below-cost pricing. Small local players simply wouldn’t be able to carry on loss-making operations for years in the same way, and hence can’t compete.

The second, and possibly less recognised factor, relates to the power shift associated with using a centralised dispatcher for self-employed operations. That dispatcher (Uber, in this case) also happens to be a cash manager, which is important.

Indeed, one of the reasons black cabs have historically been so reluctant to take debit or credit cards (aside from the entirely separate issue of tax evasion) links to the additional cost of processing digital transactions as a small business operator. Cash has no processing charge, thus cash offers a better margin in almost all cases.

In the mini cab world, meanwhile, the margins are even thinner meaning the incentive to take cash is even greater.

Private hire firms, of course — by linking services to repeat accounts — have historically been able to compete on this front by billing/invoicing customers directly or by running corporate accounts that can be settled on a bundled-payment basis.

Why money management matters
In that latter situation drivers are, in most cases, still deemed self-employed workers. What differentiates them from Uber contractors, however, is that these centralised cash-managing providers tend to use the cashflow advantage to reduce capital costs for their contractors. They do this by investing in car fleets on a bulk basis (taking the capital and depreciation risk accordingly) and renting the vehicles to drivers on preferable terms to those found in the open market. The drivers also need not pay for the insurance, MOT and PHV checks, repairs or maintenance.

When it comes to the self-employed sector that’s prepared to take on the full capital risk of owning a vehicle — namely the Uber and mini-cab sector — the real differentiator thus becomes cash management....MUCH MORE, including some pretty good comments:
Felix Dzerzinsky 1 day ago
Means of Payment > Means of Production

Uber Drivers have nothing to lose but their chains! They have a world of cash management to win.

Which, of course, reminded me of 2014's "UPDATED--'The Karl Marx Credit Card – When You’re Short of Kapital'":

Is it a tragedy? Is it a farce? In the land once called East Germany, in a town once called Karl-Marx-Stadta bank called Sparkasse Chemnitz ran an online poll letting customers vote for images to place on their credit cards. And the hands-down winner was Karl Marx, an ironic pick given that … well, you don’t need me to explain why.

In response to this selection, Planet Money has encouraged readers to post a tagline for the card on Twitter, using the hashtag #marxcard. Here are a few of our favorites so far:
  • There are Some Things Money Can’t Buy. Especially If You Abolish All Private Property.
  • From each according to their ability, to each according to his need. For everything else, there’s #Marxcard.

And again in "Okay, The Second Time Is Farce: Some Additional Taglines for the Karl Marx Credit Card" a few days later.