Thursday, 18 August 2016

The Not-Sharing Economy Part 2 – Uber and Airbnb

Paul Sweeney: In my last blog, I argued that the so-called “sharing economy” is based on an increasingly “fissured workplace.” Many technology firms can have a negative impact on jobs, workers’ conditions, on taxes and indeed on the sovereign state and democracy. This blog will examine two of these firms in the so-called sharing -  Uber, the world’s most valuable start-up and Airbnb, the  third most valuable one.

Uber has had endless global litigation, including a class-action lawsuit from drivers in California and Massachusetts which it recently settled for $100m. It avoids Irish VAT by shipping payments through Netherlands. 

Its lobbyists actually described it as “a socialist project” when addressing the EU parliament. The media seem to concur somewhat, by describing it as the “sharing economy”, which it is certainly is not. Some progressives called it the “platform economy” – because it is an extension of the market, but without institutions to regulate it. Regulators are trying to catch up with it and the other companies in the disruptive economy.

It avoids most corporation tax too, like most tech companies, paying only £22,134 in UK corporation tax last year on £866,000 profit. “Any four black-cab drivers pay more tax than Uber,” said Steve McNamara of the taxi union. The Delaware company avoids tax through a web of 60 US subsidiaries and 75 abroad.

Uber taxis have been criticised in many cities all over the world and even attacked in some. It is banned in many cities and this list is not comprehensive.

The taxi drivers’ beef with Uber is that they say it is a taxi company. You also think Uber is a taxi company. But Uber says it is not a transportation carrier and so does not have to obey tax regulations. It is a business of "connecting riders to drivers". Uber does not own its cars, but the drivers are approved by Uber, supplied with equipment by Uber, but they are self-employed. Its drivers are not drivers but “partners.” Its distance and time measuring equipment is not a meter because it is not in the car. 

As one Houston Uber driver said to the Houston Chronicle, “Uber’s “not bad” as a concept, but the way they’re doing business, they’re basically destroying the taxi industry. They’re making drivers slaves for them because we have no options.” 

In 2014, Emil Michael an Uber VP, proposed a million-dollar campaign to dig up dirt on the personal lives and families of journalists critical of Uber.

Recently, Uber gave up on trying to break into the vast Chinese market by selling its loss-making unit there to local firm Didi. Uber could not compete as it was to costly to sell below cost to gain market share. It caved in and even now has a Didi person on its board as part of the deal. This indicates consolidation in the “sharing economy” internationally.

Disruption within the Disrupters 
There is war within the new tech firms too. Deliveroo, under three years old, is already valued at $600m. It operates in 12 countries and recently signed up PizzaExpress in the UK, but Uber is moving into it’s growing take-away food business. 

Uber recently received $3.5bn from the Saudi wealth fund as well as having $11bn in cash. It has lots of cash but it not profitable - it made losses of $1.5bn in first three quarters of 2015. It is using some of this vast pile to disrupt the takeaway market in many countries, taking on Deliveroo and undercutting it on price and with aggressive marketing.  

UberEats is already in 12 cities in 6 countries, has undercut Deliveroo and has huge backing. Last week 100 Deliveroo riders protested in London against plans to pay workers £3.75 per delivery instead of an hourly rate of £7 plus £1 per delivery and won concessions. 

Amazon is also now operating in 12 US cities in the restaurant delivery business. So even in this relatively low margin business, the big boys, Uber and Amazon are muscling in trying to wipe-out the littler guys like Just Eat, Delivery Hero and Take Eat Easy (Berlin). And they use tens of thousands low-paid, self-employed on bicycles and mopeds, albeit with a free lunch on Fridays and waffles on Tuesday in Deliveroo!

Airbnb is soon to become the world’s third most valuable start-up after Uber and Xiaomi, the Chinese smart phone manufacturer, valued at $30bn. It makes its money by charging fees to people who book accommodation in hosts’ houses. Its European headquarters is in Ireland.

One Temple Bar apartment was offered for sale with the boast that it made €79,000 from Airbnb short term rentals last year. Its price was €400,00 against €270,000 for similar apartments. Other residents asked the City for clarification about the status of such operations. The city said Airbnb owners need to apply for planning permission. 

The constant traffic annoys other residents, but more importantly they are displacing many rentals for needy workers and students.  Almost 2,000 Dublin apartments are rented on Airbnb while the taxpayer pays out €25m for hotel accommodation for the homeless. The competition has been levelled, as Airbnb hosts now have to pay income tax as trading income (not getting the €12,000 room rental break) here.

“Don’t be Evil” is Google’s corporate motto. Larry Page and Sergy Brin probably meant it…. for a while. But many modern tech corporations do not believe in employing workers on full-time pensionable contracts, or even at all or on even paying tax. This is very unlike the big 20th century capitalist firms which at least had vast unionised, pensioned workforces. 

Some of these firms are leading a new morality for all firms of casualisation, the fissuring of employment and in undermining sovereign states with industrial levels of tax avoidance. 

These companies are providing consumers with innovative services, while driving inequality through an increasingly fissured workplace.

Paul Sweeney, Chair TASC’s Economists’ Network.

Keywords: Sharing economy, platform economy, Uber, AirB&B, Deliveroo, Didi, taxation.


BrendanKORourke said...

The sharing economy is an important one for us to address and the libertarian thinking that wants this part of the economy to free-ride on society 'unfettered', needs to defeated. We do need to recognise that most of these platforms do indeed add value. We socialist progressives should not let neoliberals monopolise this kind of innovation but rather be innovative and bold in regulation. Sometimes that regulation should mean banning some sharing economy platforms, sometimes making them state-controlled and sometimes devising robust regulations to make sure they pay their full costs including taxes. I would ban a platform that sells parking specifically occupied by freelance holding cars to highest bidder (I believe there is such a platform out there but could not source it today). However to say that Airbnb, for example, does not add value is bordering on Luddite. Good to see the sharing economy being critiqued in TASC.

Paul Sweeney said...

I agree that uber Airbnb etc are innovative, add services, give employment, cut costs for consumers and indeed add efficiency to the economy. But it's what they do to employment, working conditions of workers etc .....that is the challenge.

You have hit the nail on the head.... We should not as a society be afraid to regulate them. But we also must admit that as change is so fast, good effective but not stifling regulation is hard to do. So it' will be incremental, a bit obsessive, and revising if its to work and not kill the innovator & their service, but protect workers.

I'm all for state ownership ...why is shareholder value the only game in town for the business Journos when it has failed so magnificently? Let's hold on to a lot of (25-45%) Ireland's largest bank ie now 99% state owned AIB. Alternative is foreign control from Berlin/Amsterdam ?? Less mngt jobs & influence.
Let's share / own the upside for us taxpayers as AIB recovers.
But on jobs today I worry.


I posted my response in remote Donegal with uncertain internet and lost the first draft, so my apologies to Brendan for calling you Kevin!

BrendanKORourke said...

No worries Paul.. the middle initial K is confusing but without it I become several priests from Boston on the interwebs (-;