Wouldn’t it be great for Republicans to line up behind a massively popular force that pits entrepreneurship and innovation against corrupt political interests? Even better, what if that same force was helping ordinary people improve their lives and opening up opportunities for Republicans to compete in urban and minority communities?
New labor and capital models emerging from the tech sector are a gift from the political gods that Republicans have, as yet, entirely failed to recognize. These innovations are vastly popular with the public, especially younger voters who are otherwise drifting left. Meanwhile, new technology is setting up a conflict with corrupt, unpopular established business models tied to Democrats by deep institutional bonds.
Mired in delusional pessimism and hopelessly burdened by bigotry, Republicans are missing a golden opportunity. Innovations in mobile payment, asset sharing, 3-D printing and digital marketplaces are not just changing the way we live; they are upending economic assumptions that once defined our partisan divide. Pioneers in this new economy are desperate for political allies. Innovations in the labor market are opening a window of opportunity to build a new identity for the GOP. There is no sign that we are ready to seize it.
Understanding how technology is blurring the once bright line between labor and capital starts with a close look at how ride-sharing has disrupted the taxi business. Democrats are lining up to defend an archaic taxi business model against competition by adopting flimsy rhetoric about worker protections. In reality, Democrats are defending existing models for two reasons, 1) they don’t understand emerging technology any better than Republicans, and more importantly, 2) they cannot wriggle free of their deep political dependence on a patronage model.
Taxi industry rentiers were one of the largest contributors to the campaign of New York’s “progressive” mayor, Bill de Blasio. The mayor has locked himself into a fight against the ride-sharing service. Bernie Sanders has, unsurprisingly, expressed that he has “serious problems” with the company’s business model.
The taxi business owes its continuing existence to regulatory capture and its corrupt ties to urban political machines. Democrats find themselves defending rentiers, occasionally even organized crime figures, against the interests of individual workers they celebrate in their rhetoric. Democrats are trapped in a 19th century model of urban political patronage. Republicans could make them pay.
Local governments have several legitimate interests to protect in the taxi industry. They need the drivers and vehicles to meet safety standards. They want the market structured in way that insures cabs are available on consistent basis and that drivers are not exploited.
To manage taxi markets, New York City in 1937 passed the Haas Act, mandating a limit on the number of taxi “medallions” the city would award. To legally operate a cab in the city, the vehicle must display a medallion purchased from the city, and licensed annually, a practice that continues today.
It was a solid idea that spread rapidly, giving cities some leverage to impose minimum standards in the industry without granting a monopoly to a single vendor. Medallions were a form of market-based regulation that kept cities out of the taxi business while preventing a market-driven race-to-the-bottom in terms of quality.
Every great idea has a lifecycle. As an environment changes, an adaptation that bred success in the past can become a dangerous liability. A close look at the way the industry has evolved reveals those weaknesses now.
Medallions developed into a form of capital, one whose only value rose from the regulators themselves. From the beginning, medallions were accumulated by politically-connected insiders who capitalized them. The medallion attached to the vehicle, not the driver. By leasing the right to operate to other drivers, the vehicle itself could be almost constantly in service. As the value of the medallions rose they become a legitimate investment.
Over time the relationship between medallion holders and urban regulators evolved in a predictable direction. Medallion ownership has consolidated into relatively few hands. Their influence over urban politics (reads: Democratic politics) has grown and deepened. Owners’ cozy relationship with their very local regulators has helped them block competition, exploit workers, skirt safety standards, and disregard the needs of riders. The taxi business is a cesspool of corruption, controlled by a relatively small collection of capital owners who have imposed an effective monopoly on the business.
With very few exceptions, taxi drivers are independent contractors who operate under lousy conditions. For each shift they work they pay a set fee, in the form of a lease, to the medallion owner. A dispatcher controls much of their activity, and receives an additional cut. So the driver starts their shift with a sizable fixed cost.
Unionization in the cab industry is challenging for a combination of practical and political reasons. Since the drivers are almost never employees and very few people perform the work consistently, the driver pool is difficult to coherently identify, much less to organize. Complicating the problem is the fact that unions and medallion holders are both deeply embedded inside the same political party. Unionization would require a poorly organized, politically marginalized minority to persuade existing union interests to upend powerful forces with entrenched interests from inside the Democratic political machine. It hasn’t happened and it won’t. Thanks to innovation, it is no longer the most promising option for workers.
For consumers the taxi market is similarly lousy. Vehicles are consistently old and in minimal repair. Technology available to drivers to process payments is miserable, often improvised on the driver’s phone. Supposedly set fares always seem to inexplicably vary. Rides often end with a driver strongly suggesting that cash would be the best payment method, then making the electronic transaction take as long as possible. On short fares, the payment process can take as long as the ride.
This is a business ripe for disruptive innovation. How do ride-sharing services like Uber and Lyft work? Press a button on your phone to request a ride. Costs will vary based on the number of available drivers and traffic conditions. Despite all the worry about variable pricing, you can get a highly reliable fare estimate by pressing a button.
While you wait for your car you can watch its progress on a map. When the ride is over you get out and walk away. Rate your driver. That’s it. The transaction is handled electronically by Uber or Lyft. Need a car, get a car. Costs are low, service is excellent, uncertainty and delay are reduced to near zero.
And the drivers themselves? That’s the best part. They are almost all part-timers working to capitalize an existing investment in a vehicle. A driver with a paid-off vehicle in good condition can make vastly more money than a traditional taxi driver working far fewer hours. More importantly, the flexibility of the work opens up options for people who need a little extra money but don’t have the time or desire to commit to the years of twelve hour shifts necessary to break into the taxi industry.
Press a button on your phone, clear a background check and vehicle inspection, then make far more money than a cab driver working on your own schedule when you feel like it. Drivers owe nothing to Uber or Lyft. They owe nothing to a corrupt union bureaucracy. They owe nothing to local politicians. In many ways, Uber epitomizes the new economic freedom of social capitalism. The Uber driver is a political nightmare for Democrats, a true free agent unconstrained by any political machine.
Lyft and Uber are disrupting more than the taxi business. In the course of demolishing a corrupt business model they are also threatening a corrupt political model that hinges on blocking workers from gaining their own independent voice. At the heart of America’s big cities, the last remaining stronghold of Democratic politics, ride-sharing could redraw the political map if Republican would just pick up that stylus.
Rhetoric in play against ride-sharing is bizarre, suggesting that many Democratic politicians have no idea how the taxi business (or any other business) works. Uber is bad because it doesn’t offer health insurance. Uber is bad because drivers are not employees. Uber is bad because few drivers work full-time hours. Conditions of the sharing economy that liberals criticize are in many cases the traits workers most love. And the absence of employment benefits is not unique to Uber, but an embedded characteristic of a taxi industry Democrats foster and politically protect.
Suddenly Democrats have discovered the plight of taxi drivers, after having created their plight in the first place.
Here’s where ride-sharing, like many other similar disruptions, presents a radical new opportunity for Republicans. These innovations blur the line between capital and labor in ways that destroy older political alignments. Instead of investing in a medallion or paying leases to an owner, a Lyft or Uber driver uses their own car, which normally would be an ordinary cost of living – an expense. How does ride sharing change the cost of becoming a capitalist? Observe:
Cost of a taxi medallion in a major city: Somewhere between $400,000 and $1,300,000.
Cost of a car used for UberX: $18,000-30,000.
Like a business owner, Uber or Lyft drivers work when they want to, quit when they want to, and hold out for higher pay by only working when the fares are most lucrative. They earn a chance to convert their labor into capital leveraging assets they already own.
What about health insurance, protection from termination, and fair pay? Taxi drivers under existing arrangements enjoy none of these benefits. Taxi drivers’ lack of health insurance is not an Uber problem, it’s a national political problem. The solution is not to force Uber to enter the same antiquated, suffocating labor arrangement we’ve imposed on the rest of the market. The solution is to recognize the ways the world is changing and finally decouple health insurance coverage from full-time employment.
Developments in the late stages of the knowledge economy are giving birth to millions of new capitalists. In a move that would make Marx’s head explode and Jack Kemp’s face glow in the dark with excitement, workers are becoming capital owners. Their future partisan alignment is largely in our hands. Democrats are unable to adapt, trapped by their existing relationships with corrupt urban political interests. Republicans are free to pursue these new constituents, urban, young, and often black or Hispanic. We just need to recognize them and make an effort.
A healthy Republican Party could seize this opportunity to champion the liberating forces of market economics against political corruption. Clearly defined, delivered with discipline, this becomes the core of an optimistic, broad appeal that could break open the Democratic stranglehold on big cities and smash the Blue Wall. Instead, for some reason, we’re promising to roll back gay marriage and shut out immigrants.
Our willingness to find comfort in a world of manufactured facts comes with a price tag. By blinding ourselves to the massive social changes developing around us we are also missing vital opportunities. Republicans have a crucial role to play in fostering hopeful 21st century business models. Will we miss our ride?