The Uber-Gig Economy: Threats, Opportunities and Tautologies of Economic Theory versus Reality

To many in traditional jobs and labour organisations, the Uber-Gig economy where we increasingly buy services from each other rather than companies, seems to offer more threat and doom than any benefits. To the Friedman far right free marketists, it represents the ultimate move to a free society where all are rewarded fairly. What is the reality of this new focus in the economy? How will we be effected?

As with most things in economics, the gigs themselves at the granular level have to be viable and sustainable in order for them to work for the larger macro economic headlines. It means that people will consider their own personal profitability and time management more directly in relation to the end consumer or paying partner.

Is this something radically new? No not at all, it is as old as the oldest economic transaction in the book. Even into the 1980s there were many hand workers in the UK who went under the “SE60” tax code who hired themselves into employers on an hourly or other contractual basis, and had their basic income tax payed there and then by the employer, while they enjoyed tax deductions for things like travel and tools. Far too much like people’s capitalism, it was ironically the Tories did away with it. There has also always been a degree of casual labour in the market, and “Air BnB” is an ageold phenomenon in fact. What has changed are the media channels and facilitating marketing and administration.

Suddenly new technology has dawned on a lot more people, and what is now emergening are new market places which enable customer to meet supplier. This was all possible within the first days of the world wide web in fact, but it has taken time because the technology needs to be at such an amenable level that a large market is willing to use it. Also those infrastrutures need to be branded – they need to be trustworthy in that they need to be seen at least as offering something honest, reliable and safe. Essentially it ie the economy of scale in having a large marketing and payment apparatus which builds the brand versus a plethora of SME web sites. Like Google and Youtube, Uber and Air’ have very simple propositions, yet they use large servers and programming might to get these to reach many, have total uptime and be efficient per transaction as a mediating technology with a price.

Will these platforms completely replace traditional employment? It seems that is indeed a likelihood with almost complete penetration of mobile device technology in so many economies. Free market ideology and a trend towards part time, temporary work in the west would go along with the concept of this replacing much of how we work today. However we don’t have to see it as being something which companies necessarily cherish as opportunity or find particularly productive.

Have a mental tour through many people’s lives who are more tech savvy and likely to take up this technology. Often graduates, they find their education offers little real leverage and application in the labour market and end up stringing together an extension of service industry jobs they had as students. Now they can maybe do  three to five main entry level economic activities- drive, deliver, data enter, take serve food, non skilled and a mixed bag of personal services. On the down side of the Uber-gig they may have to wait around for a customer opportunity or casual hour working in a bar to come along. On the upside they are in a position to negotiate their price when the facilitating system allows for this. They can also withdraw their labour more easily from times and locations which are less profitable or go on a loss, rather than feeling they have to turn up and do short, unprofitable hours in order to be on the employed pay books. Also they can tactically withdraw their labour such that low demand period prices rise, and surge pricing when demand even slighly outstrips supply can be exploited. So if they drive Uber then they just dont make themselves available at low price, low demand times and find one of those other basic things they can do instead which has higher margin for that period of the day.

Another current opportunity is that the employee in a trad’job,  starts to use some of their time outside work within this high value and/or surge demand. It is much more easily facilitated and they can avoid ‘double commuting’ to say a job in a bar in the city centre, by driving Miss Daisy or delivering some products, or checking that Miss Daisy hasn’t fallen out of bed and has eaten her dinner. Also new skills in computing in particular, or social media selling, which they pick up in employed work can more rapidly be converted to opportunities for extra income and eventually form the core of good business models for a new enterprise to flourish.

There are however many, many down sides. Firstly and foremost we go back to the facilitating brands, and on the internet there tends to be one big winner over time (google vs yahoo, youtube vs vimeo, amazon vs a.n.other ) because internet brands work a little differently than traditional market brands. THere is more immediate trust through experience of direct consumption, versus the fragmented internet offerings and there is more of a centre of gravity from suppliers and content as a mutual exacerbative effect in this equation. So the facilitating branded apparatus may take too much of the cake, and start to organise labour itself such that pricing is more consistent and trust worthy, or those who actively withdraw labour in low periods get de-listed in preference for those with up time. Kind of the reverse of the philosophy but all dooable with algorythmic precision. At some point the customer becomes much more important thatn the suppliers and the middle man, as awlays, wins over those who actually do the job.

However these brands do change over time in market share and prominence, and you can say that Google and Amazon are yesterday’s brands offering the simplist experiences and trades. Twitter has active competition from Snap Chat and a couple of other apps for example, they are no longer the dominant brand in that kind of perishable, short content media. Facebook is eroded in value by these other comm’s brands too.  The nature of supply here is then the most crucial point, and how it actually balances out and can choose to use different facilitator brands, or indeed cut out the brands by building local, direct contact customers or local “craft” brands which offer differentiated quality from the big sites and apps.

There is a big difference in attittude between the ordinary low level worker and the Uber Gigger. The low level worker goes in not very motivated to work in low level service jobs, and they are either forced to work boring hours for little pay or just If tips, in order to keep availability up and not allow customers to drift to other services. So many Taxi drivers in the old licensed model spend 80% of their time idle or on empty return journeys, while there is not capacity during peak times. Taxis are a good case in hand for the whole philosphy of the share economy, because they are a capital outlay and we tie the time of running available very much in to the licensing set up. If you have a car with an MOT certificate and a driver’s license you can do Uber and currently, just when you want to. Motivation then and an idea for immediate, run rate profitability are what are really different from the turn up, lights on contracted worker scenario in the lower value end of services. Also pricing in relation to the percieved, momentary value is important. If you get a ride bleeding to death to a hospital then surely the driver can charge for the cleaning up of blood, the risk driving fast and a premium price on top based on the high utility value actually delivered?

However private hospitals are a good example of why never ending granularisation of different services does not work very well for the consumer when they are in a position of demanding something urgently. Private Healthcare in the US is not only an entire hospital, it is many sub operators from the surgeons, anaethatists all the way down to the trolley operator company. In business there is a pay-to-play, an initial cost which has to be covered in admin of just being there, available, and then there are the costs of returning on investment, meagre though a trolley company’s may be. When we see competition being forced upon a market, such as in the UK energy market, we also see a lot of fifedoms which suddenly have marketing costs in acqusition, churn and retention, administration costs in accounting and compliance, and customer service centre costs, billing costs and so on. Milton Friedman recognised this duplication of costs and proposed that efficient provision in a market could be rewarded by a monoploy position. Which is kind of like George Orwells Animal Farm in tautology, “some animals are more equal than others” in a perverse reflection of the other extreme in ideology. This lead to virtual monopoly privatisation and tendering, such as with many railway services which can then extract higher fares from passengers who need to use the services, thus acting against the interest of the consumer while on the face of it, providing an efficient cost structure, competed for at point of entry. THis has by in large been a failure for both the UK traveller and the treasury, which susbidises the railways far more (excluding HS 12 and 2) than  in public ownership days and spend enormous sums administrating the contracts.

We digress with a very pertinent example, we can take the discussion of on costs further by talking about barriers of entry. Uber and Air reduce barriers to entry by making this the share economy. We share some of our key material resources – housing and cars in this case. However more fundamental than this, we share some of our time and location and we focus very much on what the return is on that time. We don’t go in blind, we only take a fare when we know it will cover out costs. At this granular end, barriers to entry are highly reduced by the facilitating apps and web sites, but that puts more focus on not doing jobs at a loss in order to maybe make money in future. The granulisation removes the deflationary pressure of people running loss leader services or pricing for market share domination, or expected reductions in unit costs later. People enter these markets as granular suppliers in order to make enough money for it to be worth it, and they render older supply like Taxis, uneconomic because of their heavier capital outlay. Making a quick buck means that you actually take 2 dollars and can do the service without any real forhand effort, just by virtue of being able to grab the opportunity in front of you.

Could though employers force most of us into the share world, where we are expected to be on site waiting with baited breath to work and charge out? Well that is an ageold phenonmenon from yesteryears longshoremen to todays sub contracted Amazon drivers who have to wait and then pay back the cost of using their employer’s vans. In reality if that becomes pervasive then we all loose earnings and the economy (which even in China is driven by services and consumption) contracts due to the removal of consumer confidence and spending power, and the immediacy of any down turns in supply chains relatign to this. Employers then find that the higher skilles staff, or even those who bother to make themselves available for super temp work, charge ever higher surge rates and avoid working at lower paid opportunities.

The element of coercion to be at a place of work or instantly available to the exclusion of other opportunities, then becomes a matter on the one hand for the market to flick the finger at, while on the other for labour to organise itself again and for policy makers to render such restrictive practices illegal (many are legal in Neo Liberal countries today like the US and UK).

 

There we come back again to the mechanisms of markets and the change in attitude between being a wage cheque employee, and an active haggeling supplier looking for the best margin opportunities. Other mediator brands will develope in part because they offer suppliers a better deal, and have enough investment to make a public profile. So we have suppliers who are canny and don’t sign exclusive deals with say Uber. They maybe run three apps in their cars and pick which pays best or has the nearest customers with the most profitable passenger journeys. As the mechanisms spread out towards different skill sets and opportunities, so that employers become facilitators who must administer a lot of granular activities and lose a degree of management power while being forced to accept MORE risk by following this model, rather than thinking they are shoiving risk out onto the one time employee.They then find that economies of scale play in, and move away from granular time management to buying in what is basically worker organised labour at rate card prices. So in terms of securing key organisational goals or reduced risk, predictable costs, team motivation, qaulity and productivity

 

We have gone round the houses of illustrated thought experiments based on theories and extrapolations, what we are forgetting is that there has been a long standing reality of “short order” work. Those longshore men queing every morning for piece work unloading cargo. Those free-lance account managers in Advertising or programmers in app-world. We see historically a split in this type of share time work between those who are in short demand and are specialist, and those who have low skills. The western conservative politic has been to permit exploitation as a means to securing economic growth, going back to days of slavery and child labour. The politicians paid for by the super rich, are there to ensure that there is power not of the market mechanism, but for the “natural” way that capitalism accumulates wealth by taking value out of workers lives and ensuring they are paid the minimum to survive in the face of costs of living where there are jobs. Slack labour laws allow not for greater freedoms, but for more coeercion and a blurred boundary between work and slavery. As long as this is the lower third of society and the middle third don’t notice it, then the upper classes of billionaires can keep on building their pyramids of huge excessive wealth, because that is the game of power for the game’s sake.

 

The share economy is a major disruptive event for traditional big capitalism because it enables workers to shift out of marginal activities in their service and retail chains and into more dynamic granular activities which have a higher net outcome for them. Also though, they will want to be able to use these mechanisms, supported by policy, to coerce more employees into waiting idly at the work place. Already we see that with Air Crews who are paid only for flight time, not delays on the ground, because they often have contracts in countries which permit this type of nonsense. The question is then will the uber-gig economy break the power of big, nasty, exploitative capitalism in our modern western, service based economies or will it use it as a means of enslaving an increasing proportion of the work force into insecurity and the line for work at 7am?

 

 

 

 

 

 

 

 

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