Heretical Judge Rules that Uber Can’t Externalize its Labour Costs

As I briefly covered in my AxisOfEasy tech digest this week, Uber and Lyft were bracing themselves for a ruling by a California judge that threatened to force them into treating their wage slaves drivers as employees. Lyft said if the ruling went against them it would cause “irreparable damage”. Uber CEO Dara Khosrowshahi penned an op-ed in the New York Times that just so happened to run Monday, pining for a fair shake for gig economy serfs workers.

Khosrowshahi, whose compensation package last year clocked in at $45,000,000 USD, waxed pensively, ‘There has to be a “third way” for gig workers.’ . Ideally one in which Uber wouldn’t be on the hook for their benefits and would be able to continue apace as a Silicon Valley unicorn: posting billions of dollars a quarter in losses and jockeying for Federal bailouts. Meanwhile the early stage backers, the VC’s and the private equity funds, would continue to live large off of financialization, not having to worry about the consequences of being the driving force in a race to the bottom for everybody else (even Uber’s lümpenvestors who bought into the IPO are still underwater).

As it turned out, Judge Schulman ruled that these gig economy workers are to be treated as employees in the State of California, and sure enough, Uber is now threatening to pick up their ball and go home.

People following my writings may be surprised that I’m not approaching this as yet another government inflicted wound against capitalism, like how laws mandating higher minimum wages actually increase unemployment. It’s a fair point.

But we’re not talking about countless mom-and-pops and other main street businesses having their costs jacked up by economically illiterate career politicians. Even in a climate of government mis-micromanagement and overreach, the so called “free enterprise” participants should be competing under the same conditions. If an independently owned and operated driver service in the state has to operate under onerous taxation and terms, then being a Silicon Valley unicorn shouldn’t exempt you from suffering the same conditions.

In this case we’re talking about Cantillonaires who feel entitled to special privileges and exemptions but the reality is this:

These companies were never intended to be economically viable.

Uber and Lyft started the year with $11.3B and $2.8B in cash on their balance sheets respectively. They posted TTM losses of $10B and$ 2B respectively.  They are valued around $54B and $9.2B

The only thing that mattered from the outset was to cannibilize the entire market, driving down prices and wages while operating at a loss so that they could garner the next financial event, be it a series D, E or F up-round and then eventually some monster acquisition or IPO. Within truly un-manipulated, free market competition, Uber and Lyft would have either had to compete, viably, with numerous entrants and competitors all fighting under their own steam, or else be snuffed out by economic reality.

The truth is that you can’t actually build a business where every transaction and input is subsidized, ultimately by central bank stimulus, while  all normal course responsibilities of operations, like expenses, are externalized.

With the Everything Bubble finally looking to pop, and pent up reality s-l-o-w-l-y beginning to reassert itself, these Unicorns will have to face the same situation that every other non-unicorn, non Silicon Valley funded business has to face: Whatever your “boil-the-ocean” big idea is, you’re gonna have to do it in an economically viable way, or it’s not going to happen.

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