This famous money manager blocked me on Twitter for stating this simple fact about ride-share
By EDWARD ERICSON JR.
Feb 04, 2015 | 12:27 PM
I've long admired Barry Ritholtz for his sharp wit and grounded sense of reality. The New York-based (aren't they all?) money manager was one of the few who saw the housing bubble as it inflated and really understood the cause. On his blog and in his columns, he's written about cars as an enthusiast and confessed his Billy Joel fandom (both of which I share). In short, Ritholtz is that rare money manager who displays in public his human face. Which is why I was surprised to find his most recent Washington Post column so vacuous, using Uber and Lyft's success to argue—stop me if you've heard this before—that disruption of entrenched rent-seekers in all fields is inevitable and without any obvious downside.
"How are the cabs in your city?" Ritholtz writes. "In Manhattan, where I work, they are rather awful. They are uncomfortable and not especially safe (who wants to slam his face into a plexiglass wall covered with metal projections?). As bad as they are, they are typically unavailable when you need one. The second it begins to rain, it is nearly impossible to find one. And what idiot decided to do shift changes at 5 p.m.—right at the start of rush hour, when swarms of riders need cars, all of whom are unavailable as they are returning to the outer boroughs for their daily change of drivers?"
This is true—and New York is certainly a special case here, but look at it: The cab company and medallion owners run two 12-hour shifts; most drivers do that six days per week. That means cab drivers are working 72 hours, minimum. This is a typical cabbie workweek. It's what I found in Orlando, Florida, in the mid-1990s as well.
In a nation which enshrined the 40-hour work week into law 75 years ago, might that 70-80 hour-per-week standard not contribute, at least a little bit, to the problem of bad cabbie attitude? Hold that thought. Ritholtz does not address it, but instead moves on:
"But the biggest inefficiency is the limit on the total number of cabs, as mandated by Taxi and Limousine Commission rules. Hence, that monopoly supply limitation thwarted competition, reduced the available number of cars and allowed the value of medallions to skyrocket. The cabs are dirty and ugly, and the service is awful, but at least they are expensive and unavailable when you need one!
"Until Uber rolled in. Since then, the value of a medallion has fallen substantially. The same is true in other cities where Uber operates."
This is also completely true.
But I thought Ritholtz was overlooking one other completely true thing, so I tweeted this:
@ritholtz Lyft and Uber are modeled on the shadow economy, Barry. Zimbabwe's shadow economy. You sure that ought to be America's future?
Eight minutes later:
First, FUD. That's money-manager speak for "Fear, Uncertainty, Doubt." Wiki defines it as "generally a strategic attempt to influence perception by disseminating negative and dubious or false information."
And that might be a fair criticism if Lyft's co-founder John Zimmer had not told me personally that Zimbawe's informal transportation system really is the inspiration for Lyft. This is not exclusive knowledge. See here and here and here.
Business Insider told the story thus, speaking of Logan Green, Zimmer's partner in the venture:
"When Logan was traveling in Africa—Zimbabwe, to be exact—he noticed that despite the lack of infrastructure, people were able to get around efficiently thanks to a vibrant ride-sharing movement. Every car, van and bus was full and people would literally stand on the side of the road waving money instead of sticking out their thumbs."
This looked so social and cozy to Green that he decided to import the model to the states. But the wide-open, developing-world model is not exactly a utopia.
The hack cabbies in that nation are considered by many to be reckless, causing countless vehicle accidents in their mad rush for fares. What they do is against the law. So they bribe the police—who are corrupt in part because they are also impoverished. (Zimbabweans earn, on average, $130 per year.) The system is less than ideal, let's say. Here's a clip from last spring, when police cracked down—reportedly because drivers stopped paying the necessary bribes:
It's easy to dismiss this as a can't-happen-here example. Uber, after all, has hired Obama campaign guru David Plouffe to work with governments on accommodating regulation, and presumably even Uber-villain Travis Kalanick has never envisioned his service as a cop-bribing free-for-all.
But the Uber/Lyft model does seek to remove the limits on the number of people driving livery vehicles in a given area.
That's why it's important to understand how the existing taxi regulation system came about and who it serves.
Until the mid-1970s, taxi-cab drivers were regular employees. They worked a shift, got paid a flat wage, and kept their tips. It was sort of like the TV show "Taxi," with a crusty manager wrangling his crew of sorry-ass work-a-day schlubs. If they were injured on the job they could file for workers' compensation. If they were fired they might get unemployment insurance.
Beginning in the mid-1970s, cab company owners all got the same idea: They gathered their drivers in a room and told them, basically, "I'm not paying you guys anymore. From now on, you are going to pay me: $100 a week. For that you get to lease my cab, my license, and my dispatch service. And here's the good news: Every penny you make after that is all yours! Welcome to the American Dream, fellow entrepreneurs!"
This immediately saved the cab company owners big money. Just the accounting alone—keeping track of wages and hours, FICA, and the like—was a big job. But better: Now the cab companies could stint on all sorts of things. No longer did they need a Danny DeVito type to wrangle drivers. No more vacation schedules. No more unemployment or workers' comp expenses.
And the best part? That $100 per week. It was not pegged in any way to what it cost the company to keep a car on the road. In most cases, it was based on what the cab company owners understood the drivers would make by driving 30 to 40 hours.
Their only solace has been in cheating on their taxes. You would too, probably, if you were making minimum wage working 80 hours a week. And the crappiness of the job means turnover is incredibly high, so drivers don't stick around long enough to get good at it.
As with any job not deemed worthy of a professional effort, cab driving has become another gig for the desperate. And cab company owners have consistently upgraded their yachts.
Basically, everything Ritholtz hates about cabs—the inconvenient "shift change," the "dirty and ugly" cars and awful service—can be attributed to that 1970s innovation that turned cab drivers from working professionals into desperate hustlers.
Which is why it's so important to examine what Lyft and Uber are doing—how they are defining the problem, and what they are doing about it.
There is only one thing in the regulated taxi model that works even slightly in the cabbies' favor, and that is the mandate to limit the number of cabs in a given area, on the theory that if too many drivers are out hunting fares, there won't be enough fares for them to eat.
That is the main target of Uber and Lyft.
Instead of leasing its drivers a vehicle, they say drive your own car.
That is, "drive your own car into the ground."
And both companies say everyone ought to drive for them.
As independent contractors, of course, with no guaranteed routes or fares or hours.
Both companies have made extravagent claims about what their drivers earn—$25 an hour, $35 per hour. Just make up a number and some rideshare huckster has probably claimed it. The reality was more like $12, as this Vox writer found. Temporarily, venture capital money is augmenting that. It can't last.
As Uber and Lyft hire more drivers, they will saturate the market. The price of a ride will fall—as inevitably will the quality of the vehicles and the attitudes of the drivers. Unless the law of supply and demand is repealed, the model upon which Lyft and Uber are both founded can only lead to this.
I gave a TEDx talk about this on Friday (the video is not posted yet; the stream was too choppy to really see and hear anyone's argument), shaped as an indictment of the "Sharing Economy." It was a follow-up to last April's rant and it didn't move the ball forward much. Guys with a lot less intellectual firepower than Ritholtz have already trolled me with the TechBros Mantra: "We're inevitable! Adapt or die!"
It's frankly tiresome. And it's unnecessary.
Because we're smarter than that, and the problem could be defined in another way. Evgeny Morozov took a look at Helsinki's effort define the problem and then moved toward its solution in the Guardian this weekend.
If the problem is indeed getting people from place to place efficiently and cheaply, the solution is always going to be a form of public transport. Onto the existing (or should-be-existing) trolleys, buses, and trains we can graft a car service or two, with a shared, public app system that sees everyone hailing in the area. The app also shows where each person who is hailing wants to go, and dispatches drivers of every kind of transport according to how the vehicles will be used most efficiently. This could be real sharing—as the cab you get might not be a car, but a van, with six other passengers aboard—or a bus!—and it might not be as lightning fast as some current cab or Lyft rides are. But, again, if the problem is—as Lyft co-founder John Zimmer told me it was—that too many motorized seats are going unfilled, this is a much better solution.
Done as a public investment, or even as a public-private partnership, a Lyft/Uber type of data system could be a building block. The drivers and other workers could get an eight-hour shift at salary. The passengers could get a professional, friendly, affordable, and sustainable service.
It could, in other words, be based on a civilized model.
The problem with this vision, of course, is that it would wipe out both the incumbent taxi company and medallion holders, and the "$40 billion market value" of Uber. The big-money boys would lose. The only winners would be the riders and the workers.
That's a crazy dream, right? Yet an unlimited, lightly regulated app-based system that assumes ordinary people must work 80 hours per week (or more) with no job security or chance for advancement somehow is seen as completely sane.
The tech people who have lately seized America's imagination really don't have much imagination. Nothing gets funded unless one of the 20 or 30 big venture-capital boys sees a huge profit potential for it within five or seven years. That's not long-term thinking, and it is precisely why we in the rich nations need to develop a class of thinkers who are not tied to these quick-buck pirates.
Or, at least, we need to develop some regulatory spine, so as to stop the most obvious nonsense.
This can't happen so long as smart people like Barry Ritholtz don't take the time to examine the world beyond their own noses. Disruption Uber alles?