The Gig Economy Is A Rigged Economy

As those who might read me regularly, (heavy sarcasm warning) Uber is one of my very favorite companies. It is a recidivist criminal organization masquerading as a business whose original plan was to break state and local laws in this country and around the world while attempting to shifting as many costs on to the driver and government as possible in order to carve out just enough monopoly power to become a viable company. When that model showed little signs of actual viability, Uber again broke state and local laws in its effort to create an autonomous vehicle that would eliminate the cost of drivers and perhaps make its business actually viable.

In its quest for monopoly power, Uber heavily subsidizes its rides. As of 2016, in addition to the inherent subsidy of gas and car depreciation being borne by its drivers, Uber was still subsidizing nearly 60% of a typical ride, and, while that number has improved somewhat, the company is still hemorrhaging money. It is now engaged in a significant effort to clean up its image, if not its act, in order to go public so that the original investors who have poured billions down this sinkhole can recoup their money.

One of those investors is a man called Bradley Tusk, the head of Tusk Ventures, which seems to be a bizarre combination of a venture capital firm and a lobbying organization. Needless to say, such a combination offers significant opportunities for what most of us would recognize as insider trading but which, in this day and age, would rarely if ever even be attempted to prosecute. Tusk’s work with Uber made him recognize the boon of getting workers and government to bear the traditional costs of business. An important part of that model, and a critical one for Uber and other so-called gig economy businesses, is that their workers are categorized as contractors in the eyes of the law instead of as employees. That categorization alone can save a company 20% to 30% in total employee costs because it eliminates payments for unemployment insurance, workers’ compensation, minimum wage, and overtime.

The traditional definition of a contractor is one who provides some degree of specialized services that the contractor can sell to multiple businesses at negotiated rates. Driving a car does not seem like a specialized service and the fact that drivers’ compensation is entirely determined by Uber’s fare scheme and how those proceeds are distributed to drivers also would indicate that they are really employees. Drivers could be deactivated for working or promoting a competing service as well as declining too many rides and are provided incentives for working full time hours. The only thing Uber drivers and others in the gig economy really remotely have in common with contractors is the ability to maintain their own hours. But getting the government to categorize them as such allows companies to transfer enormous costs to the drivers and government.

Needless to say, because of those savings, gig economy business like car and cleaning services were focused on obtaining that legal designation for their workers. In fact, in its IPO documents, Lyft specifically cites the danger in unanticipated costs if its drivers were declared regular employees instead of contractors. One tack that the gig economy businesses took to ensuring that would not happen was to get legislation passed that would create a separate contractor categorization for workers who are “dispatched by digital platforms”. That was an easy lift in red states where Republicans controlled the legislature and the executive. But it also proved far more difficult in other states where the GOP did not have total control. Thankfully for these gig business, Bradley Tusk had an answer and it was incredibly simple. His idea was to work in secret with the state agencies who regulated these issues and get those agencies to recategorize gig workers without having the state legislatures and governors involved. Tusk himself explained the benefits of working with the regulators directly, saying, “You’re not tied to the legislative calendar. If the head of a committee in the State Assembly doesn’t like it because they have some business owner in their district, you don’t have as much of a problem anymore”.

Last December, the Texas Workforce Commission put forward a proposal to classify all workers dispatched by a “digital network” classified as contractors instead of regular employees. The proposal caught both labor and much of the state legislature off guard. After repeated denials, it was revealed that the proposal was an almost verbatim copy of one sent to the commision by none other than Tusk Ventures. Of course, were this proposal to go into effect, you can imagine how many other businesses with both skilled and unskilled labor would start finding ways to dispatch at least a significant portion of their workers by “digital network”.

What’s particularly ironic about this proposal is that it comes at the same time the Supreme Court is hearing a case championed on the right in its efforts to dismantle the legacy of Democratic legislation since the New Deal regarding the regulatory powers of federal agencies. The case, Kisor v. Wilkie, is what conservatives hope will be the first step by the newly constituted Supreme Court toward overturning Chevron v. NRDC and restricting federal agencies’ ability to regulate. The Chevron decision ruled that courts must show deference to an agency’s interpretation of the law if that appears to be a reasonable interpretation of the limiting statute.

As an example, the Clean Air Act instructs the EPA to ensure the power plants use “the best system of emission reduction”. Under that instruction, Obama’s EPA imposed expensive carbon dioxide pollution controls on coal-fired power plants, an action that has now been reversed by the Trump administration. At the time, however, Obama’s action was derided by conservatives as an egregious overreach of executive and regulatory power.

It was these kinds of situations that conservatives hoped to be able to eliminate by overturning Chevron. Instead, the courts, as opposed to the regulatory agencies, would now become the arbiters of virtually all federal regulation. Justice Breyer, the most moderate of the liberal members of the Court, has called this attempt “the greatest judicial power grab” since the beginning of the 1800s, when the Court provided its landmark Ruling in Marbury v. Madison that abrogated the power to declare laws unconstitutional to itself.

Conservatives are only too happy to move regulatory decisions to the courts now because of the conservative stranglehold they currently have on those bodies. But the irony of the Texas proposal at this moment should not be lost. It is an enormous gift to business at the expense of workers and state taxpayers. And both the Texas Commission and the attempts to overturn Chevron are just more indications of the Republican preference for avoiding the democratic process in order to accomplish their political goals.

Originally published at thesoundings.com on March 28, 2019.