It long ago became an agreed upon standard of liberal capitalist democracy that a monopoly was a bad thing. This consensus rested on two basic observations of the late nineteenth-century world in which monopolies had come to imperiously sit astride commerce and industry. Firstly, a monopoly was bad for the economy because by definition, once so entrenched, it was protected from the beneficial rigors of competition and able to increase prices at will while indulging in unchallenged inefficiencies. Secondly, major monopolies were recognized as harmful to society because when power and influence is thus concentrated, it is hard to resist; civil and political society come to mirror the lack of free competition in the market.
Today’s Monopolies
Today, few would argue with these assumptions, and with good reason. And yet, with the collusion of a generation seemingly convinced of its superior virtue compared to all who have gone before, we have contrived to ensure that the giant new companies, which have grown from upstarts to behemoths in a few years, are almost all virtual monopolies. Consider, for example, Google, Facebook, and Amazon, and you find companies that have successfully made it their aim not to beat their competition but to destroy it and leave themselves largely unchallenged in their chosen spheres. As writer Evgeny Morozov explains, “most of the current big-name platforms are monopolies, riding on the network effects of operating a service that becomes more valuable as more people join it. This is why they can muster so much power; Amazon is in constant power struggles with publishers—but there is no second Amazon [publishers] can turn to.”
As we saw in the first part of this article, the urge to take control of every aspect of its market and environment is a hallmark of Uber. It should be no surprise, therefore, that Uber aspires to monopoly status and consistently conducts itself in a way entirely congruent and conducive to this anti-competitive aim. If there is one myth about Uber that deserves dispelling more than others, it is the idea that Uber’s pricing and success is a consequence of the free market at work. Nothing could be further from the truth.
Part of the reason for this myth is the wider and harder-to-dispel fetish of “the consumer” in Western discourse. This idea has been raised to a level of societal centrality beyond even that of the civic-minded citizen; just recall how Americans were urged as an act of duty to continue spending in the wake of September 11th. Furthermore, the idea of the consumer has become illogically detached from everything else that a person additionally remains, even when speaking only of economic activity. Therefore, a free-market outcome is thought to exist merely if the current price charged to a customer is at a low-enough rate that he or she is happy to pay it. But this is a simplistic idea that has little to do with actual free-market economics, ignoring the manner in which that price is achieved, how it is related to the rest of what both the price-setter and its competitors do, and the longer-term purpose for which it is set.
Uber is able to insist on the low prices, which make it hard for their drivers to make a living, not only because the company eludes many of the costs that competitors must swallow, but also because it has amassed an astonishing mountain of capital with which it can subsidize its unprofitable practices. For example, in each of the first three quarters of 2015, Uber’s massive losses continued to outpace its huge revenues; in the third quarter alone, Uber’s net revenue was $500 million alongside a loss of $700 million. But, again in Morozov’s words, Uber “has so much money that, in at least some North American locations, it has been offering rides at rates so low that they didn’t even cover the combined cost of fuel and vehicle depreciation.” This pattern is accentuated in China, where, the company conceded in February, it is currently losing a cool billion dollars per year. If you think that the price you are paying Uber for a ride is due to its innovation-leveraged ability to both give you value and maintain a profit, you are wrong. The former is done at the expense of the latter.
How and why could this possibly be the case? Surely—you might reasonably think—Uber would not be able to attract such large investments if there were not also expectations of large returns. After all, in the previous two years, Uber raised $13.8 billion, not including the recent investment of $3.5 billion from Saudi Arabia’s Public Investment Fund. Furthermore, it might equally be countered, do not all good new ventures start out losing money and then gradually move into profitability? Indeed, but what makes Uber different from your average start-up business is that it is losing money hand-over-fist not to establish a foothold in the market but to establish a monopoly in it. And, as many of Uber’s investors can attest to, a monopoly ends up being very profitable for the privileged few inside of it.
This may be partly why, as we saw in part one, Uber pulls baffling stunts like leaving Austin when it was not getting its way there. It is not interested in a market where its unfair privileges are challenged; it needs to leverage those advantages into monopoly power. More commonly, Uber’s overwhelming capital advantage allows it to subsidize below-market prices, rendering it impossible for competition to even survive.
A pro-Uber response to such accusations is both that it is the one fighting monopoly in the form of taxi systems, and that Uber is not a monopoly at present. Neither defense can withstand much scrutiny. While the current laws and regulations in many cities do indeed often lead to features of monopoly in cab services such as limited provision, high pricing, barriers to entry, and poor quality, the difference between that situation and one in which a single company has a stranglehold on the car service industry in every major city in America and the world is obvious. Secondly, if Uber has not yet achieved the monopoly status that its practices transparently aim toward, then it is precisely now that we ought to talk about it—before such power has been cemented.
Monopolies eventually and inevitably transition to a place where they no longer need to be so sensitive in their pricing. Like the hot dog vendor at a ballpark, they can charge you much more than you would normally be willing to pay, since you have nowhere else to go. That is when the heavy cost of operating at a massive loss to crush those trying to operate viably pays off for investors. “Wall Street and Silicon Valley won’t subsidize transport forever,” Morozov warns. “The only way for these firms to recoup their investments is by squeezing even more cash or productivity out of Uber drivers or by eventually—once all their competitors are out—raising the costs of the trip.” That is when all the empty talk of Uber’s agility will be seen to be the dark joke it is. And not all Silicon Valley billionaires are coy about this being the way forward. PayPal co-founder (and Lyft investor) Peter Thiel proclaimed in a Wall Street Journal essay that “capitalism and competition are opposites” and “monopoly is the condition of every successful business,” because it is doing something that other businesses cannot do.
Insatiable Lust for Growth
Those who have established monopolistic empires are understandably eager to claim that monopoly is the result of a simple meritocracy; when someone is better at doing something, everyone wants them to do it. But that skips pasts many less idealistic realities, including the fact that barring others from being able to compete through overwhelming capital accumulation and below-cost pricing is a route to dominance that has little to do with current or past merit. This writer is confident of presently being the best chess player in his apartment, but his supremacy would undoubtedly be dented by letting someone, anyone, come in.
Faced with Uber’s drive to control and monopolize its market and industry, its exceptional war chest, and its seemingly exponential spread around the world, we are also left to ponder: when is it enough? There is, of course, a logical and proportional degree of growth that most businesses pursue. And we are glad that they do because it puts food on tables and roofs over heads. But something of an utterly different variety is going on with a company that, while making large losses, expands in the space of a handful of years into 460 cities across 69 countries.
The relatively recent Western obsession with constant and strong economic growth as a barometer of societal success (shared with communist countries since World War II) has by now amassed its critics. But Uber is not one of them. It holds up a mirror to this abiding political and cultural imperative as an almost-comical caricature of it.
Taxis strike in Rio to protest Uber in July of 2015 iStock.com / luizsouzarj
iStock.com / Vladimiroquai / ismagilov
Uber combines an almost-pathological machismo that demands rapid and breathtaking growth with that desire to control and monopolize. But the economics of rapid expansion, not using reinvested profits but massive leveraged investments, also gives Uber a touch of the desperate bravado of a pyramid-schemer. The capital has to keep up with Uber’s rhetoric and appetite. Inevitably, as its capital increases, “Uber ratchets up the expectations surrounding those returns,” Time magazine’s Kevin Kelleher recently summarized. “And Uber’s investment rounds are not only growing more numerous, they are growing larger in size. That leaves Uber in a risky, rinse-and-repeat cycle. To return money to investors, it must grow. To grow, it must invest aggressively. To invest aggressively, it needs more money from investors.”
Critiquing Uber is not about begrudging any man or woman success or profits. Perhaps, even after all of the above, your reaction is still to applaud Uber and admire their boldness. Fair enough. But at the very least, can we recognize the Silicon Valley billionaires at the helm of the so-called sharing economy for what they are, rather than what their public relations and egos claim them to be? If Americans are going to insist on handing the keys to the economy over to them, can we first acknowledge what they are doing and how they are doing it?
Contempt
Uber’s phenomenal success is not primarily due to its own technological wizardry or creative genius; it is a very old story of accumulation and control that massively-networked devices have leveraged beyond previous space and time limitations. Just as Google becomes a giant, uncontrolled mediator while pretending to liberate us from all mediation, the likes of Uber CEO and co-founder Travis Kalanick pose as philosophical gurus against private ownership as they attempt to ensure that while you will not own things (like cars), they will. This dissembling creates a much larger credibility gap than when someone like Airbnb billionaire Brian Chesky pontificates that “the stuff that matters in life is no longer stuff—it’s other people, it’s relationships, it’s experience.” While there are many who have genuinely combined business and altruism and warrant the moniker “sharing,” there are more prominent companies like Uber whose apparent contempt clearly manifests the hypocrisy of their trendy talk.
Uber’s transition into driverless cars is a natural progression of both their business model and their attitude to their own drivers. “When there’s no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle,” Travis Kalanick has explained. “So the magic there is, you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.” The prestidigitation and chutzpah is staggering. Kalanick is preparing a future in which you will have neither car nor job, while he and his friends will own millions of cars, which they will make available at their own discretion and price, and he wants you to know that this is a magical utopia you ought to relish. Surely, by now, we should know the difference between the promise of a property-less future and a future in which only the few will own property. It is the latter that Uber offers us under the guise of the former.
But this careless deception of those who make its business a reality is matched by Uber’s attitude to anything incompatible with its interests. Not surprisingly, its leaders have little time for city governments which have the temerity to impose even modest legal oversight. “Some city council people are really awesome, but most are uninspired,” says Kalanick, “I meet with them as little as possible.” It is easy to imagine his determining criteria for “awesome” and “uninspired.”
Naturally, Uberites would not be alone in judging many urban politicians as tiresome. But this contempt is reserved not merely for public bodies, but for whole social structures, from professions that provide vocational continuity to balanced urban infrastructure. Presentism’s most egregious and perennial error is to recklessly assume that the calculation and perspective of one moment in time is superior to the aggregated wisdom of many years and many perspectives. The point is not that Uber and others like them challenge established industries, it is that they do so with the presumption that what is more convenient now must be better and is sufficient justification for destruction. If only life were so simple.
Car sharing is far more delicate a matter than Uber would have you believe, as technology writer Tom Slee points out. “From balancing consumer and driver interests, to providing predictable pricing, to ensuring individual cars are safe and the system as a whole fits into the puzzle that is urban traffic, there is more to transit than a simple market exchange.” That is why the simplicity of services like Uber is a warning. It replaces a concern with past, present, and future with a grasp of merely the immediate. “My problem with Uber all along has been that it’s optimized for a really specific utility, but at the expense of others,” muses tech critic Douglas Rushkoff. “It’s a bit like online universities, which offer courses isolated from the fabric of education or a learning community. That’s the nature of any digital business: you get what you program for, but lose everything else — and sometimes it doesn’t come back.” Destruction is easy, but starting again when all has been forgotten is almost impossible.
How did we get here?
Despite all of these flaws, Uber remains widely popular, patronized, and praised. Why? Two reasons are worth considering. First, it has both grown from and reinforced an idea we can call entitlement consumption. The West (and increasingly, the world) has developed the habit of translating each commercial technological advance into an implicit right. With the quick jump to ubiquity of the smart phone on the heels of the rapid expansion of the scope and utility of the Internet in general, many people have come to regard the instantaneous meeting of demand with supply as essential—an assumed if not articulated entitlement.
“We just wanted to push a button and get a ride,” Travis Kalanick said in describing the thought that sparked the creation of Uber. While it sounds more like the whim of a child than the impetus for a $62.5 billion company, there’s nothing charming about the results. Culture is being reformed on the basis of the maxim ‘what you want, you deserve to get.’ “He sees in Uber the potential for a smoothly functioning instant-gratification economy,” Kara Swisher writes of Kalanick in a Vanity Fair profile, “powered by the smartphone as the remote control for life.” In Kalanick’s own words, “If we can get you a car in five minutes, we can get you anything in five minutes.” Uber did not create this impulse, but it has given it viability and an air of inevitability. It creates a world fit for spoiled gluttons, not men and women of substance and conscience.
Second, Uber’s success has been boosted by the emergence of cult branding. This gives certain companies the ability to be unscrupulous and irresponsible, while also lionized in ways formerly reserved for great thinkers and artists. If Apple did not beget this phenomenon, it certainly perfected it, with its gadgets elevated to cultural icons and its salesman-in-chief absurdly worshipped as a guru.
Perhaps what is most extraordinary about the way that Uber and others have carried forward this strategy is how unashamed they and their supporters are of it. Douglas Atkin, who currently holds the pompously mystical-sounding title of Global Head of Community at Airbnb, has written a guide to this method of corporate manipulation, entitled The Culting of Brands: How to Turn Your Customers into True Believers. In it, he protests that “cults are a good thing, that cults are normal, and that people join them for good reasons.”
Even if we were to assume that this is true, surely we can agree that there are worthy and unworthy objects of devotion? Could anyone make the case that, for example, parenthood and stamp collection ought to be afforded the same levels of respect and commitment? Worshipping a business is simply beneath you and me, and no amount of incoherent relativism should obscure that. A cult works best when it insulates the shabby reality of its object from the devotion of its acolytes. The cult’s actions must be systematically separated from its consequences, and its motives clouded in mumbo-jumbo. And yet this is a business strategy that works in an age of supposedly informed and ethical consumers.
It is time to see Uber for what it is: obsessed with control, monopoly, and insatiable growth, all leavened with contempt for non-believers. This is not creative destruction, it is just destruction. We owe it to each other to both recognize it and identify where these same principles are at work under deceptive guises.