How did Uber sell the world on the idea that all of the taxi industry’s historic problems were caused by regulators, and that allowing Uber a laissez-faire industry would magically solve them?

Uber began with an innocent sounding ambition. If you are planning to drive somewhere, why not take a passenger and make a little money too? A utopian new platform, which will link up people driving, and others needing a ride. Hubert Horan’s new article “Uber’s Path of Destruction” published by American Affairs blows that theory apart, presenting a deeper and much uglier face of Uber.

“Developing powerful competitive breakthroughs is hard. Figuring out how to generate strong positive cash flow from them while fighting established incumbents is even harder. Uber’s innovative strategy was to skip all this really hard stuff.”

Hubert Horan, American Affairs

The major thrust of the article is that the belief that Uber is a highly innovative and successful company has no basis in economic reality. Rather, Horan contends that it is actually less efficient than the competitors it has been driving out of business.

This viewpoint is that the enormous equity investment Uber has received, $US13 billion in 2015, and $US20 billion through 2018, has gone to subsidise the inferior service. This makes the cheap fares that its customers enjoy anticompetitive, and unsustainable as passengers are not paying the actual cost. Under this model Uber will never make a profit and offers no public benefit.

“Most public criticisms of Uber have focused on narrow behavioral and cultural issues, including deceptive advertising and pricing, algorithmic manipulation, driver exploitation, deep-seated misogyny among executives, and disregard of laws and business norms. Such criticisms are valid, but these problems are not fixable aberrations.”

Hubert Horan, American Affairs

Horan believes that the end goal was to drive out all other competitors and then thrive in a monopoly environment. So far that hasn’t eventuated, but significant damage has been done to existing transport providers. They have also forced a loosening of our regulations around transport providers. Rather than attempting to rein in a foreign company which was not operating within our rules, we along with other countries, relaxed the passenger transport service regulations.

How has Uber managed to raise so much money, and have governments around the world relax the rules governing their industry? Horan points to the use of manufactured narratives, including manipulating its financial statements. Uber have run a strong media campaign to cast themselves as heroic innovators, improving an expensive and inefficient service on behalf of the users, and the market has lapped it up.

“Uber’s desired framing—that it was fighting a moral battle on behalf of technological progress and economic freedom—was uncritically accepted by the mainstream business and tech industry press, who then never bothered to analyze the firm’s actual economics or its anticompetitive behavior.”

Hubert Horan, American Affairs

Any real improvements in Uber’s financial position has come not from efficiency, but from successfully driving down the amount it pays its drivers. In the US Uber is accused of using dishonesty in their driver recruitment programmes, including ongoing misrepresentations of gross pay (prior to deducting vehicle costs) as net pay. Unilaterally changing the Uber share of passenger fares from 25 to 30 percent in 2015 resulted in a direct wealth transfer from labour to capital of over $US3 billion.

“Other Silicon Valley investors amassed staggering riches while inflicting enormous damage on the rest of society (e.g., creating an uncontrollable surveillance apparatus, poisoning public discourse, exploiting massive anticompetitive power), but in these cases one can at least point to some offsetting benefits (search engines, lower retail prices, useful social media tools). One can also argue that, in a different political environment, most of these gains could have been achieved while avoiding most of the costs. Uber, meanwhile, is unique because it is entirely exploitive.”

Hubert Horan, American Affairs

This article claims that Uber does not benefit from Metcalfe’s law, I beg to differ. A major attraction for customers is the ease and speed at which they can access a ride, this is because of the size and density of Uber drivers available. However it is true that Uber does not enjoy the kind of economies of scale that the other tech start-ups have. Within Uber the drivers are the product, as opposed to the social media model in which the users are themselves the product.

Horan concludes that Uber’s most important innovation has been to produce staggering levels of private wealth without creating any sustainable benefits for consumers, workers, the cities they serve, or anyone else. There is no guarantee that the new entrants to the ‘rideshare’ market are any better.

Read the whole article here.