Q&A with Wash Post: “Is Uber the next big thing that goes kaput? This guy thinks so”

Washington Post, September 26

Interview by Fredrick Kunkle

Steven Hill thinks Uber has shaken up the taxi industry — or Big Taxi, as Hill calls it – in a way that’s been beneficial to many consumers.

And that’s about the nicest thing Hill has to say about the San Francisco-based ride-sharing company.

Otherwise, Hill  — who has worked at the think tank New America Foundation and written a book about the so-called sharing economy — sees Uber as a rule-breaking, tax-dodging, labor-exploiting, market-manipulating, law-unto-itself capitalist behemoth.

Uber began as a tech firm using smartphones to connect people who needed a ride with other people willing to use their own cars to take them there, for a price. Since its founding in 2009, Uber has become a verb and one of the most prominent companies to rely almost exclusively on an army of freelance workers instead of employees.

But to get as far as it’s gotten, Hill argues in his book, Uber has evaded livery laws that previously governed taxi service in many markets; flooded the street with nonprofessional, unregulated and under-insured drivers; misled customers on the adequacy of background checks for its drivers and battled efforts for more rigorous screening of them, such as through fingerprinting; overstated the pay that drivers could earn working for Uber; and avoided paying some of the taxes and related fees that other taxi and limousine services must pay to local governments.

He doesn’t mince words about its billionaire co-founder and chief executive, Travis Kalanick, either. In his book, he describes Kalanick as “the reigning bad boy of ‘wild west’ capitalism,” anAyn Rand wannabe who once used “The Fountainhead” as his Twitter avatar, and a 21st century P.T. Barnum who has grafted his outsize ego onto the company itself.

In emails and a recent interview, Hill discussed Kalanick’s company the way people once talked about other high-flying companies that rose spectacularly and then crashed. Hill predicts that it’s just a matter of time before Uber goes smash, too.

If anything, Uber’s headline-grabbing announcement of driverless service in Pittsburgh is yet another overhyped stunt to distract from bad news, such as the company’s defeat in China.

Hill has documented his skeptical view of Uber in Raw Deal: How the “Uber Economy” and Runaway Capitalism are Screwing American Workers. For his book, Hill reviewed news accounts, conducted interviews, and examined court records. The chapter on Uber has 133 footnotes.

Hill believes ride-sharing may be here to stay, but Uber is not. Tripping talked with Hill about his book and Uber’s place in new economy. Here’s the Q&A, which has been edited and organized for concision and clarity:

Q: People talk about Uber the way its chief executive does — as a revolutionary company. But you say not so much. Why?

A: My view on it is that what Uber is going for it, is that taxi service in the U.S., in most cities, is pretty horrible. In San Francisco …where I live, it would take 35 minutes to get a taxi. . .  So, yeah,  it’s great: you hit the app, and the car shows up now in 10 minutes instead of a 35-minute wait. But now the traffic congestion is so bad that you’re sitting in that car for 20 minutes longer to get anywhere.

And that’s another thing that Uber doesn’t want to face, but that cities now are starting to discuss and deal with: traffic congestion. The traffic congestion is so much worse. Now, is it all because of Uber? Not it’s not.  .  .[But]. . . you suddenly have a new service that’s committed to just flooding the streets with cars, putting thousands of more cars on the street. Is it any surprise that now the streets are more congested? . . .And yet people don’t want to deal with that. A lot of the sort of progressive-type people I know who really like their Uber, I say what about carbon-emissions, and congestion, and pollution?”

Q: As you know, this month Uber launched a test project using self-driving cars for public use on the streets of Pittsburgh. The demo treated journalists to an uneventful spin through the Iron City (along with full-time employee “safety drivers.”) What do you make of the news from Pittsburgh?

A: [T]he recent announcement about having a few self-driving cars on the public streets of Pittsburgh looks to me like an act of desperation — come on, what a joke: a few cars driving around Pittsburgh, and the human “non-drivers” still have to be sitting in the drivers seat? This is supposed to be a sign of progress? — trying to create an alternative news meme to distract from the other bad news.

Here’s how the self driving system works in Pittsburgh. First, an Uber employee must remain behind the steering wheel at all times, just as alert as an actual driver, ready to intervene if the car’s self-driving system makes a mistake. Indeed, operators are required to loosely grip the steering wheel and must be ready to intervene immediately at any time.

In short, the conditions for these cars are not even close to “real world.” This is more like getting in Pirates of the Caribbean at Disney World, or the bumper car ride at an amusement park.

They have a few friendly journalists out there who will report the “good news” no matter what Uber says. When are journalists going to start viewing this company with a healthy dose of skepticism?

I tend to mistrust and disbelieve everything this company says, initially, and then wait to see if any substance actually emerges. Usually it does not. .  .[T]trusting Uber’s numbers or press releases is like trusting the tobacco companies to do their own studies.

Q: In China, Kalanick made market dominance a priority and touted his company’s $1 billion-a-year investment as “sustainable” — until it wasn’t. Didi Chuxing, Uber’s archrival in China, bought out the San Francisco company in August. Why do you think China is a turning point for Uber?

A: That was a big shock because everyone thought Uber was this big, huge company, pretty much the 800-pound gorilla that can’t be stopped and, suddenly:  Wow – [it] looks like they’re not doing as well as people thought they were because they had to pull out of China, which they had really bet the bank on.

Q: But isn’t that because China is a difficult market to crack for almost any western company, given the difficulties of doing business there and the Chinese government’s heavy hand favoring its own?

A: That’s what made it all the more surprising that Uber was making such a big bet in China. They invested so much money there because they just saw a huge market. . . .

[Kalanick]’s a rather arrogant, Silicon Valley . . .Ayn Rand, libertarian-type CEO —  [a]  get-government-out-of-my-way type of fellow. He just sometimes doesn’t listen to commonsense. And people would tell him, “It’s a big risk you’re taking here.” And the reportage on it, going back for a few years was, “Wow, this guy is really ballsy. He really is going for it. This is the type of ceo America needs, you know?” And other people were saying, “Uh uh — it’s just a matter of time before he gets his head bitten off there.”‘ . . .and Uber [was] always insisting, “This is a big part of our strategy — things are going extremely well there,” and then suddenly — Boom! They’re gone, you know? And how much money did they waste there trying to get a foothold?

[Uber burned about $1 billion a year on China]

Q: You say you saw a similar move when Uber, after expressing confidence the company would prevail in its legal fight with drivers in California, reversed course and agreed to a settlement. Why?

A: The sense is, at least from my viewpoint looking at this, these are signs of weakness. I mean, here in Silicon Valley, you can watch company after company do what they call a pivot, where suddenly they change their business model. And they only do it for one reason, and it’s because what they were doing wasn’t working.

With a lot of these startups, you don’t know —  it’s all privately held so you don’t have any numbers to know how well they’re doing except for what they release. And, so you don’t know if these companies are actually making a profit.

So, as much as Uber is valued at $63 billion — that’s more than GM [or] Ford even though they don’t make a single car, they don’t own anything, they don’t even have any drivers because they say they’re contractors. . . — it just speaks to the froth that there is out here. And everything is kind of smoke and mirrors, you know?

And so when you start to see these other things you say, “Hmm, this looks like a pivot. This looks like a company that is still trying to figure out its business model to make money.” That’s what I see with Uber.

[Judge: $1,000 not enough to settle Uber lawsuit]

Q: In your book, you accuse Uber of flouting regulations that other companies must follow. Can you be more specific?

A:  This is a company that, even after it lobbies for particular legislation, still refuses to follow those parts of the law that it doesn’t like. So, for example, in 2013 California became the first US state to pass a law legalizing ride-sharing – a law that Uber had a significant hand in shaping. The state public utilities commission created a new class of “transportation network companies”  (TNCs) which established some rules, including for auto insurance, vehicle inspections, criminal background checks and more.

In addition, the new law smartly required Uber to share some of its data with public officials, including information on the number of trips by zip code, how much riders are paid, information about accidents and how many wheelchair-accessible vehicles had been requested. But the latter requirement did little good because Uber promptly ignored it. A couple of years later, regulators finally caught up with Uber’s truant ways and in 2016 Uber was forced to pay a $7.6 million fine for violating the part of the state law requiring company data.

And the district attorneys of San Francisco and Los Angeles sued Uber for misleading consumers over the thoroughness of their background checks, specifically its failure to use fingerprinting as part of those background checks. The district attorney of San Francisco claimed that the company’s criminal checks are “completely worthless,” which at the time who were vociferously disputed. Now, just recently, Uber agreed to a $25 million settlement for overhyping the safety and security of its product.

Q: You also accuse Uber of evading taxes and safety regulations just because the company is doing business over the Internet, and that its business model will be eventually prove to be unsustainable. Why?

A: I’ll tell you I’ve been in meetings with some of these venture capital people. . . and I’ve sort of cautiously mentioned this thesis . . . and they’re, like, “Oh no — look, I’ve looked at the numbers. This thing is off the charts! It’s going incredible!”… And this what they were saying a year and a half, maybe two years ago. They’re saying Uber — their internal numbers show it’s going off the charts, this thing is bigger than anybody realizes. . .Uber’s going to be delivering your food. They’re going to be delivering anything you want. They’ll be delivering the mail before you know it. . . And, instead, what we’ve seen since then is Uber pulling out of China, Uber settling that lawsuit everyone said they’ll never settle because it will completely overturn their business model.

Q: Do you really think Uber is going to collapse or be bought up by another company?

A: Look , I don’t have the internal numbers to – I’m not like . . . the hedge fund guy, Jim Chanos, who shorted Enron. He had lots of research and researched this stuff. But I’m just watching company behavior, and I’ve been watching enough of these companies in the past saying, like, ‘Everything is great,” “We are going full [tilt],” “This is the most amazing thing ever,”  and then the media hyping that and creating this bubble around these companies. Then, the next thing you know, ‘Boom!’ — that company is out of business. . . . Let’s put it this way: I’m shorting Uber.

[Lyft envisions future with self-driving “bar cars”]

Q: So a lot of people still can’t decide: is Uber, on the whole, good for us or bad for us? Or somewhere in the middle? 

A:  Uber has added a service that people like, and it’s helpful to them. So I think that’s sort of the bottom-line consideration. But if you go to a place like Berlin, where I just was, where taxi service is actually pretty good — there’s no space there for Uber to gain a foothold. . .  So here in the U.S., where we don’t have good taxi service, what Uber has shown us is that there weren’t  enough taxis on the road because of the medallion system, which limited the supply. . . So now you have a company that has come along and put a ton more cars out there and service is better. It’s not rocket science that there needs to be more cars.  .   .The innovation from Uber is really simple: they put more cars on the road. That’s it.

Q: Final thoughts?

A: I think we have to say, ride-sharing is here to stay. It has added something valuable, especially in those places where there are not taxis to begin with. How do we incorporate it in way that deals with all these other public policy concerns?