Tag: economics

Cab Economics

uber

Listened to this podcast story about Uber and the economics of variable rate car services. The story is premised on the question of whether it’s fair for a cab driver to charge extra for a ride when demand is higher. I was surprised to hear so many people on the customer end complain in interviews about how they felt they were being cheated. The typical taxi passenger is cheated to a much greater degree by the outmoded municipal rules that govern the ride service business. In many places cab fares are standardized for all companies and the law restricts the number of companies and cabs that can operate within city limits. These systems are set up specifically to thwart competition between drivers and to make sure that everyone get some business. Rules are different in every city. Some places have next to no restriction on taxi carriers; but most do. I don’t know where the laws come from or why they were passed in the first place. I can say with some certainty that standardization has an unmistakably negative effect on quality of service. It isn’t favorable to the consumer. It does mean that the cab companies pull in regular and reliable profits. One cab company in the town I grew up in had been in business since 20s. It was a small but assured revenue stream for this old ,wealthy family that had always owned it.

When I graduated college, I worked for that company for a little while, or more accurately I contracted with them since none of the drivers were actual employees. What we were, in fact, were customers of the cab company. We would pay them rent to use their cars and their dispatch service. It was then up to us to make enough money on our fares, on top of the money needed to pay for the car, to support ourselves. As you might imagine, this sort of arrangement attracted a lot of dodgy people: deadbeat dads trying to hide their incomes so that they didn’t have to pay child support, ex-convicts who couldn’t get traditional employment, people on disability who wanted a sit-down job that the government didn’t know about. The whole operation was sketchy as hell, and I blame the city for setting it up so that it could be that way

I can say with confidence that municipal control over fares and licensing has a ruinous effect on cab service in a city. If you’ve ever called for a cab to take you to the airport and they never showed up, it’s because of the way taxi service is regulated. If you’ve ever been taken to your destination via an indirect route, it’s because of the way taxi service is regulated. So much of what’s wrong with getting a cab could be remedied if we let drivers and companies compete with each other directly for our business and let them control their own pricing models.
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Some anecdotal evidence…

When I was a cab driver, I used to work the bar time crowd. This was in Madison, Wisconsin, a college town full of bars. When the bars let out at 2am, hordes of inebriated people would flood into the street, and everyone all at once wanted to go someplace else. It was like a salmon run to the cab drivers, wall-to-wall business. A driver could make a third of his money for the night during that 2 o’clock hour if he worked it right. What you wanted is to do as many rides for as many people as possible the shortest amount of time that you were capable of doing them. You wanted short rides so that you could turn over and get a new ride in the cab right away. And you wanted to drive a lot of people at once, since each body added a dollar to the fare. So we’d look for big groups of students because most of the students in Madison lived downtown, and if you worked for them you could be pretty sure that you’d be done with their ride in five or six minutes and you’d be ready to work again. What we would avoid is older, affluent-looking people whom we could tell probably lived in the suburbs and were downtown to blow off some steam and have fun like they did when they were kids. If these people got in your cab, they’d take you all the way out to the edges of town and you’d miss out on the bartime frenzy. Now this is exactly counter to how the market should work. The wealthier customers would all get served last, and business of the poorer, more numerous underclasses was coveted. There isn’t much in a capitalist economy that functions this way, and I can tell you that the rich and entitled do not appreciate being neglected by service workers. They’d bang on my windows and kick at the car because I’d lock the doors on them. One time, on New Year’s eve, I had a man offer me sixty dollars to take him home to Middleton, about eight miles away. I did a calculation in my head and determined that I could make it worth my while for $90. He agreed. I took him home and we were both happy. Uber has made a wildly successful business out of doing exactly this.

I will say, it is interesting how the rules of our bartime game completely inverted the normal market. Instead of going after the whales we all hustled after the big schools of little fish. When the prices are all fixed, the only way you can prosper is by scaling up and being efficient, spending less of your time serving more people. It’s a good case for setting up a market that is more egalitarian and that works for more people. It would be effective in the majority of cases, but completely dysfunctional for anything irregular or outside of a foreseeable norm.

Concern for Household Economy in 17th Century England

I am reading a book of autobiographical writings from Quaker women who lived in England between 1650 to 1690. These were the years of the “sufferings” for the Society of Friends, when they were persecuted by both the Church of England and the puritanical sects. The government banned their meetings in many counties, and the populace was extremely hostile toward them. In addition to violence and imprisonment, Quakers were often taken to court so that their goods could be seized. Since their beliefs restricted them from taking oaths, they were unable to defend themselves on the stand, and so, often lost the cases brought against them. Of all the offenses the Quakers had to endure—beatings, public humiliation, wrongful incarceration, loss of social standing, estrangement from family—confiscation of property and lands seems to have been for many the most injurious and intolerable. Alice Curwen was the wife of a shopkeeper in Bristol. She and her husband were both Quakers and withstood constant harassment from their neighbors and relatives, but when the king’s officers came to her store and carried off some of her merchandise, she followed them all over the city and would not leave their company until they returned what they had taken from her. In her autobiography, Mary Pennington complains at length about the confiscation of her lands in Kent. Pennington was the mother-in-law of William Penn and was reasonably well-off, with a number of farms from which she collected rent. The loss of this income seems to have affected her a great deal and she still seemed to hold a grudge against those who were responsible writing almost 15 years after:

“As such, they stoned, abused, and imprisoned us, at several towns and meetings where we went. This not being enough to prove us, and work for us a far more exceeding weight of glory, it pleased the Lord to try us by the loss of our estate, which was wrongfully withheld from us, by our relations suing us unrighteously. Our own tenants withheld what the law gave, and put us into the Court of Chancery, because we could not swear. Our relations also taking that advantage, we were put out of our dwelling-house, in an injurious, unrighteous manner. Thus we were stripped of my husband’s estate, and a great part of mine.” (1676)

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One might think that the Quakers would be more willing to eschew material wealth and earthly comforts and accept a more ascetic life. This was the case for some but no for most. Many of the Quakers in the 17th century occupied a new, burgeoning middle class that was beginning to take hold in the provincial cities of England. They were small landowners, private farmers, shopkeepers and tradesman and were very much concerned with gradually and steadily accumulating wealth and bettering their position in the world. This sort proved incredibly valuable to the Quaker movement because they possessed surplus wealth and were not yet affiliated with the old feudal powers of church and aristocracy. Thus we see among the puritans of that age a major emphasis on personal prosperity (see post on Visible Saints).

New behavior in regard to wealth management and household economy could be seen all over England at that time. Samuel Pepys, writing just after the Restoration, exhibits an obsessive interest in his accounts. He keeps a regular record of his net worth in his diaries and reports every gain and loss outside of his normal income and expenses, even money obtained through bribes and collusion. One of my favorite entries in the Diaries of Samuel Pepys comes from a day in the winter of 1664 when Pepys discovers that he can save himself the expense of going to the barber everyday by learning to shave himself. After buying a razor and trying it, he reports with some astonishment that it is actually very easy to do and that he will shave himself everyday henceforth. Of course, Pepys is missing the whole point of going to the barber. This was a custom of the aristocracy, imitated by the professional classes, that signified power of coercion. The nobility demonstrated their right to power by abstaining from all work, a renunciation that included the labor of dressing and grooming oneself. To men of the middle classes who engaged in work daily and who defined themselves to a great degree by the work they did, such reservations made no sense. What we see in Pepys’s determination to shave himself is the incremental formation of a new value system, founded on industriousness, self-reliance, prosperity, and thrift.

The Demise of the Productive Classes

In a previous post, I described the European aristocracy’s fading relevance during the 19th century. I characterized this decline as a cultural shift, perpetuated by changing attitudes toward social roles and class following the Age of Enlightenment. I do not disavow this claim, but I must concede that really the more influential factors were economic. The development of industrial production in European cities caused an absolute explosion of capital which propelled the productive classes into a place of sudden prominence. With their fortunes still tied to the land and to agricultural output the aristocracy largely missed out on the industrial boom. Thus their wealth and power were eventually eclipsed by that of a new enterprising class which was more interested in generating new capital rather than protecting old. This was the bourgeois revolution, an age when society ceased to be ordered around obedience to traditional authority and transitioned instead into an organized system in which individuals conformed to capital markets to discover and exploit opportunities for new production. It should sound familiar because it is our own age. It is the dawn of modernity, industrial development and the rise of market capitalism. As for the old order, it was swept aside in the tumult and allowed to burn itself out in quite resignation.

The lesson to be learned is that class systems change, often very rapidly; sometimes in violent revolution, sometimes as a symptom of changing economic conditions. Ostensibly, our modern class system has progressed has not progressed much beyond what it was following the overthrow of the Ancien Régime. Our society is still ordered around property ownership, market exchange and obedience to law. According to Marx this is “the dictatorship of the bourgeoisie,” invented for the growth of capital and freely expressed productivity. And like all systems it follows the same pattern of ascent and decline. Marx predicted that the bourgeois order would be toppled by the proletariat and that the working classes would rise up to supplant the owning classes, in the same way that the owning classes wrested control away from the noble class. It would seem history has not played out that way, not exactly. In fact, one could argue it is the working classes which have been marginalized over the course of modern history and have gradually been rendered irrelevant. The cause of this unexpected turn of events is 1: automation of work processes and 2: globalization of capital. Productivity within the world’s post-industrial economies is derived from mechanized labor; this has been the primary reason productivity has continued increasing in the industrialized world even though population growth has more or less stalled out. Outside of the post-industrial economies, traditional industry and human labor remain relevant and continue to escalate, but the effect this has on core capitalist economies is such that industrial labor vanishes. Slavoj Zizek explains our current economic milieu quite nicely in this article from The New Left Review:

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How else should we conceive the connexion between the two mega-powers, the United States and China, for example? They relate to each other more and more as Capital and Labour. The US is turning into a country of managerial planning, banking, servicing etc., while its ‘disappearing working class’ (except for migrant Chicanos and others who mainly toil in the service economy) is reappearing in China, where a large proportion of American goods, from toys to electronic hardware, are manufactured in ideal conditions for capitalist exploitation: no strikes, little safety, tied labour, miserable wages. Far from being merely antagonistic, the relationship of China and US is actually also symbiotic. The irony of history is that China is coming to deserve the title of a ‘working class state’: it is turning into the state of the working class for American capital. (“Why We All Love to Hate Heider“)

Of course, there are still masses of people in the core economies that require employment and ever greater quantities of capital floating around those economies that require spending. Consequently we see the formation of vast service sectors which emerge out of the market to cater to that thin layer of citizenry who still has money to toss at it. But where does the wealth of the rich originate? Certainly not from the generation of capital. This is wealth derived from a rentier economy. There was a time when people became rich by extracting raw resource from the earth and refining them into manufactured products. The main driving force of the old industrial economy was creation of capital goods (goods used to create more goods). Industry supported industry and the primary aim of industry was to expand productive capacity. Now industry functions to support a sprawling consumer economy which seems to just feed on itself in a recursive fashion: people go to work to buy goods which other people go to work to make so that they themselves can buy goods that still some more people went to work to make and so on and so on. I think we can interpret this state of events as indication that we live in an age of obvious decline. The question then becomes where will we go once this decline has damaged our social fabric so thoroughly that the forces which keep everything together dissolve and change becomes inevitable? So far we’ve witnessed an increasingly exaggerated stratification of wealth—completely to be expected, I think—and lately it seems that mass unemployment will be another manifestation of the transition. But these are not final outcomes; they are transformational occurrences. I think there is something else in store for us. I haven’t a clue what.