The Uber Cases: The Legal Canary in the Economic Goldmine

Any new economic freedom in Europe and North America is likely up for grabs in an EU court, where Uber will be classified as either an internet service or a transportation operator.  The traditional taxi operators, their unions, their political supporters, and the governments that license and tax them seem determined to squelch the upstart competition that uses the internet to outcompete their stultified business model.  Their legal attack on Uber has now reached Europe's top court.

Uber claims that it is not a transportation operator; rather, it is merely an internet service that links a willing driver with a passenger in need of a ride.  That is the basis of the term "ride sharing" used to describe the activity.  And that is so, so far as it goes.  Drivers own and are responsible for their cars and work when they wish, obtaining passengers from the internet using Uber's app.  Uber considers them self-employed contractors with whom Uber shares the fares collected.

All very well, and the enterprise puts a lot of otherwise marginal workers into productive jobs worldwide.  The issues arise because this new, different business model is eating the traditional cabbies' lunch.  It provides a more flexible, more available service to passengers and has had a meteoric expansion at the taxi industry's expense.  But it is not only the cabs in play here.

The hotel operators are livid over the similar rise of Airbnb, an internet service that links folks in need of a few days' shelter with homeowners who offer short-term room rentals.  Other variations on this adaptation of new tech to create new opportunity and new enterprises are proliferating as well.  Uniformly, the older-style businesses are feeling threatened and often turning to the politicians for help.  That may be easier than seeking new ways to compete.

This is no new situation; the cowboys replaced the Indians; the automobile replaced the horse; supermarkets wiped out most independent butchers and bakers; and TV, now itself succumbing to the internet, largely replaced commercial radio.  It seems likely that the folk most skilled at shaping flint into arrowheads were resentful when metals were first applied to that use.  Not new, either, is the willingness of politicians to protect supportive businessfolk when they face new competition; Adam Smith's seminal "Wealth of Nations" of 1776 famously deconstructed such mercantilism, though we should note that Mr. Trump seems not to have noticed when he rails against Chinese economic competition with promises of high tariffs on Chinese imports.  Using government to perpetuate obsolescent enterprises only prolongs economic inefficiency at the expense of consumers' living standards.  But the protected producers will be grateful to the politicians, and the consumers may not notice the real cause of their declining options.

The U.S. followed Europe's industrial revolution but leaped ahead with little of the entrenched dead weight of long established, politically powerful opponents of the new technology protecting their investment in older tech against new competition.  In America, government did not discourage railroads, telegraph, telephone, electricity, and the mining of oil and metals to protect the investments of political supporters.  (Well, not much, anyway.)  But time passes; things change, right?  So in California and New York, Uber is fighting off legal attacks demanding that it treat its drivers as employees, with all the minimum wage, paid vacation, overtime, benefits, payroll taxes, and other expenses involved.  And that would make Uber a transportation operator, wouldn't it?  So all the advantages of its internet business model would be lost, just as will occur if Uber loses its case in Europe.  In fact, in those places where a taxi operator is tacitly given a monopoly by a mandated but hard to obtain license, Uber won't be able to operate.

Industries have been leaving the U.S. in search of lower-cost venues ever since organized labor partnered with politicians to force labor costs above market levels.  More competitive new business models are needed in declining economies especially.  Forcing new models into old legal frameworks designed for less efficient predecessors for political gain will, just like Mr. Trump's high import tariffs, simply stultify the economy to please political supporters.  Also, it discourages further innovation just when it is badly needed.

The American production upon which the country grew wealthy will never return to what is now the high-cost producer.  Only new production and services resulting from new ideas and methods delivered via better business models may do that.  The Uber cases seem to be a telling canary in the economic gold mine.

Our newly post-Christian, post-mass production, and increasingly post-free enterprise societies face a choice between limiting economic disruption or fostering economic growth.  Restraining new models and competition will further economic stasis and, with that, shared poverty.  Choosing the new models will further economic growth by producing wealth as occurred in the U.S. industrial revolution.  And it will be socially disruptive.  Vibrant economies are socially challenging; highly stable societies are not economically vibrant.

Which direction our leaders will select is to be seen, but after Adam Smith wrote government protectionism out of economics, he was appointed a local Scottish harbor official, whereas when J.M. Keynes wrote government back into economic control 160 years later, a grateful Parliament made him a lord.  The Uber cases seem likely to weigh heavily on the economic future.

Any new economic freedom in Europe and North America is likely up for grabs in an EU court, where Uber will be classified as either an internet service or a transportation operator.  The traditional taxi operators, their unions, their political supporters, and the governments that license and tax them seem determined to squelch the upstart competition that uses the internet to outcompete their stultified business model.  Their legal attack on Uber has now reached Europe's top court.

Uber claims that it is not a transportation operator; rather, it is merely an internet service that links a willing driver with a passenger in need of a ride.  That is the basis of the term "ride sharing" used to describe the activity.  And that is so, so far as it goes.  Drivers own and are responsible for their cars and work when they wish, obtaining passengers from the internet using Uber's app.  Uber considers them self-employed contractors with whom Uber shares the fares collected.

All very well, and the enterprise puts a lot of otherwise marginal workers into productive jobs worldwide.  The issues arise because this new, different business model is eating the traditional cabbies' lunch.  It provides a more flexible, more available service to passengers and has had a meteoric expansion at the taxi industry's expense.  But it is not only the cabs in play here.

The hotel operators are livid over the similar rise of Airbnb, an internet service that links folks in need of a few days' shelter with homeowners who offer short-term room rentals.  Other variations on this adaptation of new tech to create new opportunity and new enterprises are proliferating as well.  Uniformly, the older-style businesses are feeling threatened and often turning to the politicians for help.  That may be easier than seeking new ways to compete.

This is no new situation; the cowboys replaced the Indians; the automobile replaced the horse; supermarkets wiped out most independent butchers and bakers; and TV, now itself succumbing to the internet, largely replaced commercial radio.  It seems likely that the folk most skilled at shaping flint into arrowheads were resentful when metals were first applied to that use.  Not new, either, is the willingness of politicians to protect supportive businessfolk when they face new competition; Adam Smith's seminal "Wealth of Nations" of 1776 famously deconstructed such mercantilism, though we should note that Mr. Trump seems not to have noticed when he rails against Chinese economic competition with promises of high tariffs on Chinese imports.  Using government to perpetuate obsolescent enterprises only prolongs economic inefficiency at the expense of consumers' living standards.  But the protected producers will be grateful to the politicians, and the consumers may not notice the real cause of their declining options.

The U.S. followed Europe's industrial revolution but leaped ahead with little of the entrenched dead weight of long established, politically powerful opponents of the new technology protecting their investment in older tech against new competition.  In America, government did not discourage railroads, telegraph, telephone, electricity, and the mining of oil and metals to protect the investments of political supporters.  (Well, not much, anyway.)  But time passes; things change, right?  So in California and New York, Uber is fighting off legal attacks demanding that it treat its drivers as employees, with all the minimum wage, paid vacation, overtime, benefits, payroll taxes, and other expenses involved.  And that would make Uber a transportation operator, wouldn't it?  So all the advantages of its internet business model would be lost, just as will occur if Uber loses its case in Europe.  In fact, in those places where a taxi operator is tacitly given a monopoly by a mandated but hard to obtain license, Uber won't be able to operate.

Industries have been leaving the U.S. in search of lower-cost venues ever since organized labor partnered with politicians to force labor costs above market levels.  More competitive new business models are needed in declining economies especially.  Forcing new models into old legal frameworks designed for less efficient predecessors for political gain will, just like Mr. Trump's high import tariffs, simply stultify the economy to please political supporters.  Also, it discourages further innovation just when it is badly needed.

The American production upon which the country grew wealthy will never return to what is now the high-cost producer.  Only new production and services resulting from new ideas and methods delivered via better business models may do that.  The Uber cases seem to be a telling canary in the economic gold mine.

Our newly post-Christian, post-mass production, and increasingly post-free enterprise societies face a choice between limiting economic disruption or fostering economic growth.  Restraining new models and competition will further economic stasis and, with that, shared poverty.  Choosing the new models will further economic growth by producing wealth as occurred in the U.S. industrial revolution.  And it will be socially disruptive.  Vibrant economies are socially challenging; highly stable societies are not economically vibrant.

Which direction our leaders will select is to be seen, but after Adam Smith wrote government protectionism out of economics, he was appointed a local Scottish harbor official, whereas when J.M. Keynes wrote government back into economic control 160 years later, a grateful Parliament made him a lord.  The Uber cases seem likely to weigh heavily on the economic future.

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