Uber and Lyft, don’t miss your exit

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Uber and Lyft are attempting to hold Minnesota hostage. Rather than adhere to wage protections passed by the Minneapolis City Council, the rideshare giants are claiming the new law would make their business model unworkable, and are threatening to shut down operations once it goes into effect.

So far, their threat is working. Mayor Jacob Frey vetoed the City Council’s proposal before being overridden by a supermajority, and some members of the council are now signaling their desire to reconsider; Gov. Tim Walz has also appealed to the city to reconsider, and Republicans in the Legislature have introduced a bill to void the city law through preemption.

All of this corporate protectionism is extremely unfortunate. Popular discomfort with Uber and Lyft’s potential exit is understandable, but the public interest could not be clearer: Policymakers need to champion workers and fair markets over monopolistic middle men.

Although they pioneered a popular service, Uber and Lyft are built on an extractive business model that suppresses worker rights and wages. By classifying their drivers as independent contractors rather than employees, the Silicon Valley firms shield themselves from collective bargaining as well as the cost of worker protections like unemployment insurance and workers’ compensation. Opaque data practices provide another anti-competitive advantage. The sum effect is to lower corporate overhead and consolidate power over riders and drivers alike.

Thankfully, the useful parts of Uber and Lyft’s initial innovation — on-demand cabs hailed via smartphone — can be replicated without the same predatory strategies. Multiple new competitors have already stated their intent to serve the Twin Cities under the new wage ordinance, and Minnesota Sen. Omar Fateh has announced he is working on a bill to create a state-run alternative. A driver cooperative in New York has even formed an app of its own, which could be an interesting possibility here as well.

A quick look at Uber’s and Lyft’s financials suggest that any of those options could result in higher wages and lower prices by shrinking the share going to the provider.

A recent study commissioned by the Minnesota Department of Labor and Industry found that gross earnings for metro drivers were around $30 per hour before expenses but after Uber and Lyft took their cut. That equated to $14.48 after expenses, which is less than the $15.57 Minneapolis minimum wage. The study didn’t cover Uber’s and Lyft’s piece of each fare, but estimates by UCLA put it around 21%. This suggests that Uber and Lyft make, on average, a little more than half of driver earnings on each trip.

That’s a lot of overhead for an app more than a decade old and two companies that own no cars and employ no drivers. Advocates claim the real percentage going to the platforms is even higher.

While this claim conflicts with Uber’s and Lyft’s insistence that the Minneapolis ordinance would put them out of business, their annual SEC filings explain the difference: In addition to recent profits and Uber’s planned $7 billion stock buyback, both companies spend lavishly in the pursuit of rapid growth. Billions on sales, marketing, new business acquisitions and luxurious headquarters with thousands of high-paid staff.

That might be good for shareholders, but it doesn’t serve the interests of Minnesotans trying to get from A to B, or the workers trying to make a living taking them there safely. Minnesota would be much better served by a plain vanilla rideshare service that treats drivers humanely and pockets a more reasonable portion of each fare.

Yes, the transition could prove disruptive, as many have pointed out. But we are in this predicament precisely because we delegated responsibility for a basic public need to unaccountable corporations. Let’s learn from that mistake.

Policymakers should act now to create a more stable and equitable system, either by expediting licensing for new providers or building a public alternative. Drivers should not just earn more money, they should have the right to bargain collectively.

Most important, it would be unconscionable for policymakers to subvert legitimate policymaking due to the whims of two out-of-state tech companies with long histories of illegal behavior.

The City Council should hold its ground, and the state must respect the city’s right to govern.

Eric Harris Bernstein is a resident of south Minneapolis and a state policy analyst by trade.