AB5 and Prop 22 on how politics work
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| California politicians appear to desire a return to the taxi cartels. I don't know about anyone else, but about 70% of my taxi rides have been a negative experience. I yet to have any negative experiences with Uber or Lyft and all of my taxi rides have been comparably more expensive. Exactly who wants a return to the pre-rideshare ages besides the taxi industry? // photo by Life Of Pix |
AB5 is the brainchild of the narcissistic and short-tempered Lorena Gonzalez, backed by unions, that reclassifies many independent contractors as employees, specifically targeting gig economy tech giants such as Uber and Lyft.
The law has destroyed many independent contract jobs in the state that both the contractor and company had been happy with. Instead of transferring these contracts into employed positions, many contracts have simply been canceled. Small venues like cafes have just stopped signing musicians since they can't afford to have a musician on payroll. Contractors that worked for media companies such as Vox have simply canceled their contracts in favor of contractors that reside outside the state of California. The backlash has been so harsh that Gonzalez had worked on brokering a deal to exempt some of these industries, stating that they deserve the flexibility and have the right to basic employment, though seemingly not willing to get into why exactly some workers in certain industries should have this flexibility and others not.
Truckers drove around the capitol in Sacramento in protest against AB5 a year ago and the Trucking Association had filed a lawsuit, winning an injunction against the law for truckers.
Gonzalez continues to push that drivers such as Lyft and Uber have "misclassified" workers as independent contractors, which is a definition that would baffle anyone. These drivers operate whenever they want, as often or as little as they want, dictate where they want to drive, and are given large leeway in how they want to operate their cars. Moreover, nobody has ever forced any driver to drive for Uber and Lyft. If these contracts are so terrible and unpopular, why do so many people voluntarily sign up?
As someone who is interested in (and hates) politics, I've asked several Uber/Lyft drivers about the law, never leading with my own impressions on the topic, and they have so far, been unanimous against AB5. The first time I did it, in Southern California, I received an impassioned ten minute speech, from an immigrant driver, judging from his accent, for the remainder of the duration of the ride. He excoriated the bill, wondering what gives the government the right to interfere in a contract he willingly signed with a company and having some very unkind words to say about governor Gavin Newsom. The last time I asked a driver, a week ago, he expressed negativity toward AB5 and positivity toward Proposition 22, which would exempt gig drivers from the law, but in a much more soft-spoken manner. He estimated that 90% of drivers prefer the existing setup and worried that he wouldn't be able to drive anymore if Proposition 22 fails. He's not far off from independent contractors as a whole where 79% favor their independent contractor status over a traditional employee job, according to the Bureau of Labor Statistics.
I have been an independent contractor myself and it was a pretty sweet gig. It was for a firm I was an employee during the Great Recession. When I left for another firm in a different sector, they asked if I would do consulting for them. Their contract rates were more than twice that of employee's wages, and with how quickly I could get their tasks done, I was able to finish their tasks in a fraction of time under their estimates. Since they paid by task completed, my effective hourly wage from them was on average over $200 an hour. Had I been forced to convert to a part-time employee, I would have made an eighth of what I had made, per hour, as a consultant, and not been as able to dictate my terms of working, which would have been a deal-breaker. But I would have gotten health insurance and state unemployment insurance, neither of which I needed since I had it already from my regular job. And they liked what I produced for the cost since they kept coming back with more projects for me. The inability of legislators to understand people's situations and trying to come up with a one size fits all "solution" has problems as inherent as trying to design a widget that would fix problems from a leaky kitchen sink to a malfunctioning linear accelerator and everything in between.
Since AB5, Lyft and Uber have considered shutting down their services in California. To anyone with basic business and economic sense, it would be easy to understand why. Their business model revolves around creating a platform that matches people that have time and cars with people that need rides. Uber and Lyft don't claim to know when people are free to give rides to others, because how can they? The model focuses on empowering people to utilize their idle resources and transforming them into active resources. A rigid employment schedule that comes with fixed overhead per employee would destroy that model. It means a driver has to drive a specific amount of time before their labor becomes valuable enough to overcome the high costs to the platform, therefore, someone can't just say "It's spring break now, let me fire up the app and earn some money with my car that I'm paying for." Uber and Lyft would take a massive loss on each employee that operates this way. The obvious responses, then, are to either shut it all down, turn into a traditional taxi company (who in the hell would want that?) where they would have to devote a large number of resources to a new department to employ drivers, or attempt a franchise operation where drivers are hired by a company that contracts with Uber and Lyft (which is just a taxi company using the app platform that siphons money away from the drivers to cover the middleman's costs for no reason other than some legislators thought it was a good idea).
Lyft and Uber have now spent tens of millions of dollars backing Prop 22 to exempt AB5 from ridesharing. That's right, not an outright repeal, but rather, an exemption. So people who don't have the means will still get screwed by AB5, but those rich enough or have curried enough favor with the politicians to fight idiotic laws remain in business. In this case, the businesses that were the entire reason the bill was written in the first place may survive it, but all of the collateral damage may not. What kind of incentives do they think this creates? More money in lobbying and more clamoring for special interests and backroom deals, of course.
I'm also not saying these tech giants are pure as freshly fallen snow in all of this. Uber's CEO petitioned the federal government to include unemployment payouts to their drivers who have not paid into unemployment insurance taxes. In other words, they are leeching off taxpayers. But in the end, it's the government that actually made this coerced wealth transfer happen. The CEO of Uber has no power on its own to do this. The solution is to not let the government have the power to do this in the first place. Let people purchase unemployment insurance if they want to.
The unions that back AB5 also back Gonzalez. Her top 8 donors are all unions, in aggregate, far outpacing that of any other sector. They paid for lawyers to defend AB5 and pointed to and funded flawed studies that support AB5. The reason is obvious. In California, independent contractors cannot unionize. By reclassifying everyone to employees, it gives unions a rich new field of workers to pay union dues.
This entire episode really is a textbook outline of how politics works:
- The government, starting with NYC, institutes taxi medallions in 1937 to regulate the business.
- This creates an artificially scarce product.
- The product scarcity increases its value and those that benefitted from this increase collude with the government to perpetuate the scarcity to increase the value even more.
- Taxis enjoy cartel status with incredibly high barriers to entry because of the regulation, resulting in poor service and high prices.
- Medallions reach a value of over $1 million in New York in 2013.
- Ridesharing apps are invented due to this government-created problem, become popular, and disrupts the sector, ushering in a new wave of business opportunities for people and unleashes underutilized resources.
- Private car rides become cheaper with better service and people are able to work for supplemental income using idle assets they already own, without being handcuffed to it being the primary job in the sector if they don't want to.
- The taxi lobby fights back, wanting its cartel powers back.
- Unions see an opportunity to expand their dues base.
- A politician wonders why a service that didn't exist two decades ago doesn't pay more, not understanding they were paid zero a few years ago.
- The politician writes a terrible law in conjunction with unions that blankets all independent contractors.
- Contracts in California disappear nearly overnight.
- Industries with powerful lobbyists and large resources create exemptions for themselves.
- People without these resources do not have the means to create an exception for themselves and are stuck with the law, putting them out of work.
- This creates a signal to people that paying lobbyists and rubbing elbows with politicians pays huge dividends and corruption increases.
- If history is any indication, the politicians will likely blame capitalism with mental gymnastics that could win gold at the Olympics.
