The secret to the Uber economy is wealth inequality

Of the many attractions offered by my hometown, a west coast peninsula famed for its deep natural harbor, perhaps the most striking is that you never have to leave the house. With nothing more technologically advanced than a phone, you can arrange to have delivered to your doorstep, often in less than an hour, takeaway food, your weekly groceries, alcohol, cigarettes, drugs (over-the-counter, prescription, proscribed), books, newspapers, a dozen eggs, half a dozen eggs, a single egg. I once had a single bottle of Coke sent to my home at the same price I would have paid had I gone to shop myself.

The same goes for services. When I lived there, a man came around every morning to collect my clothes and bring them back crisply ironed the next day; he would have washed them, too, but I had a washing machine.

These luxuries are not new. I took advantage of them long before Uber became a verb, before the world saw the first iPhone in 2007, even before the first submarine fibre-optic cable landed on our shores in 1997. In my hometown of Mumbai, we have had many of these conveniences for at least as long as we have had landlines—and some even earlier than that.

It did not take technology to spur the on-demand economy. It took masses of poor people.

Silicon Valley catches on

In San Francisco, another peninsular city on another west coast on the other side of the world, a similar revolution of convenience is underway, spurred by the unstoppable rise of Uber, the on-demand taxi service, which went from offering services in 60 cities around the world at the end of last year to more than 200 today.

Uber’s success has sparked a revolution, covered in great detail this summer by Re/code, a tech blog, which ran a special series about “the new instant gratification economy.” As Re/code pointed out, after Uber showed how it’s done, nearly every pitch made by starry-eyed technologists “in Silicon Valley seemed to morph overnight into an ‘Uber for X’ startup.”

Various companies are described now as “Uber for massages,” “Uber for alcohol,” and “Uber for laundry and dry cleaning,” among many, many other things (“Uber for city permits”). So profound has been their cultural influence in 2014, one man wrote a poem about them for Quartz. (Nobody has yet written a poem dedicated to the other big cultural touchstone of 2014 for the business and economics crowd, French economist Thomas Piketty’s smash hit, Capital in the Twenty-First Century.)

The conventional narrative is this: enabled by smartphones, with their GPS chips and internet connections, enterprising young businesses are using technology to connect a vast market willing to pay for convenience with small businesses or people seeking flexible work.

This narrative ignores another vital ingredient, without which this new economy would fall apart: inequality.

The new middlemen

There are only two requirements for an on-demand service economy to work, and neither is an iPhone. First, the market being addressed needs to be big enough to scale—food, laundry, taxi rides. Without that, it’s just a concierge service for the rich rather than a disruptive paradigm shift, as a venture capitalist might say. Second, and perhaps more importantly, there needs to be a large enough labor class willing to work at wages that customers consider affordable and that the middlemen consider worthwhile for their profit margins.

Uber was founded in 2009, in the immediate aftermath of the worst financial crisis in a generation. As the ride-sharing app has risen, so too have income disparity and wealth inequality in the United States as a whole and in San Francisco in particular. Recent research by the Brookings Institution found that of any US city, San Francisco had the largest increase in inequality between 2007 and 2012. The disparity in San Francisco as of 2012, as measured (pdf) by a city agency, was in fact more pronounced than inequality in Mumbai (pdf).

Of course, there are huge differences between the two cities. Mumbai is a significantly poorer, dirtier, more miserable place to live and work. Half of its citizens lack access to sanitation or formal housing.

Another distinction, just as telling, lies in the opportunities the local economy affords to the army of on-demand delivery people it supports. In Mumbai, the man who delivers a bottle of rum to my doorstep can learn the ins and outs of the booze business from spending his days in a liquor store. If he scrapes together enough capital, he may one day be able to open his own shop and hire his own delivery boys.

His counterpart in San Francisco has no such access. The person who cleans your home in SoMa has little interaction with the mysterious forces behind the app that sends him or her to your door. The Uber driver who wants an audience with management can’t go to Uber headquarters; he or she must visit a separate “driver center.”

There is no denying the seductive nature of convenience—or the cold logic of businesses that create new jobs, whatever quality they may be. But the notion that brilliant young programmers are forging a newfangled “instant gratification” economy is a falsehood. Instead, it is a rerun of the oldest sort of business: middlemen insinuating themselves between buyers and sellers.

All that modern technology has done is make it easier, through omnipresent smartphones, to amass a fleet of increasingly desperate jobseekers eager to take whatever work they can get.

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