On "Innovation" and the Exploitation of the Middle Class

by TS DeHaviland

Let's do a little thought experiment. Let's pretend it's before the Internet was really a “thing,” perhaps the late 1970s or early 1980s.

A group of entrepreneurial upstarts who are upset with the high cost and relative difficulty of finding cabs decide to do something about it. They run ads in local newspapers for a new directory of individuals willing to give cheap rides in their own, private vehicles at a moment's notice.

Thousands of laid-off blue-collar workers and bored housewives sign up. The new guide, let's call it “Ridebook,” is inexpensively printed and made available in airport, railway and busline newsstands for a dollar apiece. A weary traveler has merely to buy the most recent book, drop a dime in a pay phone, and be on his way.

This hypothetical is merely a way to demonstrate that Uber, Lyft, and Sidecar are not actually technology companies. The hypothetical model I just presented could be done with a few people with IBM Selectrics, a few multi-line phones, and a Rolodex. While Ridebook would be a little more clunky, and users would have to go through a few numbers, perhaps, before they found someone who was at home beside the phone, there's no online component needed to do it, no cell phones or slick apps required.

So if these companies aren't really technology companies, what are they? They do, of course, use new technologies: certainly the use of smart phones and web-apps has created the occasion for these companies' founders to think them up; such concepts are easier when the path is more convenient and clear.

But, as our hypothetical implies, Uber, Lyft, Sidecar, and companies like Airbnb are really companies that exploit the declining incomes of the middle class and the use of remaining middle class material possessions. You may not have the job you once had, but you still have your car and and some real-estate sucking you down with what you still owe on them? Sign up with Uber and Airbnb and make those millstones move in your favor. What was once used for the private enjoyment of middle class people is now turned toward the commercial sector.

There's nothing new about this either, as every creaky Victorian house with an added-on outdoor staircase attests: the Great Depression pressed extra rooms into service as cheap apartments, and ads were placed in local papers to find boarders to fill them.

But wait, you say—your hypothetical example costs money and Uber and such are free! Of course they're not: you just don't pay up front. You pay a percentage as provider of the service, a cost that may or may not be passed on to the “customer” who gets the ride. If it isn't, then the actual customer of the service is the person who lists the property or drives the car, and she is merely using the service to capture the customer or find the fare. Furthermore, anyone who uses a smartphone pays all the time in the form of a data plan. Uber-type companies don't get money from that data plan directly, but they do get the advantage of opportunity cost being paid by the smartphone user. We don't think of data plans as the cost of doing business online because we get used to paying them, and they quickly grow natural to us. Our hypothetical traveler using Ridebook invests only $1.00 and a few dimes here and there.

We tend to think of companies like Uber and the like as technology companies because they fit a few favorite scripts. The first one is “OMG the Intr0webz changes everything!” This favorite of traditional media is probably driven by their own fear and lack of understanding about how the Wild and Woolly Web really works. After 20 years, it's also high time we gave up on it. It changes what it changes, and it doesn't what it doesn't. I think we've largely gotten that figured out by now. The second is that “every new company that uses anything even remotely cell phone or webbish is an innovation company,” which both isn't true and masks the way these supposedly innovative companies look very traditional when they start to get big and compete with one another.

While Uber and Airbnb-type companies provide great opportunities for many people, the tragedy of not seeing them as indications of how far the middle class has declined shows how unwilling we are to fight back for decent wages and to organize on our own behalf. These companies will provide us work-arounds for as long as they remain small. Then they too—just like Amazon and Apple—will fall into putting downward pressure on wages and compensation, start outsourcing, and begin doing all those bad things big companies are expected by their shareholders to do.