Email to Mpls City Council TNC Business Models and other Help

August 14, 2024

civilitivilleusa

May 10, 2024

Dear Legislators, Minneapolis City Council Members and Staff, Mulda Members and other TNC interested parties,

As part of our ongoing series today we will be sharing information on Business Model analysis, economics, channel functions and using the Catholic social Teachings as a decision-making framework.

A basic examination of the Uber driver ecosystem reveals that it is two tiered in that drivers that drive under ten hours per week cherry pick and are fed fares that are lucrative and may accomplish a goal established for discretionary income such as making a monthly car payment for an automobile that might not have been affordable otherwise. The revenue per mile and per minute may be acceptable and is likely in most cases considerably higher per minute and per mile overall than it is for the committed drivers that essentially drive full time and in reality are and should be treated as employees in that they meet most of the requirements provided by the department of labor and the IRS- see “Independent Contractor Misclassification” The Office of the Minnesota Attorney General .

Though these committed drivers meet the standards of employee in most cases, they are left fending for themselves in a well-established ecosystem of such ventures as advertising in vehicle, daily, weekly, monthly and longer-term auto renting/leasing even brokered between two individuals, and the need to use multiple apps to make a living. This is all further complicated by the notion of “Dynamic Pricing” and Uber’s UFD- Upfront fares plus destination that decouples driver base pay from time and distance rate cards and whereby personal information such as automobile type, insurance, credit score, home ownership and neighborhood can play a role in the fares presented to a given driver and the degree to which they are lucrative can and is determined by algorithms that take all of this into consideration and side toward the rider vs the driver, given the dynamic of scale meaning to Uber a the capacity to have multiple drivers to bait with fares and multiple customers/fares to provide a market for the drivers. The cycle of poverty is further perpetuated in that the drivers in most cases finance their car and fuel payments, they may not realize the perpetuated cycle of debt they incur until they stop driving.

It is important to note that from the driver perspective for long term wealth potential it is important that each fare is profitable to the driver and though the amount may be shown to driver and customer, it is the driver that takes the risk and likely underestimates his or her total costs and the need for a profit margin when positioned as a “contractor/sole-proprietor”. Putting an entry level worker who is most likely an immigrant into a position where they have to take undo risk to earn minimum wage for the convenience and self-serving reasoning that fall short in reality of the “industry disruptors” is cruel, readily visible and needs to be addressed.

We encourage decision makers to take into consideration the Catholic Social Teaching Principles of: Human Dignity, Subsidiarity, Solidarity, and the Greater Good as a framework for true solution development and a path toward generating justice and real wealth and wellbeing for society as a whole. Truly, we are no better than our weakest link.

We also encourage incorporating the Cardinal virtues of justice, fortitude, prudence, temperance when exhibiting or examining behavior in a given consumer experience or ecosystem, especially at times of change.

Both a basic and an astute understanding of economics and economic theory are necessary when evaluating the disruptive proposition of Uber and to fully appreciate the dynamics of the “gig” mentality and “rideshare” industry. Similarly, an understanding of industry evolution, health and structure and channel functions and the distribution of channel functions among channel members is key to assuring good business practices that assure a proper and equitable return on investment for all channel functions and channel members so as to assure long term viability and true innovation verses predatory capitalization amongst channel functions and channel members to the detriment of society as a whole.

Historic academic studies and analysis of financial data by some municipalities affirm that the Taxi Industry has very tight margins and some aspects of its service- some trips/fares are less profitable and even unprofitable. The industry overall gross margin is about 3% historically and roughly 1/3 of Taxi firms struggle with profitability- most typically the smaller firms. This affirms that the business models of the two largest TNCs, Uber and Lyft are likely to continue to struggle with profitability issues and rent seeking behavior- keeping a greater percentage of revenue from the driver.

Our papers: Catholic Social Teachings of Human Dignity, Solidarity, Subsidiarity and the Greater Good, Cardinal Virtues of Justice, Prudence, Fortitude, and Temperance and Economic Theory and the Dual Role of the Family/Consumer as Wage Earner and Consumer and An Examination of Channel Functions and their Efficiency in the TNC Industry provide constructs for analysis and understanding the flaws of the business models of TNCs and their implications for drivers, the industry, the state and society at large.

This stakeholder approach to business is what I was taught in my college courses in the 1980s at the University of Minnesota’s School of Management and is necessary for business to be a noble profession. A greater realization of Catholic Social teaching can provide a framework for goodness now and for generations to come and conditions that favor a more just society.

It is refreshing to see the Minneapolis City Council and the State of Minnesota make a conscious decision to tackle the TNC industry at its crux so as to us recalibrate ourselves and work and pray for a better society for all people.

It is our hope that by explicitly viewing business models and channel function behavior with explicit moral teachings, true solutions can come about and unhealthy compromises can be rejected. Three innovative ideas that are worth sharing:

1. West Hollywood offers the availability of subsidized cab fare in that $100 worth of service can be purchased by qualifying individuals for $16 twice a month.

2. San Francisco through the municipality helps coordinate the availability of benefits such as health insurance that are financed in a cooperative manner by Taxi drivers and Taxi companies.

3. Cooperative Taxi arrangements in cities have had success. Union Cab of Madison is able to give member drivers wages of about $40K and benefits including health insurance.

And a sustaining parting thought from : “A simple model of the taxi industry suggests that deregulation of fares and entry may not be optimal. The conditions of competition do not hold in the industry, even approximately. A model of search, where drivers and riders search for each other, is presented for the cruising-taxi market. This indicates that equilibrium of a deregulated industry does not exist. Price regulation is essential, and entry regulation may be useful. In addition, viewing the medallion as a bond for appropriate performance provides another possible rationale for regulation.” This is not rent seeking behavior.

References

Secretary General, International Transport Forum Corporate Partnership Board, (2016) “App-Based Ride and Taxi Services Principles for Regulation”, May 2016

Cairns, Robert D., Liston-Heyes, Catherine (1996) “Competition and Regulation in the Taxi Industry”, Journal of Public Economics 59 (1996) 1-15

“Uber Technologies Annual Income Statements”, MarketWatch

“Lyft, Inc. Annual Income Statements MarketWatch”

Palmer, Tim, (2015) “Worker Cooperative Industry Research Series Taxis”

City and County of San Francisco Office of the Controller, “Taxicab Industry Report Recommendations on rates of Fare and Gate Fees” January 8, 2008

We thank you for your time and attention to this important matter and we welcome your thoughts and research needs.

Merci

Susan Lein

Ms. Susan Lein

Co-Foundress, Secretariat, Artist-in-Residence