In summary

Here are two regulation changes for Uber and Lyft that would decrease traffic congestion and carbon emissions, and increase drivers’ wages.

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By Steven Hill, Special to CalMatters

Steven Hill is a journalist and author of seven books, including “Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers,”

Now that Uber and Lyft have prevailed in their $220 million battle royal to win Proposition 22 and roll back California labor law, it’s time to step back and look anew at this industry. California could learn a lot about how New York City has handled ride-hailing.

Led by Mayor Bill DeBlasio, New York City recognizes that the problem with Uber and Lyft has always been their business model. Their modus operandi has been to heavily subsidize passenger fares and flood streets with its cars to achieve a transportation monopoly.

Let’s look first at the impact of subsidized rides. These companies continue to lose billions of dollars every year because their predatory business model massively subsidizes more than half the cost of passenger rides in their bid to grab market share. That’s a greater subsidy than public transportation receives from city governments.

Recently I asked a friend why he used Lyft. He said the bus would cost $3, and Lyft would cost about $7 to his door. So I asked him, “What if Lyft cost $14?” He said he would take the bus. So because he was only paying half the actual cost of the ride, he used Lyft.

Such “predatory pricing” used to be illegal, when the Federal Trade Commission cared about anti-monopoly enforcement. Instead, traditional taxi owners and for-hire drivers, who don’t have deep pockets to subsidize rides, have been pushed to the desperate edge of bankruptcy, and airport shuttle companies have been driven out of business.

Subsidized rides have in turn contributed to a flood of ride-hail vehicles on the streets. Uber and Lyft taxis vastly outnumber traditional taxis by 4 to 5 times, since taxis have a regulator-imposed limit. It’s not a fair competition. In city after city, this has led to huge increases in traffic congestion, carbon emissions and the undermining of public transportation. It also has led to lower driver wages, because with so many Ubers on the streets there’s not enough work for everyone.

One of the most ambitious studies of ridesharing impacts, conducted by researchers at the University of California, Davis’ Institute of Transportation Studies, found that ridesharing results in a dramatic rise in the number of trips made and miles driven in an automobile, as well as a pronounced reduction in the use of mass transit. Even before the COVID pandemic, public transit ridership had declined in nearly every major U.S. city, as commuters opted for half-priced Uber and Lyft rides.

So people have turned away from transportation modes that are better for the environment, draining away the revenue needed to sustain public transportation. For the minority of people that use ride-hailing – about 20% of city dwellers, according to various studies – Uber and Lyft have provided a convenient transportation option. But for everyone else riding on the bus, bicycle or driving personal vehicles stuck in “Uber congestion,” ride-hailing has taken us a giant step backward.

These companies’ leaders have not shown any genuine interest in negotiating with political leaders to find a win-win solution, despite rhetoric to the contrary. But fortunately there is a fairly simple and straightforward fix.

It’s all about supply and demand. Regulators should limit the number of ride-hailing cars that can be on the street at any one time. Traditional taxis already have such a sensible limit, designed to minimize traffic congestion and stabilize driver wages. Why should ride-hailing be any different?

New York City passed such a law in 2018, putting a cap on the number of ride-hailing vehicles and reducing the amount of time drivers can spend without a passenger in the car – previous studies had found that 41% of drivers have empty cars as they troll for passengers. The Big Apple also mandated a minimum wage for ride-hail drivers (calculated after driving expenses), and added a congestion charge on all for-hire vehicles that generates hundreds of millions of dollars for public transportation.

In introducing these restrictions, de Blasio argued that the cap helps to rein in an unfair business model that relies on “choking our streets with congestion, and driving workers into poverty.”

New York City gets it, but unfortunately California does not. Back in 2013, Gov. Jerry Brown and the California Public Utility Commission made a colossal blunder. They legalized ride-hailing with lightweight regulations that anticipated none of the problems. Especially unwise was that the regulation took a “one-size-fits-all” approach that included a statewide preemption handcuffing the ability of local governments to establish their own rules, like New York City has done – even though California cities already were doing that for traditional taxis.

This was the “original sin,” because it meant that municipal governments lost all control over this commercial activity clogging their streets. The California law was the first in the country and became a national model that set the stage for the toxic business model that has now swamped city after city.

Just modifying this one state regulation to allow local governments a “home rule” option to limit the number of Ubers and Lyfts would unfreeze the current paralysis. Local governments know their communities’ needs. Big cities like San Francisco and Los Angeles have very different transportation conditions than smaller cities like Fresno, Redlands or Lancaster.

In addition to limiting the number of ride-hail vehicles, Uber and Lyft should be required to charge at least the true cost of each ride. If they continue subsidizing rides, a “fairness fee” dedicated to improving public transit should be added to each fare.

Just these two changes –  limiting the number of ride-hailing taxis and eliminating fare subsidies – will decrease traffic congestion and carbon emissions, and increase drivers’ wages by ensuring enough work for remaining drivers. A balance must be found between having enough taxi-type vehicles to service demand, but not so many that the streets are choked with traffic and hurting drivers’ wages. Proposition 22 does not address any of these daunting problems, and we cannot count on these billion-dollar Silicon Valley companies to do the right thing.

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