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The birth of a bright new world (3): Who can compete with Uber?

Editor’s note: In mid-2016, we received a three-part series of articles that activist and programmer Alaa Abd El Fattah, who is serving a five-year prison sentence for protesting the military trial of civilians, wrote from his cell. In this series, he reflects on what the advent of Uber and application-based riding services means for the labor economy. Ride-hailing companies Uber and Careem were ordered by the courts to halt their Egyptian operations in March, in response to complaints from litigants that cars licensed for private use should not be utilized for other purposes. On Monday, Parliament passed legislation regulating the operations of Uber, Careem and other ride-hailing companies. In light of this, we decided to translate and publish Abd El Fattah’s articles, in an effort to continue reflecting on the evolution of our economy and the intersections of technology and labor within it.

No one can say Uber doesn’t provide an excellent service. We’re not just talking about vehicle models, or the cheery manner of their drivers, or conveniences like air conditioning; Uber’s strengths lie in the fact they’ve addressed serious issues such as passenger safety and sexual harassment prevention. But the hegemony Uber has achieved is not solely a function of quality. It relies, in reality, on structural factors in the market in which Uber operates.

I am perturbed by relentless attempts to impose the technologies of the sharing economy on services such as education or healthcare. I’m bracing myself for the day when some new technology appears that will disrupt my own field of work. That’s why I’m so interested in observing the white taxis’ seeming inability to compete. It is inseparable from the wider context of the city of Cairo, just as Uber’s own success is inseparable from its Californian context.

The years before Uber’s emergence witnessed a deliberate and concerted campaign to prevent taxi operators and potential investors from making improvements to the taxi service. For example, prior to the launch of Taxi al-Asima (an project launched in the early 2000s which aimed at introducing a high quality taxi fleet), there was an attempt to establish a company that would operate a number of taxis connected to a control room by short-wave radio (wireless), but it didn’t receive approval from the authorities and security services. A second attempt swapped radio for mobile phone communication and GPS monitoring of the fleet’s location; again, it was stonewalled. Not content with blocking the idea of a central control room from the outset, the security apparatus went so far as to ban GPS technology and attempt to prevent further development of geographic information systems, in some cases issuing outright bans and in others refusing to make state-held cartographic data available at reasonable prices.

The sudden ubiquity of iPhones and Google Maps forced a change to these policies. The influence Californian corporations wield over authorities here is immense, capable of opening doors to ministerial and even presidential inner sanctums, while local companies are left to contend with labyrinthine bureaucracy and nightmarish security constraints.

Technical development aside, Cairo has also seen initiatives attempting to provide forms of public transport that are more humane than microbuses, yet cheaper than taxis. In most countries in the world, public transportation services are subsidized by taxes, meaning the transport sector is not an attractive prospect for investors looking to make a profit. Hence these projects sought to establish mutuals, based on a shared ownership structure representing both drivers and users. But the initiatives came up against a legislative obstacle that simply does not permit the creation of such mutuals.

In the case of white taxis, meanwhile, both owners and drivers are deprived — like all Egyptians — of the right to organize in the workplace. They do not enjoy the opportunity to participate, therefore, in shaping the development of their service; in setting meter tariffs in line with the rising costs of fuel, spare parts, and even basic goods; or in instituting a variable pricing scheme that would reflect fluctuations in demand, a distinction between daytime and late-night services, and a distinction between short urban journeys and those requiring use of highways. These rights, enjoyed by taxi drivers in most developed nations, stem from the principle that prices should reflect the varying levels of risk, labor intensity, and vehicle wear and tear involved in the job.

By contrast, Egypt’s development policies have created an ideal environment for Uber’s expansion. Whole new cities and neighborhoods have been built without any public transport provision, despite the relatively low cost of laying train lines on flat arid terrain; fast roads are never given designated bus lanes. Instead of facilitating and incentivizing private sector investment in public transportation, the state offers credit incentives for the purchase of private cars and continues to subsidize their fuel consumption, even as Egypt has come to import fuel on a massive scale.

These development policies reflect incompetence, shortsightedness and the extreme centralization of the decision-making process. But above all, they reflect a fundamental bias towards a sector of society that has profited from real estate investment, designing cities and neighborhoods based on their own worldview, their own cultural values, and their own vision of modernity and luxury, as embodied in expanses of gated communities and private cars driving huge distances between places of home, study, work and leisure.

This value system is inseparable from the Californian influence. The economy of the state of California is virtually the only modern economy in which public transportation does not play a significant role, even when counting other American states like New York. It’s also no coincidence that one of Cairo’s earliest suburban gated communities is named Beverly Hills, after the famous Hollywood neighborhood.

Measuring the distance between Cairo and California

Fans of disruptive technologies and the technological revolution insistently deny that there is any ideological or cultural content to these technologies, attributing imbalances in geographical distribution to simple historical precedence. In their view, all an entrepreneur needs is an idea, no matter where in the world she or he is, and everyone enjoys equal chances of transforming their idea into a viable business at low cost. It is assumed that software and app design projects do not require decades of capital accumulation, with companies like Apple, Google, Orange and Vodafone shouldering the responsibility of making the infrastructure available and clearing away bureaucratic obstacles. In theory, the only difference between Uber and local companies is who got there first — as long as the Egyptian company comes up with an idea that successfully solves a real problem.

It’s not hard to see where this myth breaks down. If it really were true that all it takes is an idea, and that the early bird gets the worm, then Uber would never have stood a chance: Uber didn’t invent the mechanisms of the sharing economy, and nor was it the first to pair them with private vehicles to create an alternative to taxis. Uber offers virtually nothing new or unique by comparison with its competitors and antecedents, other than a business strategy that consists of saturating the market and crowding out competitors using methods of questionable legality.

Even the mantra that a product must offer a solution to a real problem is a myth. Cities like Paris and New York enjoy functional, punctual high-quality public transport systems with good geographical coverage, and their taxi services do not provoke the widespread dissatisfaction that is the case in Egypt. The question is not, therefore, one of problems and solutions. Nevertheless, Uber has penetrated the market in both places with enough ferocity to threaten the livelihood of taxi drivers, and enough insistence to tempt governments to abandon their commitments to maintaining public transport systems — especially since transport employees have hitherto enjoyed a powerful negotiating position, thanks to the impact of industrial action in the transport sector on other sectors of the economy.

If chances were truly equal, we would have seen successful apps and services emerging around the globe in countries that have contributed significantly to the development of information and communications technology. Yet, neither Western Europe’s leading role in the development of the Internet — nor Scandinavia’s in the case of mobile phones, South Korea’s in the case of networks, or Japan’s in the case of electronics — are reflected in lists of most-used apps. American states other than California scarcely feature either.

The Silicon Valley model is based on the presence of a huge reservoir of capital that effectively changes the rules of the market. Exempting companies from the imperative of profit-making, provided they achieve steady and rapid growth, it operates on the principle that expanding the customer base and increasing its dependence on the service represents a value added that can be converted into capital at a later stage. Under this model, the investor does not make their return from the company’s profit distribution but from the proceeds of its sale, at many times the original investment, to a larger company, which takes on the task of transforming it into a profitable concern (or even offsetting continuing losses against tax deductions, as was the case with the sale of Instagram to Facebook, for example). Alternatively, the investor may make their return when the company is put on the stock market, the share value having risen to reflect the company’s share of the market, rate of growth and value added, regardless of the operating costs or difficulty of making profits.

The secret of Uber’s success is quite simply a vast injection of capital that shields the company from the massive losses it suffers year after year after year. Uber is currently not profitable, and nor does it need to be — either now or in the medium term. Its financing permits it to flood any market where it encounters competition or resistance, for example by awarding bonuses to drivers to tempt them away from competitors; to mount influential marketing and public relations campaigns, including those targeting decision-makers; and, most importantly, to expand rapidly into new markets without the need for lengthy deliberation over profit and loss projections. Particularly worrying is Uber’s financial ability to weather legal challenges from competitors, drivers, customers, local governments and civil society, and to extend litigation processes into wars of attrition that are ultimately settled out of court before binding verdicts are reached and definitive precedents set.

At a certain stage in this model, rapid growth simply becomes monopoly. This is due to what is known as the network effect, which dictates that a new driver will prefer Uber to its competitors, due to its extensive consumer base — the same goes for customers — and that Uber’s reciprocal customer-driver rating system will become more reliable as the number of users and rides increases.

Withstanding losses at the launch stage and attempting to gain a foothold in a new market are normal behaviors for any capitalist enterprise. Yet, forking out to cover vast losses for an extended period of time in order to achieve market dominance is more commonly known as flooding the market” and “attempted monopoly.” Pumping so much capital into a sector that it doesn’t need to be profitable, meanwhile, is usually called a “hidden subsidy,” and is generally understood to damage competition and distort markets. If an Egyptian company dealing in material commodities (a food manufacturer, say) used a similar strategy to enter a European market — flooding it with subsidized goods in order to crush competition and achieve a monopoly — it would be blown out of the water. But Silicon Valley companies go on endlessly paying off their losses, even after their customer base has grown to hundreds of millions.

Economies far more advanced than ours are struggling to block or compete with the California model, despite the widespread popularity of policies to encourage entrepreneurs and startups. How on earth, then, is a country like ours supposed to manage?

Germany, for example, is attempting to compete by encouraging banks to invest in the software and app market by facilitating credit for startups. This is based on an acceptance of the risk that many companies will fail, in the hope that a single success story will compensate for the losses of dozens of others.

China might be the only country which has succeeded in shielding its economy from Silicon Valley’s attempts at disruption, and in supporting local companies that offer alternative services. China has employed the same mechanisms to encourage industrialization: protectionist policies and extreme constraints on which foreign companies are allowed to enter the market and in what sectors, with a long list of conditions that must be adhered to (Mark Zuckerberg spends much of his time in China attempting to convince authorities to allow Facebook a look in). This strategy mirrors the import substitution policies adopted by post-colonial states in the early stages of industrialization — to which must be added, in the case of the information sector, an authoritarian urge for total control via constraints on freedom of opinion and expression.

Given that we are probably not planning on reforming our development policies, upgrading our infrastructure, improving our education system, encouraging personal initiative, respecting public freedoms, or even replacing imports, and given that the only political tendency we share with China is authoritarianism, then it’s probably best we all put our worries to one side and learn to love Uber.

Things will get better when Uber replaces drivers with self-driving cars, making the trip to university cheaper; it’ll be better yet when they get rid of the trip to university because they’ve gotten rid of universities themselves, and you can study with Khan Academy from the comfort of your own home. And then it gets even better, because next they’ll do away with the drive to work and have you doing piecework from home in a flexible, sharing-based labor market — and better still when they send you off for early retirement because you’ve been replaced by a robot.

Just don’t forget to turn the AC on — fuel is subsidized, and the subsidies have to reach the people who deserve them.

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Alaa Abd El Fattah 
Alaa Abd El-Fattah is webmaster of Panorama, but is better known as an Egyptian blogger, software developer, and political activist. He is known for co-founding along with his wife Manal Hassan of the Egyptian blog aggregator "Manalaa" and "Omraneya", the first Arab blog aggregators that did not restrict inclusion based on the content of the blog.