The Logic of Uberreaction

I recently made up a word: uberreact. To uberreact is to  insist that regulations which exist for the benefit of  incumbent producers in a market (and their political patrons) are there to protect the interests of consumers. The inspiration for the term, of course, is the very predictable pattern of response by taxicab companies when Uber enters a market. Here’s a particularly clear example from London, where the taxicab union is arguing that Uber drivers should be required to have licenses to act as booking centers (rather than just driver’s licenses), since they operate under minicab laws:

“It’s like when you buy a saucepan online and you use PayPal to pay for it. Your transaction is with the guy you bought the saucepan from, not with PayPal,” McNamara told Wired.co.uk. “With Uber, the guy taking the booking is the operator and so needs a license and a licensed operating center which can’t be a car…One day there’ll be a major accident in one of these cars and there will be a multimillion pound claim and an insurance company will look at it and say that the hiring didn’t take place through a licensed operating center so it won’t be insured,”…

Bertram [Uber UK GM] points out that the intention of the law is to protect passengers and that there are many public safety measures that technology like Uber’s can bring. “The point of knowing who accepts the booking is so that there’s traceability. We have the name, photo and registration of the driver, you can share a live map of the journey with family and friends and get a full copy of the details in a receipt.”

The taxicab union argument against Uber conflates the principle of protecting the consumer interest with a specific technology-dependent mechanism for doing so, and Uber representatives very reasonably offer the counter-argument that their technology actually offers many improvements towards the intent of protecting customer safety.

But what is curious here is why both the taxicab unions and Uber seem to have tacitly agreed to talk about customer safety rather than what the rest of us assume is the issue: suddenly devalued million-dollar medallions and jobs under threat.

A composite taxicab union position across the many cities the battle between taxis and rideshare can be summarized as follows:

Customers aren’t informed or competent enough to make judgments about safety, and as experts we know what’s best for them, and we’re selfless enough that that’s the only reason we’re resisting. We’re not against fair competition.

The rideshare industry’s position can be summarized as follows:

Customers have all the information and competence they need to make judgments about safety, and we’re offering them more choices. We’re even willing to work with taxicab companies. We’re not trying to put them out of business.

Effectively, the taxicab industry claims they are more selfless than they are being credit for. The rideshare industry claims the market for cab-rides is more efficient than it is being given credit for.  Each is constructing arguments designed to co-opt the interests of the silent majority in the picture: consumers. Let’s call the former the saint position and the latter the trader position.

Saints appeal to consumer insecurities and are vulnerable to the charge of paternalism and overstating the importance of their own expertise. Traders appeal to consumer overconfidence and are vulnerable to the charge of pandering to consumer vanities about their own amateur judgment.

Obviously, neither claim is either completely specious or completely believable. In fact, the nice thing about this framing is that in nominal terms it is actually a very good one. If this were all we were actually talking about, the frame creates a pretty even contest, with a high likelihood of generating outcomes that maximize customer welfare.

But unfortunately that is not all we are talking about, so we have to ask why the two parties choose the battleground of consumer competence and information levels at all.

Golden Snitch Markets

A little thought reveals why neither side bases arguments on jobs, at least not as a central tactic. For taxicab companies to argue for job protection first over customer value would seem both selfish and undignified in the sense of effectively asking for subsidies or handouts.

On the rideshare side, to directly challenge the saint position with an accusation of protectionist/rentier hypocrisy would invite counter-accusations of hidden corner-cutting, downplaying of real risks to mislead customers, and either profiteering or predatory pricing.

Either pattern of argumentation would leave consumer opinion on the merits of arguments dangerously uninfluenced. Consumer opinion has to be brought into play wherever it is a factor because for long-term outcomes, it is the biggest factor, like the Golden Snitch in the Harry Potter game of Quidditch. Neither side wants it to be a coin-toss, and both sides believe that they can end the game by winning the Snitch if they’re smart (there are of course, back-end battles in non-consumer industry sectors where the game has no Snitch except the weak one of environmental damage). So consumer markets are Golden Snitch markets.

A secondary reason of course is that every incumbent was once a challenger on the offense, and every challenger might one day become an incumbent on the defense. The taxicab industry once disrupted the horse-drawn carriage industry after all. So whether they consciously realize it or not, businesses of any sort instinctively avoid undermining arguments they might need to use themselves in other battles or at other times in their life cycle. So saints never directly question the legitimacy of trade, and traders never directly challenge claims to sainthood.

As a result, even though there is clear moral hazard on each side that the other could conceivably attack, both sides avoid using those openings, because to do so would be to put the Golden Snitch out of play as a random game-deciding factor.  So it makes sense that at least the nominal, on-the-record arguments are based on benefits to consumers.

Uberreaction patterns exist to ensure that consumer opinion is turned into a predictable force by being taken away from consumers themselves.  Each side hopes that by bringing it into play on their terms, they might win on the basis of greater skill at influencing it rather than letting it turn into a coin toss.  Note that where consumer advocacy organizations get involved in such cases, they represent a fourth party which is typically allied with one or the other side. Consumers are too numerous, and with too little individual personal incentive to organize in any way that is invulnerable to regulatory capture by one or the other side.

And of course, neither side questions the legitimacy of marketing and PR employed to sway consumer opinion and influence regulators and politicians through lobbying, because both sides typically need those mechanisms to bring broad consumer opinion into play in a narrow game. To go by the official position, you’d think lobbying, marketing and PR don’t exist at all. Though saints may sometimes rail against big-money, high-powered marketing by traders, they don’t rail against marketing itself in an unqualified way, since that would undermine their more pious, organic, free-range, grassroots, word-of-mouth campaigning style. Though traders may sometimes rail against saintly marketing patterns as socialist scaremongering and propaganda, they also don’t question marketing itself in an unqualified way.

Not only do both sides need marketing, they need fast marketing, because they need to co-opt consumer opinion to force an outcome quickly, before consumers realize a power struggle is in progress. Both disruptor and disruptee also need to force the pace because they have put themselves into an unsustainable race. The disruptor needs to win before running out of money to fight. The disruptee needs to win before losses accumulate to business-killing levels. Delay in a decisive outcome of course doesn’t hurt customers as long as both players are on the field, offering more choices.

By the way, in case you didn’t notice, this makes me a meta-saint-trader above it all, since I advocate slow marketing.  I am the only one who is actually looking out for all you guys.

You see the same uberreaction pattern in all Golden Snitch markets. In each case, a rhetorical saintly reaction to a trader attack on a market sets the agenda, and a rhetorical trader reaction validates it by not directly challenging the claim to sainthood. If it weren’t for the fact that disinterested parties usually step in to call bullshit, you’d end up believing that:

• K-12 education debates are never about teacher pay or job security. They are always about the “welfare of our children.”
• Higher education debates around MOOCs are never about the cushy institution of tenure and a scholarly sense of entitlement to self-indulgent “research.” They are always about noble and thankless stewardship of cultural capital for all, the presumptive importance of basic research or the unique enlightenment and liberation into Buddha-hood that only physical campuses can provide.
• Healthcare debates are never about  how lucrative the healthcare professions, the pharmaceutical and insurance industries and litigation against all three and can be. They are always about misunderstood self-sacrificing individuals and organizations looking out for patient welfare.
• Net neutrality debates are never about the political and cultural power of a particular class of early Internet users with very specific political positions. They are always about selfless warriors fighting thanklessly to protect political freedoms and flawless, impossible-to-improve technological architectures for all.

The trader reaction in each case is the same, so we need only state it once: for any issue X, the market is complete enough, and consumers competent enough, that it is insulting to assume the unwashed masses need saints looking out for them. Consumers are all thoughtful, rational decision-makers who cannot be manipulated, exploited and trapped into addictive patterns of consumption behavior, or have their market participation influenced by clever marketing.

Old Expertise Fences versus New Expertise Fences

But there is a deeper problem here. Both saints and traders want consumers to believe that they are better stewards of consumer welfare than consumers themselves.  A majority of them are even sincere in this belief. Both ultimately want consumers to remain consumers on the wrong side of a fence of expertise. They just differ on what the fence should be built around.

Saints are trying to expand, or resist the contraction of, an existing expertise fence.

Traders are typically involved in constructing new fences of expertise around a new class of experts, a project that they hope doesn’t invite too much attention.

In the case of the ridesharing industry, the new experts are the logistics experts who program and tune the algorithmic dispatching platforms, and pricing experts who design the surge-pricing mechanisms.

I suspect that if these platforms mature and an open-source project attempts to create an open dispatching and surge-pricing platform with consumer-grade controls, Uber and its peers will likely leap to defend their own expertise with saintly vigor and hidden shadow-boxing with patents. They will likely argue that the open-source platform is unreliable and that the consumer-managed dispatching/pricing platform opens up dangerous systemic vulnerabilities because any random person might modify the code to suit themselves.

If an unexpected party brings driverless cars to the market first, you can expect the safety debates of today to be rehashed (though there is a decent chance that one of today’s ridesharing incumbents will crack the driverless cars market as well, sparking an internal civil war rather than an external sector disruption).

The only reason you don’t see the saints of today’s battles using this tack too much is that they don’t  offer a better alternative. At best, they are reduced to demanding regulation of the emerging class of experts. This is ultimately a self-defeating move that can at best buy some time, since it acknowledges the legitimacy of the new technology.

And so it goes. Young traders defending consumer competence and awareness on the turf of existing experts, turn into aging saints arguing that consumers need to be protected when it comes to their expertise.

The good news is that with each new chapter, a little bit more power does in fact leak out and empower consumers. The bad news is that this does not guarantee that the (vigorously contested) baton-passing process from one class of experts to another does not accumulate power even faster.

That we are seeing a gradual process of absolutely increasing consumer empowerment is unquestionable. Whether we are also seeing a process of relatively increasing consumer empowerment is very questionable.

There is a serious possibility that elite, small new classes of new experts with snowballing powers  are aggregating a great deal more power than whatever additional power is accruing to consumers by way of dismantled old domains of protected expertise. If it exists, this Morlock-Eloi divide — between the technological 1% who control critical platforms vs. the less-technological 99% who inhabit the ecosystems around the platforms — is probably the most critical issue of our times, ahead of income or wealth inequality.

I’d like to see an r>g inequality analysis for that kind of capital.