Taxi Drivers are Uber F***ed


Everybody loves Uber right? Since its inception, Uber has taken the world by storm and revolutionized the taxi industry around the world. Instead of walking around looking for a cab, or having to call hours ahead of time to make sure a cab is ready you can now just whip out your phone and have one there in about 5 minutes. One landscape where Uber has had significant impact is in cities, in particular, New York City. Uber has changed the way that you travel in New York, there is no need to ever hail a yellow cab as an Uber is always minutes away, often times it’s even cheaper to take an Uber than a yellow cab. Uber has created many opportunities not just for travelers, but for their drivers as well. Uber does not require the purchase of a medallion to operate and it pays drivers a much higher percentage of the fare than yellow cabs. So it is clear that Uber drivers and everyday travelers are positively effected by its implementation, but what about iconic yellow cab drivers?

There is another financial bubble bursting in the medallion loan sector and it is only due time before thousands of immigrants are pushed out of their cabs and out of their homes. In order to operate a New York City taxi cab you must own a yellow medallion, which permits you to run a taxi service in the five boroughs. A taxi medallion in 2013 cost about $1.1 million; due to its high value many financial products were created around it in order to make it easier for immigrants to obtain a medallion and start earning a living. Medallion loans were given out left and right as the value of these medallions continued to increase because cab fares and city population grew. Since the introduction of Uber, however, the value of a medallion dropped to about $700,000 in 2015, which is worth even less now. This caused a crisis for medallion lenders and borrowers. The value of owning a cab decreased to less than the amount originally lent for the medallion. Medallion values decreased as more and more drivers became delinquent due to the introduction of Uber’s friendly user interface and competitive pricing. This financial fiasco is very similar to that of the housing bubble in 2008’s financial crisis. What is different here is that the original value of a medallion was always there as opposed to the incorrectly valued Mortgage Backed Securities. Also, In this case the banks aren’t the bad guys, Uber is.

The list of those effected by the medallion crisis includes high-profile lenders such as Melrose Credit Union who reported a $2.5B portfolio of medallion loans, Taxi magnates like Gene Friedman who own hundreds of medallions, and individual borrowers. Individual borrowers were definitely hit the hardest as no one foresaw the outbreak of Uber especially with the rising price of medallions. Uber cut deeply into a yellow cab’s ability to make money as they stole customers and pushed the value of medallions into the ground. One such taxi driver, Alaa Khalil, spent 10 years driving a cab for a cab company until, in 1994, he was able to purchase his own medallion for $178,000. In an interview, he states,   “people are waiting with their iPhones on the street and they never hail us anymore… I’m in financial crisis now, I stop paying all my credit cards, what if I lose this house- what about my kids?” While Khalil purchased the medallion for a fraction of today’s price, he refinanced at least 3 times, taking luxurious vacations and using the cab as collateral on another $300,000 loan. He fears that his cab will be taken from him as he is struggling to pay next month’s balance on his medallion loan.

As a New Yorker, I take a lot of cabs and only realized the negative impacts of Uber after an insightful conversation with a driver this past summer. On a trip to a friend’s house one evening, I curiously asked my driver what his opinion of Uber was. He quickly retorted, “I hate Uber.” As I continued to speak with him I began to understand Uber’s adverse effects on medallion prices. Suddenly, the conversation took an unexpected turn. The driver explained that as an immigrant it is hard to show the proper credit history required to obtain a loan, so him and other immigrants in need of cash heard of an easier way to obtain financing. My driver and others he knew turned to the local mob for a medallion loan. This was in 2012 when medallion prices were constantly rising so the risks did not seem that prevalent. I was shocked by this realization and our ride ended with him saying something I’ll never forget, “Uber isn’t just going to cause a drop in the number of taxis, it’s going to cause a drop in the number taxi drivers.”

With these facts in mind, I ask you to take another look at Uber. Should they be allowed to operate the way they do? Why have these issues gone largely unmentioned? Does Uber owe some responsibility to the medallion owners? From a variety of ethical perspectives, Uber can be seen in both the right and wrong light. With the utilitarian perspective in mind, Uber is increasing the happiness for every traveler in the United States, not just in New York City where the cab business is particularly lucrative. From this perspective it would be ethical for Uber to continue its operations as the number of travelers vastly outnumber the amount of taxi drivers on the road. From a consequential perspective, we are providing a greater end for travelers who use Uber, however, there are many negative consequences for medallion lenders and borrowers. Consequentialism points to the idea that all people should be treated equally and, in this case, the harm caused to individual taxi drivers is way worse than the general pros of using Uber. Sure, Uber provides more jobs and makes travel easier but with consequentialism we are supposed to provide for those in need before helping ourselves. Using Uber is just like helping ourselves (making travel easier) before helping those in need (giving taxi drivers the ability to make a living). From a deontological perspective, Uber should perform the actions that it ‘ought’ to do, regardless of consequences. In this case, there is a huge trade-off between convenient travel and the ability to provide for one’s family. In terms of treating people as ends in themselves, I do not think that Kant would approve of the taxi business. Drivers use customers as a means to make a living and customers use drivers as a means to get to a destination. Kant might just tell people to get to their destination by walking.

In a recent lawsuit filed agaisnt Uber, Melrose Credit Union claimed that Uber’s black cars violate city laws of what types of vehicles are allowed to be ‘hailed’. Uber’s defense stated that an ‘E-hail’ is a prearranged ride and not an actual ‘hail.’ For this reason, Uber won the court case and is allowed to operate with a limited number of cars in New York City. This ruling is good for Uber and for public travelers but horrible for taxi drivers. I can understand the court’s ruling as they exist to give a voice to the public, not solely to taxi drivers. This solution seems to stem from a utilitarian perspective.

Overall, I think this is an issue that needs to be further discussed and brought into the national spotlight. As a result of its lack of notoriety it was hard to choose only a few cases to highlight the issues with Uber. The cases above are just a taste of the true difficulty that Uber has caused. I am curious to see where this issue leads us in the future, especially as a resident of New York City, I wonder how much longer I’ll be seeing yellow cabs on the street.

 

Sources:

http://www.crainsnewyork.com/article/20150908/TRANSPORTATION/150909915/credit-unions-face-bloodbath-from-medallion-owners-smothered-by-uber

http://nypost.com/2015/03/16/taxi-kingpin-in-debt-thanks-to-uber/

http://www.amny.com/transit/nyc-yellow-cabs-lose-legal-battle-to-uber-taxi-apps-1.10825964

Video: https://www.youtube.com/watch?v=n0yLhlQ6kCQ

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8 thoughts on “Taxi Drivers are Uber F***ed

  1. I think you’re right about the court ruling (and most policy decisions) using a utilitarian analysis of the situation, we find that that is common and probably for the best in many cases. It’s tricky though to say that the courts can use this ethical theory but companies should consider Kant’s thoughts on what ought to be at the same time – I don’t know that it’s fair to have that standard. When industry competition nullifies some old way of doing things, the burden is usually on those who were in the “old mousetrap” business to adapt, and I think that will definitely happen if Uber is growing as much as it seems, but I wonder if some win-win might be achieved, such as incorporating current taxi drivers into Uber’s model? Offering training? Etc.

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  2. I agree with Josiah’s point about the fault in the taxi companies. I believe that the taxi companies cared too much about controlling their market share and less about the customer. They had the ability to modernize their technology, but Uber was able to do it first. A large reason why I and many other people take Uber is because the driver cares about what you think of them. If you didn’t enjoy your ride then you can give them a bad rating. With taxi drivers, they don’t care about what you think of them, all they care about is getting you from point A to B. Furthermore, the fact that there is a glass shield protecting them from the customer creates even more disconnect. I do feel bad for the people that have spent their life savings on these medallions, but the issue is that it is the taxi companies fault. They were the ones that failed the customers and their employees.

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    1. Peter thank you for your comments; I didn’t even think of the issue from this perspective. You’re absolutely right that Taxi companies locked themselves into this situation by seizing control of the market share. It is clear that the TLC sacrificed updated technology in order to continually increase cab fares without increasing operating costs. There was no way that they could forsee the rise of uber and automated taxi services, or was there? I think this is another example of society becoming so used to the way things are in the present that the concept of change is foreign to them. At the rate that technology was improving, it was only natural that a substitute for our taxi service system would emerge. The taxi companies can be seen as ignoring this phenomenon in light of the expected growth in value of medallions and unforeseen end to the yellow cab business. For similar reasons, the financial crisis was caused by brokers and investors who were misled by ideas of never ending equity growth and the complicated concept of MBS. Immigrants knew that they would have consistent business as people always need cabs and they did not understand the complexities of the medallion market. I think the taxi cab industry is more to blame than I had originally thought.

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  3. I really liked this post and agree with both comments. I find it fascinating how selective we can be with our preferences. Everyone loves capitalism and competitive markets until they’re the one’s getting screwed by disruptive forces. And the only real solution is to join the party or be destroyed. NYC recently came out with its own app exclusively for yellow cabs. It works just like Uber. Their creating this app shows that they have submitted to the market forces.

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  4. I think it’s also worth pointing out that there have been safety concerns raised about Uber drivers and how they aren’t always trained drivers that know how to navigate urban settings. When you get into a yellow taxi and give your driver the name of the place of where you are going they can pretty much get there all by memory or recognition of being there before. On the other hand Uber drivers relay heavily on google maps and do not always take customers the safest or fastest route. There is also a point to be made about the history of yellow taxi cabs and how closely they are associated with New York and the tourism that surrounds that sort of culture. Yes, yellow taxi’s are known to be bad drivers, but they are also known for the color of their cab which goes along with the prestige of being in New York.

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  5. Hey Zach, awesome post! You say that from a consequentialist perspective the harm caused to individual taxi drivers is way worse than the general pros of using Uber. By this, you say that the means do not justify the ends. However, is this really true? I am pretty sure that way more people benefit from uber drives around the country than the amount of cab drivers that it is hurting. Just in Manhattan, Uber has millions of customers. As we can see in http://fivethirtyeight.com/features/uber-is-taking-millions-of-manhattan-rides-away-from-taxis/
    , Uber is replacing cabs in Manhattan in a one for one ratio, which means that customers obviously find more benefits in using Uber. Also, while cab drivers are losing jobs, other people are finding jobs through Uber. Would that not mean that the end justifies the means?

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    1. Dan, I understand your point. I was thinking about this when writing the blog but I mentioned that point with the idea that the loss for a single cab driver is worse than the benefit is good for a single consumer. To scale that, the collective loss of all taxi drivers is worse than the collective benefit is good for everyone else. Each consumer has a small added benefit by using uber while each cab driver suffers a tremendous loss. I am not sure if I am communicating this point clearly but that was my thinking at the time.

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  6. Very interesting analysis. I think your choice to simply talk to one person does a lot to broaden your awareness of the issue and its complexities.

    Medallions constrain the supply of private transport. That is a policy choice. Uber allowed people with ostensibly private vehicles to act essentially as a competitor to the enforced monopoly of taxis. I am not surprised this pushed price of a medallion down.

    Is Uber just a taxi service? If so, then it should be subject to the same regulation as taxis, no? Maybe the laws need to be updated.

    Is there pent-up demand for private transport? Seems so given the popularity of Uber. But does that lead to more congestion and traffic as people opt for private transport versus public or walking? Maybe. So, maybe we are better off collectively with MORE expensive transport to push us all towards lower impact transportation.

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