Uber and Lyft don't cover their cost of capital and rely on desperate workers

Uber and Lyft are only economically viable because they offload their cost of capital — the investment and depreciation on cars and the cost of keeping a driver fed and healthy — onto the drivers, who are only willing to accept such a bad deal because the labor market sucks.

Businesses that can't cover their costs of capital are not sustainable without some source of subsidy (like the food-stamps for McDonald's and Walmart workers that we all pay for). If the labor market improves and workers decline to continue to subsidize rideshare companies they'll need to find some way to get the government or the capital markets to subsidize them or they'll collapse.

The market will not miraculously produce a capital replacing living wage. If it does so in any particular market it is happenstance; luck, not social physics.

This is a social action problem; a race to the bottom issue. It makes sense, individually, to race to the bottom. Company execs and investors get rich, consumers get cheaper rides and drivers get money they need. But this isn't win, win, win. It is win, win, lose over the not very long run.

The cheaper wages paid to drivers, and thus the cheaper rides, also drive business with capital structures which make social sense out of business. They can't compete with "drive your car into the ground, make less than minimum wage".

The Market Fairy will not solve the problems of Uber and Lyft
[Ian Welsh]

(Image: Uber Sidecar Lyft, Colin@TheTruthAbout, CC-BY-SA)

(via Naked Capitalism)