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GOP's Uber Men Tout the "Secondhand Economy"

July 21, 2015

During the 2008 presidential campaign, Republican nominee John McCain traveled to Ynez, Kentucky to announce his economic vision in the place where LBJ launched the War on Poverty back in 1965. His solution for Americans struggling to make ends meet? Ebay:

"Today, for example, 1.3 million people in the world make a living off eBay, most of those are in the United State of America."

McCain's ringing endorsement of the online auction giant came as no surprise. After all, among his top economic advisers was eBay CEO Meg Whitman. (Whitman had touted her company as an engine of growth in almost identical terms, telling Leslie Stahl of CBS News, "We have about - around the world, about 1.3 million people make most, if not all, of their living selling on eBay.") And for McCain, who previously admitted that "the issue of economics is not something I've understood as well as I should" and that when it came to computers "I'm an illiterate," eBay provided the populist façade for an economic plan that would have produced a massive tax cut windfall for the wealthy.

As it turned out, few were convinced that America should become a nation of auctioneers selling electronic equipment, antique thimbles or Barbie dolls to each other. Nevertheless, much of the 2016 GOP presidential field is trying to update John McCain's failed strategy by embracing the promise of the "sharing economy." In what many also call the "on-demand economy" or the "gig economy," Jeb Bush, Rand Paul, Ted Cruz and others proclaim, companies like Airbnb, TaskRabbit, Postmates and, above all, Uber show "the unfettered market leading to economic prosperity without the intrusive hand of government regulation."
But that's not the only benefit Republicans see in what they believe is a winning message. They hope to capture more of the votes--and campaign contributions--of the Silicon Valley liberals and libertarians who build the apps, run the services and reap the profits of the sharing economy. Just as important, the GOP is wooing hip, young Millennials who are both the cutting-edge consumers and a large chunk of the part-time workforce that share their cars, apartments and so much else. Perhaps best of all, the Uber Menschen of the GOP have their future-sounding, forward-looking misdirection to distract voters from the Treasury-draining, gilded-class tax cuts they have once again promised.
But there is a major risk to the GOP's foray for freelancers beyond Bush family gaffes like "people need to work longer hours" or working three jobs is "uniquely American." Sometimes, dramatic market disruptions and rapid technological innovations don't produce widely shared improvements in the standard of living, but instead accelerate existing problems and create new ones. A growing, free agent workforce working multiple gigs in a week--or even in a day--without benefits or a safety net cannot be the future of the American Dream. Without the public investments in 21st century education, infrastructure and economic security, the sharing economy could become simply the Second-Hand Economy. Which is why Republicans are confusing their cure for what ails the American economy for a symptom of the disease.

For almost five decades, the United States has failed to address its number one domestic priority. In a nutshell, jobs--good paying, often unionized jobs that once enabled millions of working Americans to join the middle class--have disappeared. The cities that once powered the "arsenal of democracy" to victory in World War II and fueled the prosperity of the 1950's and 1960's were battered by global competition and technological change. In Detroit and Cleveland, St. Louis and Buffalo, Baltimore and Pittsburgh, the pattern is eerily similar. After reaching their peaks in 1950, the cities generally enjoyed a post-war boom that lasted into the early 1960's. But as recovering competition from Europe and Japan was joined by manufacturing losses to developing economies, the 1970's saw the dramatic contraction of America's manufacturing powerhouses.
That tragedy is reflected in the list of the companies with the largest American workforces in 1955 and today. In the 1950's, the Big Three automakers represented two of the top five employers in the country. But sixty years later, GM, Chrysler and the other industrial heavyweights were a shell of their former selves. U.S. Steel had 268,000 workers in 1955; by 2014 the number was down to 43,000. In their place, low-paying retail giants, national grocery store chains and fast food brands like Wal-Mart, Target, McDonald's and Kroger top the list:

Even a glance at the top revenue producing companies in each of the 50 states doesn't provide a true picture of the transformation of the American economy. As The Atlantic showed in "Where Did All the Workers Go? 60 Years of Economic Change in 1 Graph":

Manufacturing and agriculture employed one in three workers just after World War II. Today, those sectors employ only one in eight.

As a result, after Wal-Mart the top employers in each state are dominated by government, education and health care institutions. As Time summed it up:

Wal-Mart is the only company to claim the top employer spot in more than one state. In fact, the nation's largest retailer employed the most people in 20 states.
Educational and medical institutions also frequently top a state's list of employers. The most common largest employer across the 50 states, after Wal-Mart, was the state's university system. Educational services dominated statewide employment in 13 of the states. The largest employer in 11 states was health care and social assistance institutions.

The staggering contraction of the American manufacturing sector, which accounted for almost 30 percent of GDP in 1950 but just 11 percent by 2009, brought with it the collapse of private sector union membership. As the Bureau of Labor Statistics reported in January:

In 2014, public-sector workers had a union membership rate of 35.7 percent. That was more than five times the rate for private-sector workers, 6.6 percent. Ten years earlier, the union membership rate for public-sector workers was 36.4 percent, and the rate for private-sector workers was 7.9 percent.

Overall union membership, which topped 30 percent in 1950 and 20 percent in 1983, now barely tops 10 percent. Combined with the decline in collective bargaining and the reduction in effective tax rates for the wealthy, these trends have had a dramatic impact on wages and total compensation for American workers. Since 1973, hourly wages have stagnated while the well-to-do captured almost all of the benefits from four decades of productivity gains. And the Economic Policy Institute reported, since 2007 only those in the 90th percentile and above have enjoyed any gains in wages and total compensation.

Compounding workers' woes is the transformation from "guaranteed benefit" to "defined contribution" compensation. The days of worker pensions have been replaced by 401k retirement plans to which employers may-or may not--make a matching contribution. At the same time, for years employers have dramatically shifted health care costs to their workers, or dropped coverage altogether. (The rising rates of uninsurance and underinsurance were, after all, the most important reasons why Democrats pursued the Affordable Care Act in the first place.)
Making matters worse, young college graduates--especially women--earn a lower hourly wage now than they did 25 years ago. Even in the age of high-profile startups gone big like Facebook and Twitter, the Millennials have the lowest rate of entrepreneurship in decades despite being the best educated generation in American history. Their staggering college debt load, lower pay and entry-level job opportunities battered by the Great Recession have left the "Post-Ownership Generation" without the capital, experience and contacts to start businesses of their own.
That's why the "Gig Economy" of Airbnb, Lyft and ZipCar represent more of an evolution than a transformation of work in the United States. Uber, whose own employees number only 4,000 compared to its 160,000 drivers, provides a new platform and novel distribution network for outsourcing and contracting trends underway for years. As the New York Times explained:

Even before the founding of the company in 2009, the United States economy was rapidly becoming an Uber economy writ large, with tens of millions of Americans involved in some form of freelancing, contracting, temping or outsourcing...
The number for the category of jobs mostly performed by part-time freelancers or part-time independent contractors, according to Economic Modeling Specialists Intl., a labor market analytics firm, grew to 32 million from just over 20 million between 2001 and 2014, rising to almost 18 percent of all jobs. Surveys, including one by the advisory firm Staffing Industry Analysts of nearly 200 large companies, point to similar changes.

But in the new sharing economy, workers are capitalists without profits, using their computers, their cars, their apartments--their assets--to provide services from which the mobile app vendors will profit. And in this new world of work, their compensation has evolved from "guaranteed benefits" to "defined benefits" to "no benefits."
That the sharing economy provides hundreds of thousands of Americans with the freedom to work when and at what they want is unquestioned. That many earn badly needed income as virtual taxi drivers, delivery persons and hoteliers goes without saying. That millions benefit from competition with the traditional taxi, lodging, dining and other industries is a huge benefit to consumers, if not the "legacy" companies with huge sunk costs in facilities, licenses and capital equipment. (Studies over the past two years have shown that Airbnb is cutting into hoteliers' revenue, and making the San Francisco housing crisis worse.) That's why Republican pollster Kristen Soltis Anderson crowed:
"[Uber] created this poster child example of what happens when the status quo uses government regulation to keep competition out of the market. It doesn't feel ideological, but it creates this example for what Republicans have been saying all along."
But that's only part of the story. In a major economic address this week, Democratic presidential candidate Hillary Clinton provided the rest:

Meanwhile, many Americans are making extra money renting out a spare room, designing websites, selling products they design themselves at home, or even driving their own car. This 'on demand' or so-called 'gig economy' is creating exciting opportunities and unleashing innovation but it's also raising hard questions about workplace protections and what a good job will look like in the future.

In their recent Democracy Journal article "Shared Security, Shared Growth," Nick Hanauer and David Rolf offered a blueprint for reconciling the potential and the pitfalls of the sharing economy. In it, they shine a spotlight on the "hard questions" Clinton cited, using the example of Zoe, a woman in her late 20's who has worked at a Denver hotel for five years. Nevertheless, she has no choice but to supplement her income in the gig economy. Her career, they explain, looks nothing like the lifetime job and solid benefits her parents could take for granted:

But for Zoe's generation, this contract no longer exists. The hotel that employs her views her paycheck as just another operating expense to manage and to trim, while the clients she services via UberX and TaskRabbit and Airbnb do not view her as an employee at all. Zoe works longer hours than her parents ever did, but she earns no time-and-a-half overtime pay, accrues no sick days or vacation days, and accumulates no pension or 401(k). And in the "sharing economy" that is frequently proclaimed to be the future of work--an economy of work, but not "jobs"--Zoe and her cohort are even denied the unemployment and workers' compensation insurance that have composed the barest threads of our social safety net for the last hundred years.

In response to that increasing anxiety and uncertainty for America's shrinking middle class, Hanaeur and Rolf propose a "21st century social contract." At the heart of that new American bargain are two pillars supporting the workforce of the new sharing economy:

We propose a new Shared Security System that endows every American worker with, first, a "Shared Security Account" in which to accrue the basic employment benefits necessary for a thriving middle class, and second, a new set of "Shared Security Standards" that complement and reinforce that account.
One can think of the Shared Security Account as analogous to Social Security, but encompassing all of the employment benefits traditionally provided by a full-time salaried job. Shared Security benefits would be earned and accrued via automatic payroll deductions, regardless of the employment relationship, and, like Social Security, these benefits would be fully prorated, portable, and universal.

In their proposal, workers would earn both mandatory benefits (sick days, paid vacation leave, health insurance contribution, matching 401k contribution, etc.) from their employers on an hourly or piecework basis. Workers would also be eligible for workman's compensation, unemployment insurance and family leave. (Whether the Shared Security Accounts are managed by the government or non-profit organizations akin to the old Blue Cross or some other mechanism is TBD.) In addition, Hanauer and Rold call for increasing the minimum wage and adjusting (as President Obama just did by executive order) the threshold for overtime pay.
For Democrats, of course, this kind of updating of the American social contract to meet the needs of workers in the new sharing economy. Just as the first Progressive era was required to rein in the excesses of the robber barons of the late 19th and early 20th centuries, so too will a new Progressive response be needed to head off the looming dangers of this new Gilded Age. Candidates like Hillary Clinton, Bernie Sanders and Martin O'Malley shouldn't limit themselves to investing in the sectors, infrastructure and education for the 21st century American economy. As with Obamacare, Democrats should lead in reversing the "Great Risk Shift" that has moved more and more of the burden--and uncertainty-- for education, health care and retirement fully onto the shoulders of lower and middle class Americans. As Catherine Rampell explained the challenge back in January:

It's easy, but probably unproductive, to feel nostalgic about the good ol' days of welfare capitalism. The disintegration of the corporation-centered safety net looks likely to continue. The challenge is to develop policies that mitigate some of the greater risks and sources of instability facing workers, whether as Lyft drivers or temps, especially since we know from behavioral economics that individuals tend to be really bad at managing risk on their own.

As for the Republican field, they certainly don't feel nostalgic or anything else about the dangers of the sharing economy. Kentucky Senator Rand Paul tweeted that "@HillaryClinton's ideas about Uber and Lyft are out of touch. We need more innovation, not less." Texas Senator Ted Cruz has even compared himself to Uber, proclaiming "What I'm trying to do more than anything else is to bring a disruptive app to politics." Jeb Bush, who is now running "Hillary vs, Uber" ads on Google, turned his first Uber ride into a photo-op on Friday. He probably wishes he never used the app, and not just because his 35 year-old driver Munir Algazaly said he would probably support Secretary Clinton for President. As the New York Times reported:

Vladimir Kravets, 24, from Ukraine, who was been driving for Uber for three months, said he likes the extra money, which supplements his other job at a roofing company, but "it's not so easy, because Uber charges like 30 percent."
"If you want to make good money, you need to spend a lot of time driving here," he said.
And Luis Luna, 48, who has been driving Uber for about four months, said he hoped "in the future that we might have some benefits, instead of just being contractors."
"It would be great to have regular benefits, basic benefits," he said. "Pretty much regular benefits, like health care."

There's no chance of that happening if the Republicans win the White House in 2016. (In cases in Florida and California, state labor commissions disagreed in ruling that an Uber driver is an employee, not an independent contractor.) The GOP White House wannabes have already shared their message. Tax rates for the rich are going to come down and, if possible, disappear altogether for the capital gains, dividends and estates that ensure dynastic wealth--inequality. And if the on-demand workers of the sharing economy want things like sick days or health insurance, they'll just have to "work longer hours" using their own cars or by renting out their own apartments. Or, if worse comes to worst, they can always sell their old second hand shit on eBay.
Just like John McCain said.


About

Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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