Proposition 22's Victory Shows How Uber and Lyft Break Democracy

Hours after Californians voted to pass Proposition 22, a ballot measure aimed at evading new labor protections that would force gig companies to reclassify their workers as employees, the law’s authors were already reaping the fruits of their unprecedented campaign.

Of the $203 million spent by the Yes on Prop 22 campaign, some $57 million was contributed by Uber and another $49 million by Lyft. By Wednesday morning, news of the results had rapidly increased the ride-hail companies shares prices and valuations by tens of billions of dollars in premarket trading. Uber saw a return on its spending of nearly 19,300 percent, while Lyft saw a more modest return of around 3,670 percent.

The methods through which this was achieved were, in a word, dirty. Yes on Prop 22 spent millions on misleading “progressive” voting guide mailers, sent out chief executives on media tours, and paid $85,000 to a firm run by the leader of California’s NAACP chapter in a bid to paint themselves as champions of racial justice. The campaign made misleading claims about wages and worker flexibility, and Uber and Lyft weaponized their popular apps to push Yes on Prop 22 propaganda to customers and drivers alike. 

To recap: corporations with some of the most exploitative labor practices in existence wrote a law to crush labor, spent hundreds of millions of dollars to create propaganda to convince (or, failing that, mislead) voters, won, and saw massive returns on their spending as stock prices rose. This sort of flagrantly anti-democratic behavior is normal for corporations in America, where they are empowered to write their own laws and buy support for them among the public. 

Ballot measures have long been used by groups of business lobbies or ambitious corporations to squash regulations or kill the competition. Telecoms are familiar with this tactic, spending big in Illinois and Colorado to kill ballot measures that sought to build municipal broadband utilities, even sending misleading mailers to voters similar to Yes on Prop 22. When sabotaging ballot measures has failed, they’ve also launched legal challenges to defend their monopolies from local competitors.

It should come as no surprise that gig companies like Uber would degrade democracy like they have with Proposition 22, because that is what they have always done. 

For years, gig companies but in particular Uber have grown fastest when they have disregarded the law the most. Uber’s strategy of asking for forgiveness, not permission, has emboldened it to ignore every law it doesn’t like, whether those laws deal with safety standards, labor conditions, worker compensation, or regulatory oversight. Uber has left cities that tried to implement basic due diligence under the belief that such regulation would slow down growth. It has covered up sexual violence on its platform, and relaxed verification standards in countries where cash-only transactions make drivers moving targets. The costs have been immense for the public—breaking these laws means both riders and drivers have had to deal with rampant corruption overseas, sexual assaults, injuries, deaths, and suicides.

The ruthlessness with which the gig companies have sought to achieve their ends makes some sense if you consider that Uber and Lyft are unprofitable. Their only hope of earning a profit, or at least limping along for a while longer, is crushing labor to reduce costs and eventually establishing a monopoly or oligopoly of sorts. Consider comments from Peter Thiel, one of Lyft’s early investors:

"Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits,” Thiel wrote in a 2014 Wall Street Journal op-ed titled "Competition Is for Losers''. Thiel's argument centers on the idea that monopolies are so obviously good for society at large that "[e]ven the government knows this" and goes about creating and awarding them. As a result, "monopolies can keep innovating because profits enable them to make the long-term plans and finance the ambitious research projects that firms locked in competition can't dream of." 

If we think of privatization as the main mode of anti-democratic action by corporations, this desire to “escape competition” can be understood as “regulatory entrepreneurship”, a term coined by researchers Elizabeth Pollman and Jordan Barry. They describe it as being "a line of business in which changing the law is a significant part of the business plan." For the regulatory entrepreneur, the goal shifts from simply competing against other firms to writing rules that make it so you can escape competition—which Thiel believes is necessary to actually thrive as a business.

While most major companies have long employed lobbyists to sway lawmakers to their side of things, the new crop of regulatory entrepreneurs take things a step further. 

"The conventional story of corporate political power relies on gaining quiet access to officials, then leveraging that access to exert influence behind the scenes," Pollman and Barry write. "While regulatory entrepreneurs have used these tried-and-true methods, they have become better known, and arguably experienced greater success from the opposite strategy: They make an issue as publicly salient as possible, rally the public to their cause, then use their popular support as a cudgel to beat the change they want from resistant officials.”

Firms like Uber and Lyft have a long history with these modern tactics. As ride-hail operators, the pair have always fought regulations that would spell doom for their business or ability to raise investor capital, usually by making drivers and consumers partisans in their campaigns to alter regulations in the ride-hail industry itself, pose as technology firms, or misclassify drivers as independent contractors. This has involved not only traditional ad-buying, but weaponizing the companies’ apps, which have been downloaded by millions, to push propaganda.

Facing regulatory threats from New York City Mayor Bill de Blasio in 2015, Uber began lobbying city officials, petitioning drivers and passengers to email their representatives, hiring political operatives to make its case to the public, and spending millions on ads. Uber added “De Blasio” toggle alongside its usual ride options that made all available cars to vanish—a warning that De Blasio would kill Uber and needed help from riders to stop the Mayor’s plan in its tracks. Three years later, when the city tried to implement a pay floor to increase driver wages, the company deployed the same tactics to try and kill support for City Council’s proposed regulations.

 In 2016, Uber used the same in-app notifications to urge Florida residents to "tap to vote for Uber" and warn that "Legislation currently blocked in the Florida Senate would allow all Floridians access to Uber." A third message followed that accused the Florida State Senate President of refusing to hold a vote on the legislation, then urging users in emails and more in-app notifications to lobby politicians on the company’s behalf.

Uber has never turned a profit and yet its stock price frequently rebounds after major regulatory or legal victories precisely because regulatory entrepreneurship is not so much about whether Uber or the gig economy can actually achieve a profit, but the degree to which it can appear to do so. Having a tried-and-tested set of strategies to change regulatory environments and convince investors that profits lie just behind those legal roadblocks is a good way to do that.

The success of Yes on Prop 22 will likely cause other companies to flirt with their own ballot measures to reclassify workers or carve out benefits and workplace protections in a bid to lower labor costs or assume even more workplace control. Above all else, however, Yes on Prop 22 will serve as a model campaign for the types of tools and methods that can make regulatory entrepreneurship playbooks even more powerful. 

The opposition to Proposition 22 was a grassroots campaign made up of drivers advocacy groups and organized labor, and it spent 10 times less than the gig companies: $20 million. Other companies have no doubt clued in that civil rights, labor unions, even political parties, will likely be unable to compete with a company that seeks to bypass regulation spending hundreds of millions of dollars on mobilizing its users and the public in a similar fashion. 

Unless lawmakers do more to reign in these lopsided tactics, this sort of regulatory arbitrage will be used to kill the dregs of America’s democractic functions to rubber stamp corporate bills that ultimately turn everyone against each other in a race to the bottom.