May 28, 2019
Back in the old days, economists used to think that having a profitable business was evidence of a successful business model. This success could be based on things like ripping off workers and/or customers or destroying the environment, which obviously are not good, but if a business was not profitable, it would be hard to call it a success, whether or not it followed the law and social norms.
However, for Roger Lowenstein and the Washington Post, profits no longer matter. Lowenstein proclaimed the taxi services Uber and Lyft successes based on the large amount of money they raised in their IPOs. This is in spite of the fact that both companies are huge money losers, with no immediate prospect of reversing course. Also, they both have difficulty following the law in areas like treating their drivers as employees and following labor law on issues like minimum wages and overtime. (They insist their drivers are independent contractors, but since both companies set their pay, this price setting among independent contractors would violate anti-trust law.)
The argument that a company has a successful business model because it can fetch a high stock price would mean all the crazy dotcoms of the 1990s stock boom had successful business models as did Theranos. It should not be too much to demand that a company at least show a capacity to earn a profit before being touted for its successful business model.
Lowenstein is correct that the taxi system was horribly regulated for the benefit of the taxi companies. However, it does not follow that we should want completely unregulated taxis from Uber and Lyft. People getting a ride should be able to know that their driver won’t assault them, that they are not driving drunk, that they will be covered by insurance if there is an accident, and that the car is safe. And the drivers should be protected by minimum wage and overtime regulations and other basic labor standards.
These are legitimate forms of regulation that both companies have fiercely resisted. When they can comply with regulations in these areas and make a profit, then we will know that they have a successful business model.
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