Megan McArdle

 Megan McArdle is a Washington Post columnist and the author of "The Up Side of Down: Why Failing Well Is the Key to Success." 
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WASHINGTON -- Californians, say hello to AB5, soon to be your newest labor law when Democratic Gov. Gavin Newsom signs the bill he backed. You probably know it better as the law that on Jan. 1 will force Uber and Lyft and other gig-economy businesses to treat their workers as employees, not independent contractors. (The companies, bless their hearts, say the legislation clearly allows them to treat workers as contractors and that they'll likely push a referendum in 2020 to overturn it.)

Cue celebration on the left. Many contract workers in California will be eligible not just for the state's $12-an-hour minimum wage (increasing to $15 by 2023), and health benefits if they work more than 29 hours a week (thanks, Obamacare!), unemployment insurance and workers' compensation.

That is, if they still have work. It seems to me that if the law survives as written, the best-case scenario for Uber and Lyft involves these companies aggressively culling all but their highest-performing drivers, who will be herded into assigned shifts in affluent high-traffic areas. The worst-case scenario is that Uber and Lyft close up shop in the state of California. That might explain why Newsom is trying to broker talks where labor unions and ride-hailing and food-delivery companies could agree on separate rules for gig-economy workers.

Yes, you in the back, wearing the Che Guevara T-shirt, I can hear you muttering about how they could "just take a little less in profits." That might be fine for older companies that make heavy use of contractors and have old-fashioned things such as profits. But the gig-economy companies are still hemorrhaging cash. Essentially, Uber and Lyft are a charity dedicated to shuttling people among airports, hotels, WeWork "hot desks" and plates of avocado toast.

They have no surplus value for kindly legislators to redistribute. Having gone public, they can't even run to get more cash from the starry-eyed venture capitalists who funded their losses so profligately.

It is true that these firms (BEG ITAL)aspire(END ITAL) to profitability. The aspiration is even faintly plausible. By aggregating both drivers and passengers into massive networks, rather than the fragmented, hand-crafted dispatch systems of the old-style cab companies, Uber and Lyft actually made ride-hailing much more valuable to both passengers and drivers.

Because it's easier for the two to connect, drivers can pick up fares wherever they happen to be, rather than needing to pull a 12-hour shift cruising rich residential and commercial strips. Meanwhile, passengers can find rides much faster than was possible by calling cab companies to see who had a driver available.

But the flexibility that makes Uber and Lyft so appealing to drivers -- most ride-share drivers are using the services as a part-time gig they can schedule around their regular obligations -- is possible only because of the current compensation structure, which pays per ride. If Uber and Lyft have to pay you $15 an hour whether or not you carry any passengers ... let us just say that the interests of company and driver suddenly diverge rather sharply.

No, if Uber and Lyft drivers are employees, they're going to have to be treated like, you know, employees: assigned regular shifts, in company-determined areas, with productivity targets and regular administrative spot-checks. For some drivers, that's probably preferable to the current arrangement. But for those who valued the option (BEG ITAL)not(END ITAL) to work when they had something more pressing to do, ride-hail driving will no longer be a good deal.

Should those people quit in significant numbers, Uber's and Lyft's networks will shrink, reducing ridership and making the companies less able to pay drivers. That's why I suspect they will either have to cull their networks and intensely supervise what's left, or simply depart for less onerous climes.

One can argue that if they can't make money with their drivers as employees, then the business was never a good one to start with and deserves to die. But the drivers were providing those rides voluntarily -- no one made them turn on the app -- so it was apparently better than whatever their next-best way of earning money was. It was also better for passengers, many of whom will go back to driving their own cars, or staying put, rather than paying higher prices for less convenience.

You can't fault the drivers for wanting to earn more, of course. Nor the California legislature for wanting to give it to them. But given the well-publicized holes in the corporate financial statements, you (BEG ITAL)can(END ITAL) wonder where the heck they thought the money was going to come from.

Follow Megan McArdle on Twitter, @asymmetricinfo.

(c) 2019, Washington Post Writers Group



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WASHINGTON - If you want to understand the current fractures in the conservative movement, you should watch the Sept. 5 debate at the Catholic University of America in Washington between Sohrab Ahmari, the op-ed editor of the New York Post, and David French, a writer for National Review.

The debate sprang from an essay, "Against David French-ism," that Ahmari published in First Things in May. Ahmari attacked a style of politics he attributed to French as too focused on procedural niceties and compromise, rather than protecting civilization from its enemies. Ahmari wants to use the power of the state against the left, in the way that the power of nonstate institutions is now leveraged against the right.

French, though personally a social conservative, made the classical liberal argument that any powers the right grants itself will eventually be deployed against it by the left. He wants a negotiated peace that would carve out space in American life for both religious liberty and secular progressive values.

There is little question that French won the debate; he was better prepared, with a better grasp of the mechanics of policy. Ahmari had little in the way of an actionable plan, other than suggesting that Republican senators could interrogate librarians who offer drag queen story hours. That isn't a policy agenda, or even a skeletal framework upon which such a thing might be built.

Yet even agenda-less Ahmari-ism galvanizes many social conservatives, especially younger ones. Ahmari highlights the thing they most fear: the relentless leftward shift of virtually every culturally powerful institution, increasingly including corporations. These social conservatives believe the left will use that cultural and economic power to proselytize their children for a sort of hypersexualized secular faith -- and to cleanse the resisters from both the public square and the economic mainstream.

Those fears are often exaggerated, yet not utterly unfounded. If you'd told me 10 years ago that same-sex marriage meant evangelical Christian bakers might be legally required to cater gay weddings, I would have rolled my eyes at such hysterical conservative propaganda. Post-Obergefell v. Hodges, the default left-wing position seems to be that you cannot shun gay weddings and continue to own a bakery, or work as a tech CEO.

Meanwhile, the American Civil Liberties Union went after Catholic hospitals for refusing to provide abortions, and companies have threatened to boycott states that sided with conservatives in the conflict between LGBTQ rights and religious liberty.

So it's not unreasonable for social conservatives to worry about a more European or Canadian future, in which nurses are told to supervise abortions or stop being nurses, doctors are forced to refer patients for abortion or euthanasia, and religious schools are told to give up either the religion or the school.

You can believe that French-ism is superior to Ahmari-ism in principle and practice, while also recognizing its utter dependence on a good-faith negotiating partner. For the center-right to hammer out a peace the religious right can live with, it needs a counterpart on the left that can stand up to its illiberal flanks and deliver a deal.

Today, that portion of the center-left is small and quiet. The large remainder too often goes along with the illiberals -- either loudly out of conviction or quietly out of fear. As long as that's true, and as long as left-wing hegemony persists over key economic and cultural institutions, many social conservatives will understandably view French's procedural liberalism as a guide to losing gracefully.

A principled argument can be made that conservative Christians should be prepared for just such a loss, rather than trying to force what is now a minority opinion on the emerging secular majority. If the mainstream shuns them, they can withdraw into insular religious communities, as ultra-Orthodox Jews and the Amish have done, exchanging mainstream socioeconomic status for a space where their faith can thrive. This is hardly a prescription for doom; these are among the fastest-growing demographics in the country.

Unfortunately, it's difficult to argue persuasively that (BEG ITAL)someone else(END ITAL) should abandon the benefits of mainstream life in defending their convictions. Not when that argument just happens to be the one that will best endear (BEG ITAL)you yourself (END ITAL) to the emerging powers that be. Procedural liberals will ultimately be forced into a purely tactical argument: Given declining religiosity, if you make it "us" or "them," "them" will probably carry the day.

Even more unfortunately, no one ever won hearts and minds by pointing out the best way to lose, no matter how empirically or logically impeccable the arguments for surrender. If we procedural liberals can't bring our left-wing counterparts to the negotiating table, the future of the right probably belongs to a muscular populism that can hold out hope for social conservatives. Even if it's a false one.

Follow Megan McArdle on Twitter, @asymmetricinfo.

(c) 2019, Washington Post Writers Group



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WASHINGTON -- I've always had a hard time understanding why anyone thought that WeWork, the real estate startup, was worth almost $50 billion.

The business model seems reasonably simple: Lease a bunch of office space, add some walls and some beer and a nice coffee machine, and sublet smaller chunks of the space by the month. WeWork is basically a commercial landlord, and none of the traditional methods for valuing commercial properties seem like they'd generate a total of $50 billion.

As WeWork prepares to go public, potential IPO investors are apparently also having trouble with this. On Thursday, The Wall Street Journal reported that the company is considering reducing its valuation to the $20 billion range -- less than half the valuation of its last private round of financing -- after potential investors expressed "widespread skepticism over its business model and corporate governance."

WeWork isn't the only tech "unicorn" that's lost some of its magic. Uber and Lyft were probably the most famous of the "unicorns" -- companies valued at more than $1 billion in private funding rounds. They're also trailing their initial valuations by quite a lot since both companies went public this spring. Now another of the best-known unicorns seems to be molting. And perhaps that's not an accident.

These companies got so famous, and such stratospheric valuations, because they promised to be revolutionary rather than evolutionary. With Uber and Lyft, for example, investors weren't just buying into a better way to hail a taxi, but a possible future in which everyone would outsource their car ownership.

Think about that: There are more than 250 million cars in the United States, which are parked, on average, 95% of the time. To maintain that absolutely massive overcapacity, U.S. customers pay an average of $37,000 for about 17 million new vehicles a year.

If we could cut out even half of that unused excess capacity through ridesharing, we could save hundreds of billions of dollars -- not to mention the hassle of staring at traffic, and the environmental costs of all that metal and plastic. Give Uber and Lyft even half the money, and they'd be rolling in revenue.

Only in markets, when you see massive redundancy, it's often actually doing something quite valuable: ensuring reliability of critical services. Consider my family, which seems perfectly adapted for a carless lifestyle. We live in a dense, walkable urban neighborhood, and in 10 years, have put less than 20,000 miles on my car. So why bother owning a car at all?

One reason: His name is Fitzgerald, he weighs 160 pounds, and he is a frequent flyer at veterinary poison control.

Until Uber can guarantee that we can be speeding toward the animal hospital in Virginia less than 10 minutes after Fitzgerald wolfs down a pound of raisins, we'll be keeping the car. Most people don't own voracious bullmastiffs, of course. But they often have kids, or elderly relatives, who sometimes need similar urgent car rides.

Those people can't give up their cars until Uber and Lyft can guarantee the same availability as the Honda in their driveway. The companies aren't anywhere near that yet. And the only way they could achieve that kind of reliability would be to add back a lot of the overcapacity we were hoping they'd eliminate.

A similar sort of caution applies to WeWork. Fundamentally, the company is in the business of lowering risk. Small and fledgling companies don't need to take on the major capital expense of an office build-out, or the onerous obligation of a long-term lease; landlords don't need to hassle with risky smaller tenants. The problem is, WeWork doesn't actually eliminate all that risk and expense and hassle; the company just takes them on itself. Unless it gets paid a lot for its trouble -- and right now, WeWork is losing boats of money -- it could be flirting with insolvency as soon as investor capital runs out, or the United States enters a recession.

Venture capital prefers revolutionary to evolutionary investment stories because when they succeed, business revolutions throw off a lot of cash. Google and Facebook, Apple and Amazon really have changed the world, and also made early investors fabulously rich.

But there have always been more would-be revolutionaries than actual revolutions. And over the long run, in both politics and economics, evolutionary change has generally proven more rewarding, and enduring, than radical upheaval. Even unicorns aren't magical enough to buck those truths, which is probably why the unicorns that offered us a better veggie burger, or a clearer teleconference, are making more money for investors than the firms that promised to revolutionize our whole way of life.

Follow Megan McArdle on Twitter, @asymmetricinfo.

(c) 2019, Washington Post Writers Group

Megan McArdle is a Washington Post columnist and the author of "The Up Side of Down: Why Failing Well Is the Key to Success."
  • The Up Side of Down: Why Failing Well Is the Key to Success