Sacramento shows Silicon Valley who’s boss
Today, California passed the most sweeping and most damaging legislation to the gig economy that the United States has produced, and potentially the biggest challenge to Silicon Valley that any legislature anywhere has ever approved.
The legislature in Sacramento could have let stand a 2018 California Supreme Court ruling establishing many of the same provisions that the legislation created. Instead, it decided to make a strong statement against the market power of hometown heroes like Uber and Lyft, and give state houses around the country both the air cover and the blueprint to enact legislation of their own. Both the Assembly and Governor Gavin Newsom are expected to endorse the bill.
Two truths and a lie
The business model of the gig economy was built on two truths and a lie. The first truth was that services could be delivered more cheaply and more nimbly through a vast network of contractors enabled by smart tech tools. The second truth was that consumers would pick up some of the slack in their compensation model through the good old American habit of tipping.
The lie, however, was that gig economy workers, enabled to live their best lives through setting their own schedules and controlling their hours, would earn so much money so flexibly that they would forget that they received no benefits and no job security.
Put together, companies like Uber and Lyft assumed that masses of happy consumers, now spoiled for convenience and choice and unwilling to go back to their old ways, would shield companies against government intervention.
Long a laboratory and guinea pig for Silicon Valley’s innovations, California’s statement is not just an reactionary ploy from an angry government. Instead, it reflects a fundamental challenge to the consumer-led assumptions of Silicon Valley’s growth. If the winners of the new conveniences created by tech disruption (consumers) can’t be counted on to defend innovation against the losers (organized labor, low-wage workers), the gig economy model will quickly run out of steam.
California sails when Washington flails
Rumblings of the imbalances in this model, which naturally stacks the deck in favor of the employer, came up cross the world in the past several years. In Paris and Barcelona, taxi drivers rioted as rule-breakers like Uber bulldozed their regulated livelihoods. In New York, yellow cab drivers began committing suicide because of the debts caused by their crashing taxi license investments. In London, rideshare services were suspended by the Mayor’s office while the government assessed the employment status of gig workers (it’s now before the UK Supreme Court).
Some government bodies in Europe responded with regulation, some governments like New York State’s fought back through licensing and taxation. But California’s legislature did something different today, and something more far reaching than many of us are likely to understand for some time. And what they did reflects damning fundamental trends for the entire gig economy.
Unlike European governments and New York State, California has a long-standing market power to create national policies through its state decisions. And in a climate where Washington’s priorities seem to be on another planet from Sacramento’s priorities, the state is learning how to wield that weapon again.
From vehicle emissions standards to drug prices and consumer privacy, California’s sheer size allows it to force companies operating nationwide to choose between adjusting American compliance standards down to state level (perplexing), or complying to California’s higher demands for the entire American market (expensive).
Few good moves for companies like Uber and Lyft
Gig economy companies’ next move will likely be to raise prices to show consumers how it can use its market power. But states’ next move will likely be to emulate California’s legislation to regulate workers’ rights, potentially opening up dozens of legal and lobbying fronts for companies at a time when their solvency is in question. It also means established companies and start-ups struggling to win over consumers will be simultaneously fighting very public battles to limit worker rights, not a good look.
That reality would make a meaningful shift away from a gig economy employment model, to a more traditional employment model, the only feasible way for companies like Uber and Lyft to keep building their businesses.
California can take a lot of the blame for enabling the messy realities of the gig economy, but California also deserves credit for starting to clean it up.
