Why Nicaragua Was Smart to Reject Uber

  • Taxi drivers protest against Uber in Mexico City.
    Taxi drivers protest against Uber in Mexico City. | Photo: Reuters
The clear business strategy of Uber’s investors is to work ruthlessly to gain a monopoly position both within individual countries and internationally.

Back in July 2016, New York radio journalist Don Debar, reporting on the Democratic Party Convention in Philadelphia, found that people arriving for the convention in taxis were stopped at the security cordon over a mile from the convention center. From there, they had to get out and walk in the exhausting Philadelphia summer sun in order to attend Hillary Clinton’s preordained triumph.

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But passengers arriving with the Uber app taxi service were driven right up to the convention center into the company’s air-conditioned reception area. Debar’s anecdote about the Democratic elite’s cozy cronyism towards Uber is a microcosm of why Trump in the end easily defeated an out-of-touch Democratic leadership committed to Clinton’s corrupt, war-mongering candidacy.

In January, Nicaragua’s Sandinista government under President Daniel Ortega announced it would not give Uber permission to operate in the country. In Central America, Uber operates in Guatemala, Costa Rica and Panama. Its regional representatives say it has over 20,000 drivers serving more than 700,000 customers.

Uber projects the image of an innovative business, offering greater efficiency, convenience, economy and security for its customers and benefiting its drivers and the local economies where it operates. But Uber’s business model is aggressive, secretive and predatory, glossing over its questionable sustainability and distorting comparisons with competitors it seeks to displace. As a private company, Uber is not obliged to publish its accounts nor to have them audited by accepted accounting standards applicable to public companies. Transport analyst Hubert Horan reckoned that through 2015 Uber’s investors were effectively subsidizing passenger fares by as much as 49 percent, thus making it easy for Uber to underbid its competitors.

That is especially relevant in the case of Nicaragua where the taxi sector of the transport industry is dominated by low-income drivers grouped in cooperatives, and by very small family businesses, especially in the capital of Managua. Nicaragua’s government policy supports providers of public transport across the country, from Managua’s urban bus and taxi services to the river buses of the Rio San Juan, or from Nicaragua’s very efficient inter-city transport network to the boats that serve communities along the country’s Caribbean coast.

The support takes various forms, for example compensating bus cooperatives for the cap on bus fares in Managua, preferential prices to taxi and bus cooperatives for lubricants, tires and spare parts or credit support for the purchase of new vehicles. This support for Nicaragua’s transport industry keeps fares within the reach of ordinary Nicaraguan families, most of whom are on very low incomes.

By contrast, the clear business strategy of Uber’s investors is to work ruthlessly to gain a monopoly position both within individual countries and internationally. That strategy has involved years of pricing fares at below cost in order to hijack market share and promote an image of Uber as some kind of unstoppable natural force, encouraging more investors and creating an enormous wannabe Ponzi-like contraption vainly trying to generate enough business to be able to take off. A more likely outcome is that the business will eventually fall apart into one or more smaller viable components, for example selling data extracted from customers’ patterns of using the company’s service.

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Uber’s public relations falsely suggest it introduces healthy competition into a transport market vitiated by special interests jealously protecting poor service and anti-competitive practices. But the basis of Uber’s business model has nothing to do with innovation or fair competition and everything to do with classic predatory capitalism, maximizing profits by externalizing costs as much as possible and minimizing costs it cannot externalize.

For example, prior to 2016, Uber’s commission on each journey was 20 percent. Then, Uber hiked its cut to 25 percent of each fare. In contrast to conventional car hire and taxi businesses, Uber’s model avoids taxation, regulation and costs like auto insurance, vehicle purchase, maintenance, and depreciation or security. All that burden is absorbed by the drivers before they even begin to make any money.

Similarly, Uber’s multinational business tax profile offers minimal contribution to the upkeep of roads and highways. Uber may pay the authorities of a given country for permission to operate there, but the amount will certainly be much less than the revenue lost from transport operators displaced by Uber.

Nor is it true, as its promoters argue, that Uber makes more efficient use of its drivers’ vehicles. A typical Uber driver wastes 40 percent of their time driving between fares. So it is false to argue that Uber contributes to the local economy or is environmentally more sustainable than other taxi businesses. Uber contributes nothing to public health systems to cover costs from accidents involving their drivers or to mitigate environmental pollution their drivers’ vehicles create.

Uber’s app is easy for anyone technically competent to develop and was hardly innovative even when it appeared. For decades, local car-sharing and solidarity-taxi initiatives have pooled resources to reduce costs and make more efficient use of transport resources by reducing operating, administrative and insurance costs and parking problems. They too use communications technology via smartphones and the internet. The only thing uniquely extraordinary about Uber is how its promoters have managed to network elites so effectively as to attract over US$60 billion in investment for a business model that, as Hubert Horan demonstrated, will never match the rise of internet-based companies like Amazon or Facebook.

The idea that Uber might start operating in Nicaragua was floated by the private business umbrella organization COSEP based on the suggestion that Uber would help modernize, diversify and make Nicaragua’s existing taxi services more efficient. COSEP’s support for Uber is logical given the corporate business interests dominating its membership. Nor was it surprising that Uber’s public relations campaign bamboozled consumer organizations and media outlets with shallow “innovation” gobbledygook.

Announcing the government’s policy decision, leaders of Nicaragua’s cooperative movement attributed it to the need to avoid conflict with the cooperatives and family businesses that operate Nicaragua’s taxi services. Nicaragua’s transport services may be defective in some respects, but they deliver a proven, robust service to millions of Nicaraguans every day.

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More importantly, they do so as a grassroots associative network defending the still precarious standard of living of many thousands of Nicaraguan families in a mutually beneficial relationship with local and national government. As more people in Nicaragua adapt to new technologies, they will themselves develop new ways of mediating exchanges in goods and services without paying a cut to foreign multinationals like Uber. For the moment, Nicaragua has been able to defend an important component of its grassroots cooperative, community and family-driven economy against Uber.

As Sandinista strategist Orlando Nuñez Soto argued in his introduction to the Foro Sao Paulo’s just published “A Consensus for Our America,” the region’s progressive governments and social and political movements have created a new economy based on strategies by which people at the grassroots across Latin America and the Caribbean survived the long years of neoliberal catastrophe. That new economy, much of it still precarious, contributes over 50 percent of the region’s GDP.

As it becomes more sophisticated, the new economies are progressively expanding into regional and global markets despite increasing corporate efforts to exclude them so as to preserve the chokehold of capitalist businesses leeching surplus from the region’s economies. Since 2010, that new economy has made it possible for Nicaragua to grow faster than its Central American neighbors. Excluding Uber shows Nicaragua’s Sandinista government is serious about defending that new economy and promoting genuine economic democracy.

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