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It’s a Ballot Fight for Survival for Gig Companies Like Uber

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OAKLAND, Calif. — By late August, the urgency was becoming clear. Top executives of Uber, Lyft and the delivery service DoorDash met to discuss a California ballot measure that would exempt them from a new state labor law and save their companies hundreds of millions of dollars.

The survival of their businesses was on the ballot.

Days later, political strategists responded to the executives’ concerns by telling the companies, which had already pledged $90 million to back the measure, that they needed to spend a lot more if they wanted to win, said three people familiar with the discussions, who were not allowed to talk about them publicly.

The fight over the ballot measure, Proposition 22, has become the most expensive in the state’s history since then, with its backers contributing nearly $200 million and 10 days still to go until the Nov. 3 election. Along the way, the companies have repeatedly been accused of heavy-handed tactics; a lawsuit filed on Thursday claims Uber is coercing the support of its drivers.

Despite the big spending and a barrage of television advertising, only 39 percent of likely voters said they supported Uber and Lyft in a poll last month by the University of California, Berkeley, while 36 percent opposed their proposal and others were undecided. People close to the campaign said they would want to see close to 60 percent approval in polling before they could breathe a sigh of relief.

The ballot measure, which is also being backed by Instacart and a delivery company that Uber is acquiring, Postmates, could be a harbinger for gig companies in the rest of the country.

Prop 22 would exempt the companies from complying with a law that went into effect at the beginning of the year. The law is intended to force them to treat gig workers as employees, but Uber and its peers have resisted, fearing that the cost of benefits like unemployment insurance and health care could tip them into a downward financial spiral.

ImageTyler Sandnes cheering on other opponents of Prop 22 during a rally in Los Angeles last week.
Credit…Tag Christof for The New York Times

Though Uber and Lyft, for example, are publicly traded companies with a combined worth of $70.5 billion, they have never been profitable. They lose billions of dollars each year, and the pandemic has made turning a profit even more difficult. DoorDash, which has filed to go public, has also struggled. Analysts estimate that complying with California’s gig-worker law could cost Uber, which lost $1.8 billion in its most recent quarter, as much as $500 million a year.

Uber said it planned to cut off work for the approximately 158,000 California drivers who were active on the platform each quarter if its ballot measure failed. It would employ roughly 51,000 remaining drivers, it said, and raise fares to meet the higher business costs.

The ballot fight gained additional urgency Thursday evening when the California First District Court of Appeal ruled that Uber and Lyft must treat their California drivers as employees under the new labor law. The state attorney general and the city attorneys of San Francisco, Los Angeles and San Diego had sued the companies in May to enforce the law.

“If Prop 22 does not win, we will do our best to adjust,” said Dara Khosrowshahi, Uber’s chief executive, in a Wall Street Journal interview this week. “Where in California we can operate is a question mark, and the size and scale of the business will be substantially reduced.”

In past dust-ups with local regulators, Uber rallied its passengers for support. The pandemic has made that difficult, so it has urged its tech employees to get involved and used its app to reach out to drivers for support.

The Yes on 22 campaign also started an effort to organize drivers, a move copied from the labor groups that have long tried to organize drivers to fight for better working conditions. And it has forged relationships with high-profile advocacy groups, like Mothers Against Drunk Driving and the California chapter of the N.A.A.C.P.

“Drivers want independence plus benefits by a four-to-one margin, and we’re going to fight for them,” said Julie Wood, a spokeswoman for Lyft. “We believe California voters are on the side of drivers, too.”

A spokesman for DoorDash, Taylor Bennett, said, “Our support for Prop 22 is part of our commitment to protecting the economic opportunity that tens of thousands of Californians value and the access to delivery that so many restaurants rely on, especially at such a critical time.”

A spokeswoman for Instacart declined to comment. Postmates did not respond to a request for comment.

In an effort to gain support, the companies have bombarded riders and drivers with push notifications, campaign ads that appear in their apps and emails promoting Prop 22. Before logging on to start work, Uber drivers have been presented with a slide show of warnings about how their lives could change if the proposition fails.

“A no vote would mean far fewer jobs,” one of the slides on the Uber app warned. “That’s why we’re fighting so hard to win.”

In the lawsuit filed against Uber on Thursday, drivers claim that the messages violated a state law that forbids employers to coerce their employees to participate in political activity.

“I can’t rule out that employers have engaged in coercive tactics like this in the past, but I have never heard of an employer engaging in this sort of barrage of coercive communications on such a broad level, ever,” said one of the attorneys for the drivers, David Lowe, a partner at Rudy, Exelrod, Zieff & Lowe. “It is such an extraordinary thing, from my perspective, for Uber to exploit this captive audience of workers.” Mr. Lowe said he opposed Prop 22.

Matt Kallman, an Uber spokesman, said, “This is an absurd lawsuit, without merit, filed solely for press attention and without regard for the facts.” He added, “It can’t distract from the truth: that the vast majority of drivers support Prop 22.”

In early October, the Prop 22 campaign was denounced by Senator Bernie Sanders after a fake progressive group calling itself Feel the Bern endorsed the proposition in a campaign flier that implied Uber had the backing of progressive leaders. The mailers were, in fact, sent by a firm that creates political mailers representing different views.

“The Prop 22 campaign is working hard to reach voters across the state and the political spectrum to ensure they know that drivers overwhelmingly support Prop 22,” said Geoff Vetter, a spokesman for the Yes on 22 campaign, which is funded by Uber, Lyft, DoorDash and other gig economy companies.

Questions have also been raised about the N.A.A.C.P. endorsement. A political consulting firm run by Alice Huffman, the leader of the California N.A.A.C.P., has received $85,000 from the gig companies’ campaign, public records show. The payment was reported earlier by the news site CalMatters.

Mr. Vetter said the payments were for “outreach.” The N.A.A.C.P. did not respond to a request for comment.

Credit…Jim Wilson/The New York Times

Uber held an all-hands meeting this month for employees to meet drivers who support the proposition, and sent several emails encouraging staff to lobby friends and family.

Although the internal messages were upbeat, the policy staff raised concerns with campaign consultants during the meetings in late August and early September, the people familiar with those meetings said. Among their worries: that the ballot language was unfavorable to the companies, and that people were voting earlier than usual because of the pandemic, meaning advertising would need to be rapid and aggressive.

“We look at the data every day, and our metrics show a tight race,” Justin Kintz, Uber’s head of public policy, said in an early October email to Uber employees, obtained by The New York Times. “At the same time, with continued strong execution against our plan, we’re confident we can win.”

While the email noted that campaigning was optional, Mr. Kintz encouraged employees to participate in texting banks to contact voters and to promote the campaign in conversations with friends.

“The big reason that you’re seeing so much spending is because of the high stakes in this election,” said Mr. Vetter, the spokesman for the campaign. “Hundreds of thousands of jobs are on the line. These are services that millions of Californians rely on.”

The opposition campaign, which is funded by labor unions, has raised about $15 million. Supporters of the No on 22 campaign have argued that voters should reject the push by tech companies, and that the measure would harm workers already at a disadvantage during the pandemic.

“Proposition 22 will make racial inequality worse in California at the worst possible time,” said Representative Barbara Lee, a California Democrat. “You have very clearly crossed the line when you try to claim the equity mantle for a campaign that has always been about allowing multibillion-dollar app companies to write their own law so that they can keep exploiting the labor of drivers, eight in 10 of whom are people of color.”

No matter the outcome of the vote, the gig companies and their opponents are likely to take their campaigns to Washington. Massachusetts has filed a lawsuit similar to the one that the California court decided on Thursday evening, and Uber hopes to avoid continued state-by-state battles by pressing for federal legislation.

Erin Griffith and Noam Scheiber contributed reporting.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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