Uber has had a pretty rough couple of months. Their culture is apparently toxic, CEO Travis Kalanick was caught on camera treating a driver poorly, and the company went the extra mile (no pun intended) to evade the law.

It's taken a bit of the luster off a company that's considered a shining example of Silicon Valley innovation.

But is Uber really an example of a significant innovation?

Dr. Robert J. Gordon, a professor and economist at Northwestern and author of The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War, would likely argue no. In his book, Gordon makes the case that many of the products and services we think of as significant innovations pale in comparative impact to the innovations of the early 20th century.

In many instances, Gordon argues, recent innovations are just an improvement on or an iteration of an older, more impactful idea.

After reading Gordon's book it's possible to conclude Uber is not a significant, economy-altering innovation.

Uber uses technology to displace low-skilled workers who may have little access to other jobs, and as a result makes labor (and ultimately the cost of a ride) cheaper. The consumers seeing the savings consider the lower cost and convenience an innovation, while the workers on the wrong end of disruption fight the change.

You may or may not think this is how an economy should work, but Uber is in the midst of a cycle we've seen time and again:

  • Uber uses technology to drive down the cost of labor by replacing a regulated, protected class of worker (in this case, taxi drivers) with a non-protected worker (in this case, anyone with a driver's license and decent car).
  • Uber, whose whole business model depends on low-cost labor, seeks to drive down labor costs even further using more technology (in this case self-driving cars).
  • The low-cost labor that originally replaced the regulated, protected class of worker becomes upset that they may become expendable because of the company's continuing quest to drive down labor costs.
  • Consumers hail lower transportation costs as an example of innovation, while anger among low-skilled workers about the loss of jobs continues to grow.

This cycle is no different than what we've seen occur in American manufacturing:

  • To drive down labor costs, a company replaces a regulated, protected class of worker (members of a union) with a non-protected worker (by relocating to non-union states or countries with a lower labor cost).
  • The company, to further drive down labor costs, replaces human labor with machines and robots.
  • The low-cost labor that originally replaced the regulated, protected class of worker becomes upset that they have become expendable because of the company's continuing quest to drive down labor costs.
  • Consumers hail the resulting lower cost of goods as an example of innovation, while anger about the loss of decent jobs for low-skilled workers continues to grow.

The economy may be defined by a relentless cycle where technological change creates a labor market where only the highly-skilled and well-educated have secure employment.

Whatever you think of that cycle and its fairness, one thing is clear:

Uber doesn't represent a fundamental innovation.

The company built a business model based on using technology to displace low-skilled workers in an industry that many people have little love for. That's a very old story--though it's a story that's increasingly shaping global politics.

And it's a story that won't end anytime soon.

Published on: Mar 8, 2017