A collage of images, featuring most prominently a person holding a sign reading "no justice no peace"

Author: Florian Ostmann

Economics / Old Blog

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Beneficial competition or attack on legitimate interests: What to make of Uber’s disruption of the taxi industry?

Imagine you are standing on the street and waiting for a taxi to take you home. While you are having second thoughts as to whether the convenience of a taxi ride is really worth the cost, a private car stops in front of you and the person at the steering wheel offers to drive you home for a price significantly below the taxi rate. Once you have convinced yourself of the driver’s competence and reliability, what could possibly speak against accepting the offer? Not much, it may seem.

Granted, the scene just described may appear too unrealistic to merit serious ethical reflection. In cities around the world, however, smartphone technology has recently led to a surge of structurally similar situations. Ride-hailing platforms that act as brokers between private drivers and potential clients have been experiencing rapid growth and offer rates that are often below those of established taxi industries. Uber, the most prominent example, has extended its operation to 54 countries and has created headlines by attracting more than $2bn of investment during the last two years. In many places, however, this expansion has been accompanied by fervent political controversy, and in a number of jurisdictions regulatory opposition has brought Uber’s operation to a halt.

Some of the criticisms voiced in opposition to Uber reflect concerns that seem relatively uncontroversial. For example, the enforcement of adequate safety standards in cars (including mandatory liability insurance for drivers) and appropriate forms of taxation appear to represent valid objectives, both from the point of view of public interest and in terms of ensuring a level playing field in Uber’s competition with traditional taxi providers. At the same time, these objectives do not necessarily conflict with Uber’s business model. Assuming that drivers are subject to the same safety and tax requirements as traditional taxi providers, Uber may still be able to offer lower fares. In the following, I would like to consider two additional concerns that are more fundamentally connected to the way Uber operates and that also seem more difficult to evaluate.

The first concern relates to the interest of drivers that rely on their job as a primary source of income. One of the prominent complaints of taxi associations has been that Uber’s competition threatens the ability of professional drivers to make a living from their occupation. While Uber argues that its drivers are able to achieve incomes far above the average income of taxi drivers, protests by Uber drivers cast doubt on the generalisability of this claim. Moreover, recent data shows that the majority of drivers do not treat Uber as their main source of income, which in turn may contribute to the preparedness of Uber drivers to work for lower rates. If it is indeed the case that Uber’s business model poses a threat to the interest of drivers in being able to make a living from their occupation (be it in the traditional taxi sector or after a switch to Uber), does this interest provide a legitimate basis for banning Uber?

On the one hand, Uber would appear to exemplify the general potential of freelance working arrangements to erode income levels. Given that earnings in the established taxi industry are already at the low end of the income spectrum, we may think that, if anything, policy should aim at improving wages in the taxi industry, e.g. through appropriate minimum wage legislation, rather than allowing income levels to be threatened by Uber’s business model which, in virtue of treating drivers as individual contractors, is not bound by wage regulations. On the other hand, the interest to make a living from taxi driving would have to be defended against the interest of those who are willing to offer their service at a lower price, if only as a partial source of income, and would be prevented from doing so through an ban of platforms such as Uber. Such a defence, it seems to me, cannot necessarily be taken for granted. A judgment on the issue would have to take into account the level of material well-being and the occupational alternatives of both groups.

Setting aside the interest of drivers, the second concern may be cast in terms of public or general interest. While taxi rates are legally regulated, ride-hailing platforms are free to set their prices according to demand and supply. Uber, for example, relies on rate increases in times of high demand in order to incentivize additional drivers to offer their services. As a result, on holidays or in situations of emergency, fares can increase up to fourfold, to levels far above standard taxi rates. Regulated taxi fares, in contrast, may be thought to serve an important public interest in the availability, in general, of rides at rates that are affordable for a relatively wide section of the population. To the extent to which the success of Uber and other ride-hailing platforms leads to an erosion of the supply of fix-rate taxis, people with urgent transportation needs may find themselves in situations without affordable options.

Is the interest in affordable rides compelling enough to justify a ban on unregulated services such as Uber in order to protect the supply of fix-rate taxis? The answer to this question does not seem obvious either. Among the countervailing interests to consider are the interests of customers who would take advantage of Uber’s service during times at which fares are below the taxi rate. Among them are equally going to be people with urgent needs, some of whom may in fact not be able to afford the regulated taxi fare. And to the extent to which the taxi fare is affordable for them, can they be expected to effectively subsidise the rides of others? One consideration that seems clearly relevant here is the existence of alternative modes of transportation that may serve to protect the interest in generally available affordable transportation. An answer thus appears even more context-dependent than in the case of the first concern. What do you think?

Duties / International / Old Blog / Rights

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Dribbling responsibility: What do we owe to the real losers of the World Cup?

 
In last week’s post, Siba drew our attention to one of the most widely noted events of this summer, the FIFA World Cup 2014. While taking notice of a wide range of ethical issues arising in the context of the World Cup, the discussion focussed on the organizational status of FIFA and the question of whether the tax exemptions it enjoys (and its status as a charity) are justified from a moral point of view. This week, we would like to follow Siba’s steps by raising some ethical questions regarding the World Cup and similar mega sporting events (e.g. the Olympic Games) from a different, but complementary angle. Setting aside the issue of taxation, we are concerned with some of the other problems anticipated in last week’s post and the responsibilities related to them.
As noted last week, the realization of major sporting events like the FIFA World Cup can come into tension with concerns of distributive justice and human rights. With regard to distributive justice, the public expenditure required by an event of the size of the World Cup raises the question of social opportunity costs. According to estimates, the infrastructure expenses incurred by the Brazilian government in preparation for the World Cup amount to approximately $11bn. If put to alternative uses, these resources could arguably have contributed to significant advances in education, health, and other field of social investment. An ethical evaluation of the decision to invest in the World Cup will of course need to take into account the revenues flowing from the event, their distribution within society, as well as, for example, the future value of infrastructure projects. Whatever the result of such an evaluation would be in the case of Brazil, it is clear that, at least under certain circumstances, a government’s decision to host the World Cup can come at the price of unjust social opportunity costs.
In addition to the question of priorities of public investment, there are a number of ways in which the realization of mega sporting events can come into conflict with human rights concerns. Relevant issues include eviction and involuntary displacement of people in the wake of construction projects, police brutality in reaction to public protests and demonstrations, and the implementation of labour standards. The potential severity of the latter issue was recently brought to light by media reports highlighting the labour conditions of migrant workers in Qatar, the host of the FIFA World Cup in 2022. According to the Guardian, at least 44 Nepalese workers died in Qatar during a period of only two months. On this basis, the International Trade Union Confederation estimates that up to 4,000 workers could lose their lives while working for World Cup-related projects.
The fact that there is a real risk that the realization of mega sporting events may come into conflict with concerns of distributive justice and human rights raises the question of who should bear responsibility for preventing such conflicts from occurring. One possible answer consists of placing the responsibility exclusively on the government in question. Concerns of distributive justice and human rights are commonly thought to fall into the primary sphere of responsibility of national governments and a government’s decision to apply as a host is entirely voluntary. Therefore, if a successful application would lead a government to neglect its obligations of justice and human rights, then it seems that it is the government in question who is under an obligation to refrain from submitting the application in the first place. Other actors involved in the selection process, such as FIFA as an awarding body, in contrast, may appear to bear no responsibility for the ensuing consequences. This view, at least, seems to be suggested by FIFA’s secretary general Jerome Valcke who observes that “FIFA is not the United Nations. FIFA is about sport,” and thus “cannot be seen as responsible for what’s happening in different countries.”
This view, however, seems to ignore the ethical significance of FIFA’s role in determining World Cup hosts. In the case of some countries, conflicts with concerns of distributive justice and human rights will be foreseeable as early as at the stage of application. Even if justice and human rights are thought to be the primary responsibility of national governments, FIFA seems to be under a duty to prevent these foreseeable conflicts by not awarding the World Cup to such countries. The fact that current bidding rules lack any concern for such conflicts has to count as a clear violation of this duty. This calls for a reform of bidding rules, for example in a way that takes into account a country’s human rights record.
Ultimately, the realisation of mega sporting events such as the World Cup rests on the support of visitors and TV audiences around the world. Insofar as current bidding rules are insufficiently sensitive to ethical concerns, should fans be held responsible for the moral costs of mega sporting events? While this may seem far-fetched to some, it is clear that audiences make the World Cup possible in the first place and have significant power to influence the terms under which it is carried out. One way to exercise this power would be in the form of a viewers’ boycott. We think that in cases in which significant injustices and human rights violations are at stake, such a boycott is what responsibility requires from viewers.
It may be objected that a boycott is an ineffective way for viewers to discharge their responsibility. After all, once a tournament is in the process of being carried out, most moral costs will already have been incurred, such that a boycott will do nothing to prevent them. Nevertheless, a boycott may send a powerful signal to prevent problematic practices in future tournaments and influence the outcome of future bidding processes. In addition, even setting aside consequentialist considerations, one may wonder about the morality of watching the World Cup and other comparable events. In cases where such events have a clearly tainted moral footprint, this seems to raise a question of ethical integrity when it comes to deriving enjoyment from them. So, while you may be preparing for a night in front of the TV to find out who is going to win Brazil 2014, consider the moral costs of mega sporting events. In your view, what do we owe to the real losers of the World Cup?
Sara Amighetti and Florian Ostmann

 

 

Distribution / Economics / Old Blog

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Supply, investment, and the allocation of scarce goods: How not to argue against rent control

Access to affordable housing is widely recognized as a basic right or, at the very least, an important moral interest. At the same time, residents of many major cities are faced with spiralling housing costs. London provides a particularly striking example. During the last year alone, average rents in London rose by more than 10 percent. Since this figure describes an aggregate trend, rent increases faced by individual tenants are often significantly higher. (When the last flat that I lived in changed its owner, the rent went up by 30 percent, notably without any changes to the condition of the property.) In light of this situation, it is no surprise that calls to address the problem of rising rents have become louder. 

One straightforward way of addressing the problem would consist of policies that place legal limits on the extent to which rents may be increased. Yet, the idea of rent control faces outspoken opposition. Opponents often defend their view by pointing out that rising rents have an underlying cause in the shortage of supply of housing in a given area. Constraining rents, they argue, does nothing to alter the shortage of supply or, worse, exacerbates it by reducing the returns on investment for property developers, thus undermining the economic incentives for an increase in supply. This line of argument, however, appears unconvincing. 

Shortages of supply in housing cannot easily be solved in the short term and are partly determined by geographical factors that cannot be altered at all. To the extent to which rent control policies fail to address the underlying problem of supply without worsening it, why should they not be considered as an interim measure? It is, of course, easy to conceive of policies that would further exacerbate the problem, for example if they took the shape of absolute rent ceilings that would make it impossible for developers to recoup their investment. There are, however, obvious policy alternatives that would place limits on rents and rent increases while being flexible enough to ensure a sufficient return on investment. In fact, if policies were structured such that returns on investment in new developments are higher than returns on investment in existing properties, they could create additional incentives for the construction of new homes, rather than undermining them. The very lack of rent controls, in turn, can be seen as compounding the imbalance between supply and demand in that it creates demand for existing properties on the part of speculative investors that would not exist if rent controls limited the returns on speculative investment. 

A further prominent argument against rent controls, even if understood as second-best or interim measures, relies on the appeal of free markets as a mechanism for the allocation of scarce goods. If a good is in short supply and prices are left to move freely, they will rise up to the point at which an equilibrium is reached between the amount of goods available and the amount demanded at the price in question. From the point of view of economic theory, this process is often considered to be attractive on the basis that it ensures that scarce goods are allocated to those who value the good most highly. If the price was artificially kept low, in contrast, the allocation of goods would be determined by factors that may be less normatively appealing or left to pure chance. Applied to the present context, if there is a shortage of housing in a given location, would it not be a morally attractive outcome if tenants with the strongest preference for the location would get to live there? 

Maybe it would. As an objection to the regulation of real-world housing markets, however, the argument is fundamentally flawed. The claim that equilibrium prices allocate goods to those who value the good most highly is plausible only in conjunction with the idealised assumption that the bidding parties are roughly equal in their ability to pay. In a real-world context in which potential tenants differ significantly in their wealth and thus their ability to pay, differences in willingness to pay rent cannot be taken as a direct reflection of the subjective value that a give property has to them. Since the absence of rent control measures does nothing to ensure that housing is allocated according to strength of preference, the appeal to this allocative ideal cannot serve as an objection against rent controls. 

In the absence of other arguments, the controversy about rent controls appears to boil down to a conflict between the interest in affordable housing on the one hand, and the interest of property investors on the other. It seems clear to me that the interest in affordable housing is the morally weightier one. This is not meant to deny that investments made under existing rules may give rise to legitimate expectations. Honouring such expectations, however, should not prevent us from changing rules that apply to future investments.

Distribution / Economics / International / Old Blog

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Ethical trading as profit sharing: An alternative perspective on the terms of international market transactions

The increase in cross-border trade around the world during recent decades has been accompanied by a growing concern with the terms under which international market transactions occur. The claim that these terms are often morally problematic has come to play a prominent role in theoretical debates as well as in political initiatives such as the Fairtrade movement. While it is not always clear what the exact normative basis for this claim is taken to be, defenses most commonly focus on the low absolutelevels of welfare enjoyed by trading parties in developing countries. My aim in this contribution is to suggest that this focus tends to ignore what appears to be a justified independent concern with the relativedistribution of the economic benefits that result from international market transactions.
According to what appears to be the predominant perspective, the terms of international market transactions are morally problematic if they leave one of the trading parties badly off in certain absolute terms – for example, if the price that producers of coffee or other agricultural commodities are being offered is insufficient to provide for even their basic needs. Common as it is, this perspective faces a well-rehearsed objection. First, badly off as a party may be in absolute terms, she typically derives an economic benefit from the transaction; and second, it is not obvious why the mere act of engaging in a mutually beneficial exchange with a party that happens to be badly off should be taken to give rise to a particular (role-specific) responsibility for that party’s absolute level of welfare.
For the present purpose, I am going to set aside the question of whether this objection is successful or whether transacting parties can indeed be held responsible for each other’s absolute welfare. Instead, I am going to present an alternative perspective on the evaluation of the terms of market transactions that is immune to the mentioned objection and that seems to be neglected in current debates. According to this perspective, trading parties have a responsibility to transact at a price that ensures that each of them receive a fair share of the economic benefits that result from a transaction.
In rough terms, the argument in support of this view takes the following shape. International market transactions represent a form of mutually advantageous cooperation: they are typically beneficial for both parties involved, and the realization of each party’s benefit depends on the other party’s material contribution to the exchange. At the same time, trading parties generally face a range of possible mutually advantageous prices. The limits of this range are defined by the respective price at which an exchange would cease to be beneficial to each party, such that the choice of the price at which the transaction ultimately takes place determines the size of the benefit that each party derives from the transaction. Given the cooperative character of market transactions, parties ought to be disposed to transact at a price that ensures a fair amount of benefit to each of them.
This second perspective imposes clear constraints on the morally permissible terms of international market transactions even if we assume that parties have no responsibility for each other’s absolute welfare. In one way, the demand of a fair distribution of transactional benefits is more limited than the initial perspective described above. Conceptually, the demand is constrained by the range of mutually advantageous prices in a given situation, and it may well be that no price on this range is sufficient to fully provide for a party’s basic needs. There is another way, however, in which fairness in the distribution of transactional benefits is significantly more demanding. According to the first perspective, there would appear to be no moral constraint on the profit that a party may make as a result of a transaction above and beyond what is required to guarantee that each party enjoys the relevant absolute level of welfare. To stay with the example, provided that her foreign suppliers are sufficiently well-off, a European coffee importer would be morally free to make whatever profit she is able to obtain in the market. Any such profit, however, is a reflection of the price at which the initial transaction took place and thus subject to a fair distribution of transactional benefits. Following the perspective I have described, then, rather than focusing on absolute levels of welfare, we should think about ethical trading in terms of profit sharing.