California’s Work Rules Sabotage the Gig Economy

Th Uber Technologies Inc. car service application (app) is demonstrated for a photograph on an Apple Inc. iPhone in New York, U.S., on Wednesday, Aug. 6, 2014. For San Francisco-based Uber Technologies Inc. which recently raised $1.2 billion of investors' financing at $17 billion valuation, New York is its biggest by revenue among the 150 cities in which it operates across 42 countries. The Hamptons are a pop-up market for high-end season weekends where the average trip is three time that of an average trip in New York City. Photographer: Victor J. Blue/Bloomberg via Getty Images

An anti-technology movement from early 19th century Britain has long been part of our lexicon. Luddites were knitters who destroyed textile machines to protect their jobs. Today the term applies to anyone who fights a crusade against the modern economy.

Original Luddites weren’t against technology per se, Smithsonian magazine explained, but only attacked manufacturers “who used machines in what they called ‘a fraudulent and deceitful manner’ to get around standard labor practices.”

California’s modern-day Luddites don’t commit acts of violence against Google, Uber, Amazon and other firms that have shaken up the existing economic order. No one is toasting cellphones in bonfires or sabotaging Federal Express delivery vans, but these New Luddites have used the courts and the legislative process to throw that figurative wrench in the machine. Indeed, the biggest redoubt of Luddite-ism appears to be the California Supreme Court, which in April issued a ruling that has threatened to grind California’s high-tech economy to a halt.

In Dynamex Operations West, Inc. v. Superior Court, the court didn’t directly target these new technologies or business models, but clamped down on the way companies use independent contractors rather than full-time employees as a means to stay flexible and competitive in the marketplace. As Chief Justice Tani Cantil-Sakauye wrote in the unanimous ruling, “When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor…there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification.”

The case centered around a package-delivery firm, Dynamex Operations West, which turned its full-time staff into contractors. Obviously, when companies use contractors they need not pay them benefits and are not subject to hourly work rules, wage requirements and the host of labor regulations the state applies to permanent workers. The court tossed out the old, flexible way of determining whether a worker is a contractor or employee and imposed a strict new “ABC Test” for deciding such matters.

Under the new standard, California firms that want to classify their workers as contractors must meet all of these terms: The worker is outside the control of the employer for the work performed; the worker performs work that is outside the company’s normal scope, such as a freelancer who does public relations for a tech firm; and the worker is engaged in an independent business enterprise, perhaps having his or her own LLC. One need not be a labor-law expert to realize how this threatens many burgeoning new business models including Transportation Network Companies such as Uber to old-line industries such as Realtors and hairdressers.

Growing economies are dynamic. There’s no way to lock anyone’s job into place (outside of government work). One of California’s long-standing problems—a key reason for its sky-high poverty rates—is that its labor regulations read like something from the Industrial Revolution. The state imposes burdensome regulations regarding everything from work breaks to overtime. That might be fine on the factory floor, but the rules stifle innovation—and make it far tougher for companies to survive. These union-backed rules also raise the bar so high that many startups can’t get off the ground, which deprives consumers and workers of exciting new opportunities.

The obvious work around has been to use contractors. It’s not just a boon for businesses. Most of the nearly 2 million Californians who are independent contractors prefer to make their own schedules rather than show up 9-5 at the office. Ask your Uber driver, Realtor or barber. The Department of Labor found that 79 percent of contractors prefer these working arrangements with fewer than 9 percent preferring traditional employment.

If companies are forced to hire all their workers on a full-time basis, that might raise some people’s incomes, but it would also raise the cost per worker by a third and could lead to fewer jobs. There’s a market-based way to deal with problems raised by the court. For instance, the state could pass tax and regulatory reforms that make it more cost-competitive for individuals to purchase the kind of healthcare benefits offered to full-time employees. The state could create a “third way”—another worker status that lies between “full-time worker” and “contractor.”

The state’s business community has called on the Legislature and governor to address the problems created by the state high court. Gov. Jerry Brown punted. Incoming Gov. Gavin Newsom has deep ties to the tech community, but one of his top aides is from the California Labor Federation. Unions already are backing a bill to codify Dynamex. This is shaping up as one of the biggest battles in the new session. Will the California government let its ballyhooed New Economy thrive, or will it embrace an approach that was last relevant in the 1800s?

Steven Greenhut is Western region director for the R Street Institute. He was an Orange County Register editorial writer from 1998-2009. Write to him at sgreenhut@rstreet.org.

This column was first published in the Orange County Register.

Report: Silicon Valley Giants Enjoy Billions in Government Subsidies

Silicon ValleyThe latest Subsidy Tracker reveals that some of the most prominent Silicon Valley tech corporations enjoy billions in government subsidies.

“Good Jobs First” is a not-for-profit organization that reviews state and municipal financial reports to track the size and justifications given by government entities to issue corporate tax abatements and direct subsidies that since 2015 have been required accounting disclosures under GASB Statement No. 77.

Most Americans are supportive of government providing defense, public safety, roads, schools, and public health. But the “Subsidy Tracker 2” reveals that governments are issuing record amounts of subsidies to the richest and powerful tech companies, many headquartered in Silicon Valley.

Supposedly entrepreneurial Silicon Valley has been America’s biggest winner in the corporate welfare game. Tesla has been by far the United States’ leader by collecting $2.4 billion in direct subsidies and over $1 billion in tax abatements since 2007. In addition, its SolarCity subsidiary picked up $1 billion in grants and tax abatements from the State of New York and another $497.5 million in U.S. Treasury Department cash grants.

Other Silicon Valley tech taxpayers miners include Google, the second-most valuable company in the galaxy with a market capitalization of $770 billion. It has enjoyed government largess of $766 million since 2000. Apple, the most valuable company in the universe with a market capitalization of $904 billion, banked $693 million in government handouts since 2011. And Facebook, the fifth most valuable company on the planet with a market capitalization of $558 billion, pocketed $549 million, according to the San Jose Mercury News.

But Silicon Valley is about to be displaced as America’s biggest corporate welfare hub by Seattle-based Amazon. According to the Subsidy Tracker, Amazon built its distribution and data centers network with up to $613 million in government grants and tax holidays.

Amazon is now holding the equivalent of a municipal subsidy auction for the right to host its $5 billion second North American corporate headquarters, HQ2.

In a bidding process that generated hundreds of proposals, Amazon named 20 municipal finalists in January. The subsidy packages for the nine locations that made public bids include 1) Raleigh, North Carolina with $50 million; 2) Denver, Colorado with $100 million; 3) Los Angeles, California with between $300 million to $1 billion; 4) Atlanta, Georgia with $1 billion; 5) Chicago, Illinois with at least $1.7 billion; 6) Philadelphia, Pennsylvania with between $2 billion to $3 billion; 7) Columbus, Ohio with $2.3 billion; 8) Newark, New Jersey with $7 billion; and Montgomery County, Maryland with $8.5 billion in tax abatements and infrastructure incentives.

Mercatus Center at George Mason University warns that elected officials, even with the best of intentions, “do not possess the proper incentives to manage taxpayers’ money prudently” when it comes to passing out corporate taxpayer subsidies.

When private investors act in markets they experience price signals, but government decision makers have no way to account for the value or costs of their decisions. When private investors fail they lose money, but it is taxpayers that lose when government fails.

This article was originally published by Breitbart.com/California