All Commentary
Thursday, June 15, 2017

Why, Despite the Bad Press, Uber’s Valuation is Soaring High

Pittsburghers should genuflect before all things Uber.

Present stock prices do not always predict the future. However, for now, the $70 billion valuation placed on ride-hailing service Uber indicates that investors think it poised to transform how we get around by car, how we access meals and groceries more broadly, and perhaps how we eventually travel long distances in the sky.

Uber chose Pittsburgh as the locale for its driverless car research.Stating the obvious, Uber’s handsome valuation is no more rooted in rides around town than was Amazon’s early price solely a reflection of the online book sales that initially launched the Seattle giant.

Needless to say, Amazon’s surge from bookseller to one of the world’s most valuable companies has redounded to the city of Seattle in impressive ways. Once a dying monument to manufacturing’s glamorous past, Seattle has been revived into the picture definition of wealth and opportunity by Microsoft and Amazon, two of the five most valuable companies in the world.

Indeed, high valuations logically lead to extraordinarily well-paid employees who can often claim wealth holdings in the millions, hundreds of millions, and even billions. This is certainly the case in Seattle, and it’s led to what Cal-Berkeley professor Enrico Moretti describes as a “jobs multiplier.”

With extraordinary wealth comes enormous demand for all manner of goods and services, and abundant work opportunity for individuals who might lack the technological skills required to work at Amazon or Microsoft. Jobs in the Seattle of today are everywhere such that the employee headcounts of its two most prominent companies only tell a fraction of their brilliant economic impact on the Emerald City.

The Revival of Pittsburgh

Which brings us to Uber’s relationship to Pittsburgh, PA. Uber chose the city as the locale for its driverless car research.

Uber’s management plainly sees the future of transportation as something that will not involve live humans, thus its heavy investment in self-driving technology, with Pittsburgh at the center of the experiment. Uber’s desire to boost the profitability of its transportation-by-car business arm will be a function of it substantially lowering the cost of passenger transportation through automobiles that don’t require human drivers.

Time will tell if Uber is proven prescient, but its plans to use “robots” to drive its customers around have the potential to completely alter how we get from Point A to Point B in the future.

Uber has aggressively hired away some of Pittsburgh-based Carnegie-Mellon Univerity (CMU). CMU was a creation of Pittsburgh’s wealthy, steel-making past, and it’s long had a reputation for the high quality of the technological minds that have taught at the University, along with the students who’ve been educated there. In particular, CMU has directed some of its research budget toward robotics through the founding of its National Robotics Engineering Center.

And while the New York Times has generally produced positive reporting about technology, a recent article intimated that opposite Pittsburgh’s decision to roll out the proverbial red carpet to the tech innovator, Uber “has not lived up to its end of the bargain.”

About its alleged “transgressions,” the Times reports that it “began charging for driverless rides that were initially pitched as free,” and then it has apparently not “created the jobs it proposed in a struggling neighborhood that houses its autonomous car testing track.”

Times reporter Cecilia Kang completely missed the economic growth point that Uber’s arrival heralds.

Jobs are Not the Point

To be clear, jobs are the easy part. If jobs were the goal for Pittsburgh, rather than hosting Uber’s transportation advances it could simply abolish cars in Pittsburgh altogether. If so, all sorts of work would be created for the few Pittsburghers willing to remain in a city stuck in the past. And eager to be poor. Missed by Kang and those whom she interviewed is that technology is by its very name all about job destruction.

Uber’s decision to locate its “driverless car experiment” in Pittsburgh is an exponentially greater gift to the city than the simple creation of jobs.Thankfully. Life was unrelentingly brutal in the past when a broad lack of technology meant that most human effort was wasted on the basics. Lest we forget, there was a time when nearly all work was about procuring food. Thank goodness farming jobs were destroyed en masse so that we humans could direct our talents to an expanding range of work options that previously didn’t exist.

Applying this to Pittsburgh, while Uber’s speculation about the future of transportation could be way off, its valuation signals that it’s on to something. If so, as in if Uber eventually rates its valuation and much more, Pittsburgh’s citizens will benefit in grand fashion. Uber’s decision to locate its “driverless car experiment” in Pittsburgh is an exponentially greater gift to the city than the simple creation of jobs.

We know this because Uber has already opened its checkbook to lure away some of Pittsburgh’s greatest technological minds with an eye on erasing the unease that comes with transportation. And assuming its speculation about driverless transportation proves correct, logic dictates that it will hire many more on the way to Pittsburgh-based innovation playing a major role in a technological surge that will author an impressive wealth explosion.

Transportation Revolution

Much better than the simple creation of voluminous jobs, Uber has made Pittsburgh a destination for the talented. Of great importance, talent is the ultimate magnet for the investment that is the source of all economic opportunity.

Pittsburghers should genuflect before all things Uber.If Uber’s predictions about the future bear fruit, talent will come rushing into the Steel City in much the same way that it migrated to Detroit in the early part of the 20th century, and to Silicon Valley at century’s end. If it were just about new jobs, Pittsburgh’s leaders could camp out at the headquarters of Wal-Mart, Target and Costco. Rest assured Uber is doing the city a much bigger turn.

And as Seattle and its “jobs multiplier” hopefully remind us, the talented individuals that investment invariably follows will grow enormously rich. When they do, Pittsburgh won’t have a jobs problem as much as its citizens will have the high-class problem of figuring out which of the countless work opportunities on offer are most commensurate with their skills.

In that case, for Uber skeptics to focus their emotions on jobs directly created by the company in Pittsburgh is for them to waste energy on the short term, and at the expense of what could be an abundant future.

While it’s once again very difficult to predict what the future will look like, Uber has chosen Pittsburgh as the location of its efforts to almost totally revolutionize transportation. This cannot be minimized in light of its potential economic impact. Rather than “souring” on this visionary company, Pittsburghers should genuflect before all things Uber. If its apparently too-few Pittsburgh employees get rich, the economic benefits for those not in Uber’s employ promise to be endless.

  • John Tamny is Director of the Center for Economic Freedom at FreedomWorks, a senior economic adviser to Toreador Research & Trading, and editor of RealClearMarkets.