Feb 9, 2016 · 13 minutes

Whether you’re broadly pro- or anti- unions, there’s no denying they’ve performed an important role in the founding of most modern industries.

That’s particularly true when new industries are being created, rules are being shaped for the first time, management has a stranglehold of power, and frequently there’s so much opportunity and the pie is growing so much that there should be plenty of money to go around. Think: The industrial revolution, the automobile industry, golden age of airlines.

But there’s one major industry that met all those criteria but still mostly avoided widespread unionisation: Silicon Valley tech startups. The absence of unions in even early Valley companies is all the more surprising because those early Silicon Valley companies... well... made Silicon. They were heavily dependent on blue collar manufacturing jobs.

Developing a culture where blue collar employees of these growing tech giants actually chose not to unionize wasn’t an accident. Robert Noyce-- co-founder of Fairchild Semiconductor and Intel and one of the great forefathers of Silicon Valley culture-- came from the midwest where he’d developed a distrust, even a hatred, of unions. While many of his East Coast backers told him unions would be inevitable, Noyce believed if they treated their workers better and tried to eliminate any obvious hierarchy between managers and staff, his team would choose not to unionize.

From Leslie Berlin’s “The Man and the Microchip: Robert Noyce and the Invention of Silicon Valley”:

Conventional wisdom within the semiconductor industry held that no matter how rich a company’s wages and benefits packages, it would cost 25 percent more to operate the business with a union in house. A strike in April 1968, by 5,000 workers at Ampex, Lenkurt Electric, and Dalmo-Victor-- the only three unionized electronics (not semiconductor) companies in SIlicon Valley-- reinforced the prevailing bias against unions. The work stoppage stretched more than a week. Had this lacuna hit a company in the fast-moving semiconductor industry, it would have put the firm at a significant competitive disadvantage. 

In other words, for a rapidly growing business in a fast moving competitive sector, it makes financial sense to make your employees so happy that they don’t form a union-- almost no matter the cost. It’s in management’s self-interest. It’s the same logic that makes startups worth billions when they are still a money losing enterprise. Nascent companies in growing industries shouldn’t penny pinch at the expense of future growth. Startups, Noyce believed, simply couldn’t risk the extra cost, distraction, or risk of a potential union drive. It’s about avoiding future opportunity cost, taking whatever risk you can out of the equation. It’s the same reason entrepreneurs move to Silicon Valley to begin with: To do whatever they can to maximize every shot at success given the odds of building a lasting business are stacked against you from the beginning.

This downright fear of unions and willingness to give employees whatever they needed so that they never opted for them is well-chronicled in nearly everything written about Noyce. Tom Wolfe’s iconic 1983 Esquire article on Noyce called unions “a death threat to Intel and to the semiconductor industry generally.” From that piece:

Labor-management battles were part of the ancient terrain of the East. If Intel were divided into workers and bosses, with the implication that each side had to squeeze its money out of the hides of the other, the enterprise would be finished. Motivation would no longer be internal; it would be objectified in the deadly form of work rules and grievance procedures. The one time it came down to a vote, the union lost out by the considerable margin of four to one. Intel’s employees agreed with Noyce. Unions were pat of the dead hand of the past…Noyce and Intel were on the road to El Dorado.

The Berlin book continues:

 Intel had long employed many of the same preemptive personnel tactics that had kept unions at bay at Fairchild. Hourly workers at Intel had health care, dental care, paid vacations, and sick leave. They could buy Intel stock at a reduced price. The company also held meetings each month at which supervisors answered questions from employees, either asked in person or submitted anonymously in writing. Such practices, common in Silicon Valley semiconductor firms since the early Fairchild days, were widely encouraged by the AEA, one of whose representatives warned, “The way to thwart unions is to make them unnecessary. And the way you do that is to think as though you really had a union in the plant.”

Now let’s compare and contrast Intel and Fairchild back then to Uber today. Intel gave full benefits to hourly blue collar workers, and management had a set aside time for listening and answering questions. Uber regularly and without warning cuts pay of its drivers and blocks them on Twitter when they complain.

Or as was written in the open letter from drivers last week to Uber CEO Travis Kalanick and NYC general manager Josh Mohrer:

You have created a culture of expendable drivers. You entice drivers to join with promising ads of making tons of money, just to find out after a few months that it is not as promised. You have saturated the company and the industry as a whole with expendable drivers that make it nearly impossible for any one single driver to make a decent income. The riders pay rates that are much cheaper than a taxi, whereas you and your company maximize your revenue. This is simply no longer acceptable. As you have seen lately, drivers have risen up from the East coast to the West coast in protests and strikes against you and your company in utmost frustration and anger to tell you and the riders that we cannot bear it any longer...

...It is crucial that you reconsider the fact that Uber without us, the drivers, cannot be sustainable. We provide the vehicles, pay the insurance, cover the gas and all other cost associated being a driver and a transportation provider. Your technology is great, but without drivers on the platform, it’ll be of no value to any consumer seeking a ride.Q

Kalanick finally-- for the first time since this driver uprising began-- responded, in the way a passive aggressive teenager would have ten years ago, on Facebook and not to anyone in particular. He reposted an old article about Uber earnings increasing every year adding this:

Especially after price cuts! Because that makes economic sense. The only way that’s true is if drivers are making it up on volume. If that’s the case, and everyone is making more money after cuts, drivers argue, why did Uber so dramatically up its own take from each ride as it cut fares?

Drivers flat deny this. Today a story in the New York Post quotes drivers who say they are driving 19 hour shifts to make ends meet, potentially putting passengers at risk.

(By the way, we’ve noted a few times whenever Uber is in PR trouble it literally starts to deliver puppies to newsrooms to deflect. Leading up to the Super Bowl, Uber’s Twitter feed was all puppies. This is currently Kalanick’s profile picture on Facebook:

I grant you, it’s a step up from The Fountainhead.)

We’ve detailed previously why we believe Uber is doing this, and why it’s unlikely to cave to any of the drivers’ demands: It doesn’t have an economic choice.

But ultimately this is a matter of soul that goes far deeper than policy or cash on hand or anything else. It’s about how Uber was constructed from the beginning. Remember: Intel raised $30 million at its IPO. Uber has raised in excess of $8 billion in the private markets before even getting to that point. Granted these are different times when it comes to fundraising and valuations, but Uber’s cash take is big even by today’s standards. It’s the highest valued company in Silicon Valley history-- beating Google, beating Facebook. And Facebook-- a pioneer of the late stage, pre-IPO liquidity rounds-- raised just $2.4 billion in the private markets by contrast.

You can’t simply say contract workers never get these kinds of benefits, because Noyce offered them. And even today, a far smaller company, Honor, which pairs up workers with seniors for in home care recently made them its entire base of contract workers employees with full benefits and stock options. Said CEO Seth Sternberg at the time of the announcement:

I think Silicon Valley tends to see ‘rock stars’ and in most companies that’s the engineers. Our rock stars are our CarePros. Our engineers would tell you they work in the service of the CarePros. So we are going to give them equity. We think it’s what they need to fully be part of the team. 

At Fairchild, there were no private cars. No corner offices. Everyone dressed casually. The East Coast backers were stunned when they first visited the company. They pioneered management by walking around. Stock options. A belief that everyone should profit as a company grows. An admin should be able to become a millionaire. Anyone working to build a company should be. It was about eliminating barriers. This was as radical as anything about the sharing economy at the time.

Fairchild spawned more than 50 companies, each of them taking this ethos with them. And so went the pollination of this kind of management theory throughout the Valley. It’s telling that even “assholes” like Steve Jobs managed to maintain that culture. There were several attempts to unionize parts of Apple, the most loud at the retail stores, championed by several publications before the presumptive leader quit.

Now, Apple clearly had a less than sterling record when it came to the Chinese workers making its devices. Is there a difference in suicides and workers conditions at Foxconn and Uber drivers complaining they can’t make a living wage? It’s hard to argue on a human level. That said, the former was a task outsourced to a third party company that actually employed those workers and set the conditions. Uber drivers aren’t employed by anyone, and are recruited one-off directly by Uber. They not only deliver the core service of the company, but they are the touch point to the customers.

One may not be morally superior, but there’s a difference between the role they play in the company and the connection to the company. Foxconn employees worked for Foxconn, and Apple was one of many clients. Uber’s “partners” work for Uber in all but the noun they’re allowed to use to describe themselves.

The duplicity is the worst part. Apple never told Foxconn’s workers they were “partners” or “entrepreneurs” building better lives for themselves. They were never promised annual earnings as high as $90,000. Uber has created a class of millions of unemployed “partners” who it says are like their own bosses. In reality, they are told how much to charge and penalized for not working a certain number of hours, picking up a certain number of rides, or completing a number of rides picked up, or doing any of that while earning lower than a 4.5 star rating. Their rates can be changed at any given time, without warning. And they’ve been promised their jobs will be eliminated in favor of self driving cars, even if they comply with all of this. It’s as much of a joke to call drivers “partners” as it is to call them “entrepreneurs.”

It’s a far starker line than we’ve ever seen before in the Valley between the people who fulfill the core service of your company and the people who actually get to participate in the upside should they succeed. While Noyce and other Valley giants like Bill Hewlett and Dave Packard didn’t have offices and ate lunch with rank and file workers every day, Uber even built a separate headquarters for drivers in San Francisco, because they were sick of having to interact with them.

Emil Michael-- an Uber Executive who detailed plans to go after critical journalists’ families and still kept his job-- has described the number one quality that he and Kalanick look for in employees is “fierceness.” He might as well have said “cruelty.”

Uber has always been combative with everyone, and investors have excused their atrocious behavior in the past as saying something like “it takes a certain kind of personality to combat taxi lobbies.” That “certain kind of personality” is in open warfare with the drivers who it still needs for another six to ten years, or whenever truly autonomous self-driving cars are ready for primetime.

Noyce’s paranoia was right. In absence of any internal sense of responsibility to treat drivers right, unions are starting to zero in on Uber from all sides. And while I’m not a huge fan of unions in many cases, I can’t blame them. Millions of drivers were misled, and when rates were cut with no notice-- while the company’s own take increased-- management responded by telling them that, no, they are mistaken. They are actually earning more than three years ago.

Drivers attempts to protest have gained press attention, but not much impact. The largest protest in New York still had under 1,000 drivers. There are some 40,000 in San Francisco alone. Critics of the attempt to disrupt the Super Bowl this past weekend complained that it was poorly organized.

Indeed, without a strong central group calling the shots, it’s hard for tens of thousands of drivers already reeling from unexpected cuts to skip out on bonuses and surge pricing. It’s the exact dynamic that makes unions effective. One-off protesting drivers are squeaky wheels and rounding errors. Uber employees have been caught videotaping license plates and firing those who make waves. Without a central and official organized effort, drivers won’t be able to force change. They can only quit, Tweet, or complain one-by-one.

But this much is clear: The public is now well aware this is not a great way to make extra cash, and it’s yet another black eye for what’s rapidly becoming one of the most reviled companies in Valley history. Calling yourself the “Uber of X” has taken on new meaning in the last few years.  Tweeted Dan Gillmor last week: “When a startup says I want to be ‘Uber of X,’ I immediately question its ethics.”

Uber has at least six years to go with drivers, even by the most optimistic estimates about self driving cars. And as I wrote last week, I think they are doing this because economically the model doesn’t work. They can’t seem to keep rates low enough to replace car ownership-- one of the many promises their valuation is predicated on-- and pay drivers a living wage and make enough to also support billions in subsidies trying to become the largest transportation service In Asia too.

And already Seattle voted to give Uber drivers the right to unionize. Expect more to come. Expect presidential candidates on the left to start weighing in too. Uber’s management has greedily backed itself into a corner that Silicon Valley’s forefathers were smart enough to avoid.

This isn’t about money. It isn’t about business models. It’s about a company’s soul. It’s about a long term vision versus short term valuation hacking. It’s about building something lasting in a way that makes everyone involved proud….and rich. That was the true disruption of Noyce and Gordon Moore that lasted well beyond semiconductors into the PC era, enterprise software, the Web, and mobile and then…. stops with Kalanick. 60 years is a pretty good run, I guess.