The Sharing Economy I: Regulation

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The rising success of companies such as Airbnd and Uber have created considerable interest in what has been called the sharing economy. The core idea behind the sharing economy is an old one: people provide goods and services as individuals rather than acting as employees or businesses. One classic example of this is paying a neighborhood kid who mows lawns or babysits. Another classic example is paying a friend’s gas money for a ride to the airport. The new version of the sharing economy does make some changes to the traditional model. The fundamental difference is that the old sharing economy was typically an informal word-of-mouth system while the new sharing economy is organized by companies. As an example of the old sharing economy, your neighbor might have told you about the teenager she hired to babysit her kids or to mow her lawn (back in the day when this was an accepted practice). As an example of the new sharing economy, you might use the Uber app to get a chipper soccer mom to give you a ride to the airport in her mini-van. Unlike the old sharing economy in which your neighbor (probably) did not take a cut for connecting you to a sitter or mower, the companies that connect people get a cut of the proceeds—which can be justified by the services they provide.

The new sharing economy has received considerable praise, mainly due to the fact that it makes it easier for people to make money in what are still challenging economic times. For example, a person who would be hard pressed to get a job as a professional cabbie can easily drive for Uber. However, it has also drawn considerable criticism.

As might be suspected, some of the most vocal critics of the sharing economy are the people whose livelihoods and profits are threatened by this economy. For example, Uber’s conflicts with taxi services routinely make the news. Some people dismiss these criticisms as the usual lamentations of obsolete industries while others regard the criticisms as having legitimacy. In any case, there is certainly considerable controversy regarding this new sharing economy.

One point of concern is regulation. As it now stands, the sharing economy is exploiting the loopholes that exist in the informal economy (which is regulated far less than the formal economy). For example, professional cab drivers are subject to a fairly extensive set of regulations (and expenses, such as insurance costs) while an Uber driver is not. As another example, the hotel industry is regulated while services like Airbnb currently lack such regulations regarding things such as safety and handicap access.

Some proponents of the free market might praise the limited (or nonexistent) regulation and this praise might have some merit—after all, it has long been contended that regulation impedes profits. However, there are at least two legitimate concerns here.

One is, obviously enough, the matter of fairness. If taxi drivers and hotels are subject to strict regulations that also involve additional costs, then it hardly seems fair that companies like Uber and Aibnd can offer the same services while evading these regulations. One obvious option is to impose them on the sharing economy. Another obvious option is to reduce regulations on the traditional economy. In any case, fairness would seem to require comparable regulation.

The second is the matter of safety and other concerns of the public good. While some regulations might be seen as burdensome, others clearly exist to protect the public from legitimate harms. For example, hotels are held to certain standards of cleanliness and safety. As another example, taxi companies are subject to regulations aimed at protecting the public. If the new sharing economy puts people at risk in similar ways, then it seems reasonable to impose comparable regulations on the sharing economy. After all, whether you are getting a hotel room or going through Airbnb, you should have a reasonable expectation that you will not perish in a fire due to safety issues.

It might be countered that the new sharing economy should still fall under the standards of the old sharing economy. For example, if I ask a friend to take me to the airport and she has an awful car and is a terrible driver, it is hardly the business of the state to regulate my choice (although the state would have the right to address any actual traffic violations). As another example, if I crash on someone’s couch for the night, it is hardly the business of the state to make sure that the couch is properly cleaned and that the house is suitable (although it would need to be up to code).

While this does have some appeal, there are two main arguments against this approach. The first is that the informal economy is largely unregulated because it is just that—informal. Once a company like Uber or Airbnd gets into the picture, the economy has become formalized—there is now a central company that is organizing things. This allows a practical means of regulating what is now commercial activity. The second is the matter of scale. When the informal economy is relatively small, the cost and difficulty of regulating for the public good can be prohibitive. For example, policing neighborhood babysitters or people who give the occasional ride to friends and get gas money for doing so would impose a high cost for a little return in public good. However, when an aspect of the informal economy gets organized by a company and greatly expands in size, then there is more at stake and hence paying the cost of regulating for the public good becomes viable. For example, regulating people occasionally giving friends or associates rides is one thing (a silly thing), but regulating large numbers of people driving vehicles for Uber is quite another matter.

One area that is going to be a matter of considerable controversy is that of discrimination. If Bob does not want to share a ride with a white colleague or give a handicapped associate a lift, then that is Bob’s right.  After all, a citizen has every right to be biased. But, it gets rather more complicated if Bob is driving for Uber—after all, discrimination does harm to the public and the public might have a stake in preventing Uber Bob from discriminating. Similary, if Bob does not want his Latino friend crashing on his couch because he thinks Latinos are thieves, that is Bob’s right (the right of being a jerk to one’s friends). But, if Bob is renting out a room through Airbnd, then this could be a matter of legitimate public concern.

It might be countered that people “freedriving” or “freerenting” for the sharing companies still retain the right to discriminate since they are acting as individuals, albeit under the auspices of a company. That does have considerable appeal, especially since the people driving or renting are not actually employees of these companies. The company is just assisting people to exchange services and, it could be claimed, is no more accountable than a newspaper that has a “for sale” or “help wanted” section. Obviously enough, companies are generally going to want to avoid being associated with discrimination and hence they will probably engage in some degree of self-policing to avoid PR nightmares (or will do so if they are sensible or ethical). However, there is clearly an important issue here regarding whether or not laws against discrimination should be applicable to individuals who are involved with the sharing economy companies. The somewhat fuzzy status of those providing services does create a legitimate problem. As noted above, on one hand they are still just individuals using the service to connect to others. On the other hand, this service does seem to bring them into more of a formal business situation which is subject to such laws.

 

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