Foundation

Misguided Views on Regulating the Sharing Economy

by Spencer Woody / /

The rise of the sharing economy has altered the way Americans get to work, go on vacation, and even take care of their pets. By providing new options to service providers and consumers, sharing economy businesses like Uber, AirBnB, and Rover have disrupted the taxi industry, hotel industry, and the kennel business, respectively. These new enterprises use peer-to-peer technology platforms that allow everyday people to share their cars, or even their homes with others for a price agreed upon by both parties. This results in a mutually beneficial exchange between individuals. These developing ventures now face potential disruption by the heavy hand of government regulators.

A number of  city and state governments have begun to take steps to both regulate and tax major ride-sharing businesses, like Uber and Lyft. Their arguments for doing so usually attempt to use two major premises: (1) that public safety is in danger, and (2) leaving the sharing economy largely unregulated would violate “economic fairness.” Both of these premises are usually over-exaggerated, insufficient reasons for crafting constricting public policy.  

Public Safety

On the public safety side, despite the fact that both Uber and Lyft perform a driving background check and criminal record check on all drivers, require certain vehicle safety standards, and have other techniques to safeguard riders’ privacy and safety, many officials argue that public safety could be in danger. Many proponents of ride-sharing regulations are calling for fingerprint background checks, government vehicle inspections, government fees, driver training, zoning requirements, and other costly and time consuming regulations. These requirements not only drive up the cost of operations passed on to consumers, but would also create a minefield of regulations that is exceedingly difficult to pass through for someone simply trying to earn some extra money through a part-time job driving a car.

In Houston, Texas, when fingerprint background checks and other costly regulations first became required for ride-sharing drivers, Uber reported that over 200,000 drivers passed its background check, but failed the city’s licensing process. The vast majority of those who signed up to drive with Uber noted that the city’s regulations were “too complex, time-consuming and costly.” In other words, the city’s regulations made it so difficult to participate in the sharing economy, that it was not worth it. Ride-sharing services have left places such as Austin, Texas, the state of Kansas, and even the country of Denmark, because of overly burdensome regulations that cannot be navigated by everyday people who are applying to be part-time drivers. These cases beg the question of whether the regulatory rules are designed to protect consumers, or the traditional taxi industry.

It should be noted that everybody who engages with the sharing economy, whether it is sharing their or another's home or car, understands the risk involved. Moreover, there is little evidence to show that the taxi industry is safer than the ride-sharing industry just because the former has a more in-depth government background check system than the latter. Anytime an individual uses a taxi or ride-sharing service they are taking a calculated risk.

Economic Fairness

On the “economic fairness” side, many political and union leaders have argued ride-sharing and other sharing economy services have an unfair advantage due to not being tied to the same decades old regulations as existing industries. Theatla Jones, a representative of Local 4873 of the Industrial Technical Professional Employees Union, recently pleaded with Nevada’s government to protect the Las Vegas taxi union monopoly since “[tax drivers] desperately need [the state’s] help to survive due to unfair competition.” In other words, some politicians, established business, and union leaders do not think it is fair or right that an emerging and innovative business is allowed to challenge them without abiding by the same rules and regulations that apply to full-time professional taxi drivers.

However, the government should not be protecting businesses from competition via regulations. Business, even those that have been around for a long time, must be susceptible to creative destruction and unorthodox competition, if the free market is to function properly. This competition will force each business to compete for consumers by offering the best service. The winner will be determined by consumers and not by which business was able to lobby government most effectively.

Rather than focusing on using government power to drag and tie new businesses to old and cronyistic regulations, the taxi industry should focus on competing in the market against new businesses. Existing businesses that are afraid of new competition are usually the ones that advocate and lobby for regulations to be enacted in the first place. These regulations protect established industries by keeping new businesses that are in their infancy from maturing or, at a minimum, stunt their growth so they cannot become formidable competition.

The goal of economic fairness should not be to tie new businesses down with excessive regulations just because current businesses are living under excessive regulation. A better pursuit would be to free both established and emerging businesses from regulations that hinder competition, or that distract businesses from providing the safest, cost-effective, and most desirable goods and services to consumers.

Dealing with the Sharing Economy

From first hand experience, I know how both ride-sharing and house-sharing apps have allowed college students and young professionals to afford to live in expensive cities, like Washington D.C. and New York, and utilize relatively cheaply travel to locations within those cities that are outside the traditional transit system. These services are especially helpful to those individuals lacking the financial resources or employment necessary to afford traditional housing and travel.

The way of dealing with sharing economy businesses that provide useful services to individuals, especially those individuals in society that cannot afford traditional services, is not to punish them with new taxes, nor to burden them with undue regulations. City and state governments should primarily leave the sharing economy alone and increase competition by deregulating existing businesses, not by thrusting outdated regulations on new, innovative businesses. City and state governments should be wary of crippling the sharing economy in the name of public safety or protectionism disguised as “economic fairness.”  


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