Capitalism

All Hail the "Sharing Economy!" A Mushy Phrase Gives Liberals Cover to Join the Fight Against Big Government

A libertarian's guide to the sharing economy.

|

In December 2013, a delegation from the sharing-economy advocacy group, Peers, delivered a pro-Airbnb petition to NY State Senator Liz Krueger (D) |||(Credit: David Medeiros)
(Credit: David Medeiros)

"This is a new economy, the sharing economy," declared Airbnb CEO Brian Chesky last November at an event for some the company's avid hosts, who routinely rent out their spare bedrooms and apartments for short-term stays through the company's website. "There are laws for people and laws for business, but you are a new category—people as businesses," he told the crowd. "It's actually starting to feel like a revolution."

Airbnb's explosive growth has spawned fierce political battles in cities around the world over whether the government should ban or curtail these homegrown hotels, which are providing travelers with an alternative to traditional lodging. And Airbnb is just one of many new online marketplaces that are undermining bad government policies and provoking a backlash from regulators. So-called ridesharing companies, like Uber, Sidecar, and Lyft, which connect car service drivers and passengers through mobile apps, are dismantling cab cartels by making government-permitting regimes irrelevant. Equity crowd funding (i.e., Kickstarter with stock rewards) is poised to partially negate New-Deal Era financial regulations by allowing anyone with a bank account and an Internet connection to stake venture capital. EatWith, a website that allows diners to book paid meals in private homes, leaves food service regulators baffled over whether to crack down or look the other way.

In these brewing public policy battles, many advocates for limiting the role of government don't talk like libertarians. They refer to these new online marketplaces as "the sharing economy," a phrase that's clever branding but too broad to be very meaningful. They argue that these companies represent a new paradigm for American capitalism in which trade (at last!) benefits individuals instead of multinational corporations. The higher purpose of these sharing economy ventures, they assert, isn't making people freer, richer, and happier as customers, workers, and entrepreneurs, but reducing energy consumption and staving off the Malthusian apocalypse.

Sharing economy defenders may be on shaky ground intellectually, but their effort to rebrand capitalism is winning converts and swaying regulators. If mushy phrases and misguided ideas provide cover for, say, Occupy Wall Street protestors to turn up at a demonstration to save Airbnb, libertarians should rejoice.

Is the sharing economy a new paradigm for American capitalism?

"We are building a sharing economy—a new economy with humanity at its center and community at its core," boasts a promotional video for Peers, a political action group founded in 2013 that's been fighting grassroots battles all over the country to keep Airbnb legal.

What is the "sharing economy?" The Peers video breezily refers to babysitting co-ops, community gardens, and the peer-to-peer car rental company Getaround, which are three entities that don't seem to fit in the same category. Peers' Executive Director Natalie Foster told me that her organization made a decision not to focus too much on defining the phrase, but "trust and that human connection is one of the through lines." Indeed, many sharing economy businesses trade on their ability to bringing people together. Lyft drivers encourage their passengers to sit in the front seat and vent about their troubles. Earlier this year, I attended a dinner through EatWith, best described as Airbnb for restaurant meals, and experienced how sharing a home-cooked meal can make complete strangers feel like old friends. But there's nothing new about the businesses of helping people forge new social connections, and plenty of for-profit companies excel in this area. An entire segment of the travel industry is devoted to helping strangers get to know one another.

Should the government regulate dinner parties? Click above to watch a Reason TV story on EatWith, a sharing economy website that lets top chefs work out of their own kitchens.

NYU business school economist Arun Sundararajan, who has emerged as the sharing economy movement's big thinker, told me that the phrase "is encompassing of a wide variety of models of consumption in which you are getting access without ownership." But he acknowledges that this definition is so broad that both public parks and urban transit systems fit the criteria. "Access without ownership" is more commonly referred to as "renting," which isn't exactly new. The epitome of "access without ownership" is a Barnes & Noble superstore, where patrons can lounge around in comfy chairs and practically deface the merchandise.

"We often get caught up on labeling in the emergence of a phenomenon," says Sundararajan, "so I'd want to know what the purpose of the labeling is before deciding whether something falls under the umbrella."

It's true that sharing economy firms like Lyft, Airbnb, Getaround, and EatWith couldn't have existed a decade ago.

NYU Professor Arun Sundararajan, who's an expert on the sharing economy. |||

By reducing transaction costs, the Internet has indeed made it feasible for individuals to sell many goods and services directly to one another. But Ebay, which launched 19 years ago, epitomizes this model and isn't generally considered part of the sharing economy. Urban bike sharing programs, in which individuals transact with government-supported nonprofits, are often included under the sharing economy umbrella. And "sharing," which generally implies compassion or generosity, is a misnomer. These emerging online platforms enable people to sell things to one another.

Libertarians (myself included) often describe these companies as "peer-to-peer" because they allow individuals to sell things to one another without a company acting as a middleman. (Sundararajan views peer-to-peer as a subset of the sharing economy.) But this phrase can also be picked apart. Libertarians celebrate peer-to-peer businesses, but why is paying a neighbor to borrow a drill through the website Snapgoods better than renting the same drill from a hardware store? If a real estate company advertises an apartment through Airbnb is that any worse than if a tenant of the same real estate company is the one advertising the apartment? For many of these industries, peer-to-peer is nothing new. TaskRabbit is a great way to hire a handyman, but the home repair industry has always been comprised primarily of independent contractors. The taxi business has been dominated by drivers working for themseves going back to its early days in Victorian London.

The phrase "peer-to-peer" is still a more useful descriptor than "sharing economy" because it references an important

Peers Executive Director Natalie Foster. |||

phenomenon, which is that new technologies are eliminating middlemen. But the real value of companies like Lyft, EatWith, and Airbnb is that they make new forms of trade possible. It doesn't matter whether the buyer or seller is an individual or an incorporated business. Contrary to what Airbnb's Brian Chesky says, corporations are just groups of people collaborating with each other.

At first glance, Peers' Executive Director Natalie Foster seems like an odd fit for a group that promotes economic freedom: She's a veteran of MoveOn.org and the Obama campaign, who's now bringing her organizational expertise to the battle against NIMBYism and rent seeking in the accommodations industry.

Peers brought a large turnout of Airbnb supporters to a hearing in Silver Lake, California held by the city's neighborhood council, which was considering a ban on short-term accommodations. Last December, the organization led a week of action in New York City to support Airbnb, and members hand delivered a petition with more than 230,000 online signatures to New York State Sen. Liz Krueger (D-District 28, Manhattan). In Grand Rapids, Michigan, Peers played a key role in defeating a law that would have made it a crime to advertise on Airbnb by helping local activists redraft a petition and sharpen their communications strategy. The organization also played a part in legalizing the practice of renting a neighbor's car in California.

Peers' messaging harps on keywords like collaborate, sustainability, and community. "One thing I love about this space is that it's not political," says Foster, "and people come at it from a libertarian and socialist background and we all meet in this interesting way of thinking about a bottom-up economy."

Outlets such as SalonColumbia Journalism Review, and ValleyWag have attempted to discredit the nonprofit as a shill for industry because of its financial and organizational ties to Airbnb. Peers co-founder James Slezak bristles as this suggestion, asserting that he and his collaborators hatched the idea for Peers on their own, and that Airbnb got involved later. But why does it matter, as long as the company's promoting good policies? Like his critics on the left, Slezak seems to buy into the fallacy that having ties to a big company undermines the value of a cause.

Slezak describes himself as an environmentalist and a progressive who is "inspired by libertarian, socialist, and anarchist political philosophy." He told me that he doesn't want the group "to play into the sort of deregulatory agenda of people who might see this as a way to further a pro-industry agenda." Both Slezak and Foster believe that many of the regulations they're fighting made sense in the old world, but simply shouldn't be applied to the sharing economy. A lot of regulations were written "for a different sort of economy," says Foster.

Slezak and Foster are alluding to an idea best articulated by Sundararajan, who argues that the customer feedback mechanisms built into online platforms like Airbnb make them largely self-governing. "Rather than needing a government regulator to insure cleanliness of a shared economy space," says Sundararajan, "you can rely on the reputation system to enforce that."

There's merit to Sundararajan's argument, but the phenomenon he's describing isn't limited to the sharing economy. If EatWith hosts give their customers food poisoning, the sickened guests can post about what happened on the offending seller's profile for all future customers to see, but websites like the review site Yelp subject old economy businesses to the same accountability. And most adversaries of sharing economy businesses aren't calling for regulations to improve the customer's experience; they want to protect aggrieved third parties. For example, groups that are fighting to ban Uber, Sidecar, and Lyft aren't complaining that the cars are dirty and the drivers are rude, but that they lack adequate insurance coverage, such as in the case of Sophia Liu, a six-year old killed by an Uber car in San Francisco last year. In New York City, Airbnb's critics complain that the service needs to be reigned in because it provides a way for landlords to harass rent-stabilized tenants.

Will the sharing economy save the earth?

Sunil Paul, a tech entrepreneur who made his fortune as the founder of the spam-filtering company Brightmail, is now the CEO of Sidecar and a major advocate for the sharing economy. In 2010, Paul played a key role in getting a bill passed in California that clarified state insurance law to make it legal for individuals to act like mini car rental agencies by leasing their idle vehicles to strangers. (Similar laws were passed in Washington State and Oregon.)

Click above to watch a Reason TV story on how Lyft, Uber, and Sidecar are upending the taxi business in cities around the world by making government-permitting regimes irrelevant.

As the CEO of Sidecar, Paul is constantly battling with local governments that want to ban or curtail his company's operations. At times he talks like a techno-libertarian fighting backwards-looking government regulators, but a greater motivation, if you take him at his word, is saving the planet. Information technology is good for the environment, he argues, because it allows humans to make more efficient use of dwindling resources. Paul calls this concept the "CleanWeb." (Through a Sidecar representative, Paul declined to be interviewed for this story.) In a video explaining the principles of the CleanWeb, Sidecar co-founder Nick Allen cites estimates that a night in a traditional hotel creates three-times the carbon footprint as an evening spent in someone's home. According to Allen, that means Airbnb is helping to save the planet.

Sure, it's possible those empty hotels driven out of business by Airbnb would be torn down to make way for, say, a nature reserve. What Allen doesn't mention is that they might also be repurposed to satisfy other human desires that require just as much if not more electricity. It's a phenomenon called the Jevons paradox, named after the

Sunil Paul, the CEO of Sidecar. |||

nineteenth-century British economist William Jevons, who observed that as steam engines became more efficient demand for coal actually grew. Similarly, if Paul and Allen's company Sidecar were to takeover much of the cab industry, other vehicles might quickly take the place of all those idle yellow taxis. Paul and Allen should reflect on Thomas Edison's 1908 prediction that if horse cars "could be transformed into motor cars overnight," it would "so relieve traffic [congetion] as to make Manhattan Island resemble 'The Deserted Village.'"

Saving the planet, unlike defending individual freedom, is something politicians can reliably get behind. Former California Assemblyman Dave Jones (D-Sacramento), who sponsored the bill that made peer-to-peer car rentals possible in California, told StreetsBlog that the purpose of the bill was to "encourage better environmental behavior." Rep. Zack Hudgins (D-Seattle), who successfully sponsored a similar bill in Washington State, testified that car-sharing leads to "more efficient use of resources" and "may result in an incremental improvement for the environment."

Trumpeting the environmental benefits of a product also holds sway with customers. A promotional video for the European company Carpooling.com, which has moved hitchhiking into the digital age, doesn't emphasize that its participants can save money on gas and tolls; there's a higher purpose. "Oil and natural gas and goal are set to peak and go into decline in the next decade," the video (wrongly) asserts. "With rising energy prices in the back of our minds we either need to find new energy sources or share our resources more efficiently."

"There aren't enough resources on this planet for everyone to have one of everything, and we need to live more sustainably," says Janelle Orsi, who is the co-founder and CEO of the Oakland-based Sustainable Economies Law Center (SELC), one of the leading advocacy groups for sharing economy businesses. The SELC is doing vital work in the Golden State. In 2012, it played a role in the passage of the California Homemade Food Act, which loosens restrictions on home kitchens. For the past two years, the SELC has been rallying support for a law that would change California's legal code to make it clear that alternative currencies (like Bitcoin) are permitted in the state. Orsi's co-founder, Jenny Kassan, filed the original petition that led to the passage of the 2012 U.S. JOBS Act, which will eventually make it possible for average investors to take equity stakes in upstart businesses.

Click above to watch a Reason TV story about equity crowdfunding, and a federal law that promises to open venture capital markets to the masses.

The SELC recently co-authored a report titled Policies for Shareable Cities, which almost could have been written by my colleagues at the Reason Foundation. Among other things, it advocates loosening regulations on food trucks, allowing more home-based food production, reducing permitting fees for home expansions, rewriting building codes to allow for small dwellings, making zoning codes more flexible, and imposing fewer restrictions on the accommodations industry. Less palatable to libertarians, the policy brief also calls for taxpayer subsidies for everything from bike-sharing programs to urban farming.

Janelle Orsi, co-founder and CEL of the Sustainable Economies Law Center. |||

Orsi sees the sharing economy as an alternative to traditional capitalism and draws a sharp distinction between these businesses and traditional firms. "I think we need to loosen a lot of regulation," Orsi told me in a phone interview, "but we can't loosen them for traditional business structures" because "they're generating profits for their shareholders, so there are tons of opportunities to exploit people." Profit-making is anathema to Orsi's vision for the sharing economy. She favors letting Uber, Sidecar, and Lyft operate, for example, but insists that drivers should be allowed to earn only enough to cover the cost of tolls and fuel.

Are libertarians striking a Faustian bargain by joining forces with groups like Peers and aligning themselves with activists like Orsi, who are explicitly anti-capitalist? Nah.

The emergence of companies like Lyft, Uber, and Sidecar present a once-in-a-lifetime opportunity to get the government out of the taxi business. Airbnb is making it possible for people who aren't rich to visit and move to places like New York, despite the city's out-of-control real estate costs. And yet every day there's news of another city council or community board trying to ban or block these services. In these battles, libertarians need all the help they can get.