Sharing Economy

The Sharing Economy Will Thrive Only If Government Doesn't Strangle It

We're unlocking unthinkable amounts of capital and lawmakers stand in the way.

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The so-called sharing economy is many things to many people. To Wall Street and Silicon Valley, firms like Uber and Airbnb offer tantalizing market capitalizations, the likes of which have not been seen since the go-go '90s. At the same time, political operatives see the emerging debates over regulation of ride-sharing and space-sharing as a potential opening for the libertarian right to assert their world view in urban politics for the first time in a long time.

At the other end of the political spectrum, some on the left see the rise of these services as yet another brick in the wall of income inequality, putting downward pressure on service workers' already paltry incomes while simultaneously expanding the myriad opportunities the wealthy already have to pay to jump to the front of most any line. Others on the far left disagree, going so far as to hold up "peer to peer" transactions as the model for a new, post-capitalist economic regime.

If ye gaze into the sharing economy, the sharing economy gazes also into ye. It contains multitudes.

It's easy to dismiss these various takes as just more grist for the hype mill, as pointless navel-gazing over fads that most Americans have never used and for which they might never have need. But there is reason to suspect the sharing economy might, in fact, be more than that. Indeed, the potential economic benefits of putting our vast stores of trapped and dormant capital into the stream of commerce and reducing the costs of productive work on the margin really are quite enormous.

A national survey in the United Kingdom showed that, in 2008, more than one in every three households was "under-occupied," with more bedrooms than people to sleep in them. Meanwhile, of the world's roughly 1 billion cars, about 740 million are mostly used only by a single rider. These sorts of statistics help demonstrate the scope of currently fallow resources that new technological platforms are beginning to put to productive use. The McKinsey Global Institute estimates that social technologies could unlock $900 billion to $1.3 trillion of annual consumer surplus in just four key sectors of the economy: consumer packaged goods, consumer financial services, professional services and advanced manufacturing.

In this way, it's possible that Lyft and Flightcar, SnapGoods and ShareDesk, TaskRabbit and Etsy and DogVacay – rather than merely being the new digital toys of over-entitled millennial hipsters – are following in the footsteps of other grand innovations and social movements throughout history that have unlocked trapped capital and powered economic growth. These include the public offerings of non-railroad companies in the 1920s and the development of high-yield bonds in the 1980s. But they also include the even larger unlocking of human capital that came in the form of the mass movement of women into the U.S. workforce and the opening of skilled jobs to African-Americans in the second half of the 20th century.

But in order to achieve these benefits, regulators must not strangle the emerging peer production economy in the cradle. In too many cases, when confronted with disruptive business methods, the tendency of public officials is to apply regulatory models developed in an earlier era. This obviously provides clear benefits to incumbent firms, but the benefits for consumers, who lose access to expanded choices and cheaper prices, is not so obvious.

In a new paper, my colleague Andrew Moylan and I suggest regulators tread extremely lightly in this emerging sector, allowing firms and industries to self-regulate to the extent practical. For instance, reputation has shown itself a powerful force in these markets, where most firms offer a system for participants to rate each transaction. Those who receive consistently poor ratings are edged out and sometimes barred from operating, while those who receive good ratings see that translated into better sales.

Which is not to say that there is no room for regulation of any kind. For providers of services such as transportation and lodging, it may be appropriate to require they maintain liability insurance to cover the costs of injuries sustained by consumers. Where this is the case, insurance can also serve something of a self-regulatory function, as insurers tend to make coverage available at attractive rates to those who demonstrate good market conduct, while limiting coverage or raising rates on those who demonstrate a pattern of recklessness. (We also would urge peer production services, the insurance industry and insurance regulators to work together to develop and approve new products in areas where existing offerings are not good fits for the nature of these emerging risks.)

Finally, where lawmakers do find the need to pass new legislation to deal with sharing economy services, they should take this opportunity to significantly scale back, rather than increase, reliance on occupational licensure. Occupational licensing laws, which impact as much as one-third of the U.S. workforce, cost roughly $100 billion annually in lost economic output, despite no evidence that licensing improves the quality of services provided to consumers.

The sharing economy has not, for the most part, birthed many truly novel services. Instead, what it does is harness technology to connect buyers and sellers who otherwise would not have connected. A regulatory approach that is modest and even-handed, and that does not discriminate between new and old providers or new and old business models, is the best way to ensure those connections are not cut prematurely.

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44 responses to “The Sharing Economy Will Thrive Only If Government Doesn't Strangle It

  1. The regulators have a major obstacle to overcome, they don’t have a fixed target for enforcement.

    A brick and mortar store, such as my own, is ripe for visits and inspections. Some dude who has a smartphone and roams around, not so much.

    I figure they’ll go after the app providers as much as they are able to. Those that handle the financial transactions are probably most at risk. Those that only provide an information service will be largely immune, although not completely, if craigslist is an indicator.

    1. The more clever people get about P2P architectures, the more insulated the app providers are going to be as well.

    2. But you shouldn’t overlook the ubiquitous regulatory employment program: entrapment.

      It’s easy to track down a ride-share provider that arrives at your doorstep.

      The trust that these services facilitate between strangers also makes them vulnerable. Unless, of course, civil disobedience and jury nullification can be effectively utilized to invalidate anti-competitive laws).

      One can dream.

    3. The solution us less regulators. Perhaps serial killers can switch from whores to regulators. Or even iRS agents.

  2. A brick and mortar store, such as my own, is ripe for visits and inspections. Some dude who has a smartphone and roams around, not so much.

    This is why they are waging war on the self-employed. Large businesses have been corralled into doing the government’s work, such as tax collection, for them. An individual who works on a project basis is much harder to keep under their thumb.

  3. more than one in every three households was “under-occupied,” with more bedrooms than people to sleep in them. Meanwhile, of the world’s roughly 1 billion cars, about 740 million are mostly used only by a single rider.

    This sort of hand-wringing is easily countered by pointing out the human population density of the planet and the huge lines at public women’s restrooms.

    1. It’s not hand-wringing as much as the realization that there’s huge efficiencies to be gained. Start with a resource that’s only used at half of it’s capacity. If there’s a good mechanism to share this resource somehow, the cost to the end user drops by half. That’s huge.

      1. Well, I was being a *bit* snarky, C.

        Start with a resource that’s only used at half of it’s capacity.

        How long do you think it’ll take for TPTB to develop “a good mechanism to share” *human brainpower*?

      2. I’m sure progressives see my spare bedrooms as a ‘resource’ to be made more efficient. Probably by forcing me to take on boarders at gunpoint.

  4. For providers of services such as transportation and lodging, it may be appropriate to require they maintain liability insurance to cover the costs of injuries sustained by consumers.

    We should also require that they charge a market price for their services, and that they save some of their earnings to invest in developing new products and services.

  5. The Sharing Economy Will Thrive…

    I’m already tired of this term. It’s Markets. Stop trying to give it a cutesy name.

    1. Eh…. if it helps bring people around to a free market way of doing things, I don’t care if they call it the Dung Shovel Teacup Balloon economy…

      1. OK.
        I was gonna gripe about the wake up call to think outside the box too, but you have a good point.

      2. It still sounds pretty faggoty though.

    2. It’s a subset of markets, specifically one built on increasing the useful output of consumers’ fixed capital (homes,cars,kitchens,etc.). “Sharing” isn’t the most appropriate term but it gets the point accross.

    3. The most significant example of a shared economy is strangely left off the list. It’s the Linux operating system. I am an enthusiastic user. I didn’t have to go to any market place to get it either. Markets exist to assign a price/value. Unnecessary when the goods are free.

      1. mtrueman|8.2.14 @ 4:26PM|#
        …”Unnecessary when the goods are free.”

        Nothing is free.

        1. Any Reason readers want to buy themselves the latest Linux distro, just ask me. I guarantee Reasonable prices.

          1. Yeah, asshole, you’re free-riding, since you are such an ignoramus.
            Nothing is free.

            1. Do you ever tire of being Teh World’s Biggest Asshole, Stevia?

      2. Not free, just paid for in other ways.

        We’re talking millions of man-hours of some very smart devs here.

        1. Christophe|8.2.14 @ 11:24PM|#
          “We’re talking millions of man-hours of some very smart devs here.”

          Technically talented but econ ignoramus devs like Aaron Swartz, fantasizing that wasting some of their valuable time producing software offered at below market price is, uh, well, gee! Revolutionary! Uh, gee! We’re going to change the world!
          No, you’ve developed something that will simply die, since the truemans of the world take it, free-riding, and add nothing to it. Or it will be grabbed by a profit-making entity and leave the truemans of the world in an unsupported back-water.

          1. “since the truemans of the world take it, free-riding, and add nothing to it”

            The truemans of the world take something freely offered and use it – how shameful is that! The truemans of the world are not obliged to add anything to it. Where’d you get that preposterous idea?

            You seem to be carrying some burden of guilt here. Pilgrim heritage would be my one word summation.

            1. mtrueman|8.3.14 @ 12:13AM|#
              “since the truemans of the world take it, free-riding, and add nothing to it”
              The truemans of the world take something freely offered and use it – how shameful is that!”

              To anyone with morality beyond an infant, pathetic.
              You are stupid enough to bleeve that there are things which are free?
              I repeat, an infant’s concept of morality.

              1. “an infant’s concept of morality.”

                The child is father of the man

                1. mtrueman|8.3.14 @ 1:07AM|#
                  “The child is father of the man”

                  Stupidity and moral infantalism is the purview of idjits.

        2. “We’re talking millions of man-hours of some very smart devs here.”

          How many of those man hours do you suppose are stolen from the likes of Microsoft, Intel, US government etc?

          1. mtrueman|8.3.14 @ 12:03AM|#
            “We’re talking millions of man-hours of some very smart devs here.”
            How many of those man hours do you suppose are stolen from the likes of Microsoft, Intel, US government etc?”

            So, in order to hide your pathetic ethics in contributing nothing, you’re hoping you can claim the development was ‘stolen’?
            I hope your dog likes you; a human would have a hard time doing so.

            1. “I hope your dog likes you”

              Whether you like me or not is not nearly as important to me as it is to you. You don’t understand Linux. Users are not asked to contribute or expected to. In fact merely using Linux over some other product is seen somehow as a contribution. The agreements spell out the obligations of the user. If you pay me a nominal service fee, I can email you a copy.

              1. mtrueman|8.3.14 @ 1:16AM|#
                …”You don’t understand Linux […] In fact merely using Linux over some other product is seen somehow as a contribution.”…

                I’m sure you bleeve that. You’re am ignoramus.

                1. Why not tell us what you believe? I’m sure it has the potential for at least one highly entertaining and original post – something new for you.

  6. The Vig must be paid, you see.

  7. A frequent outcome of these tussles is a compromise wherein the “guild” agrees to enlarge to take in some portion of the competing outsiders directly or in some affiliated form. That’s happened many times in health care.

    1. And then they can all be regulated happily ever after…together! Equality!

  8. Let’s not use the Left’s buzzphrase, “sharing economy”. It’s nothing more than a fig leaf to deny that people are engaging in icky icky capitalism.

    1. If I have to use some fucktarded phrase to exchanged a valued good, or service. I’m going to do it.

    2. GFJ, I could not agree more.

      It’s capitalism, pure and simple. AND THERE IS NOTHING IN THE GOD DAMN WORLD WRONG WITH THAT!!!!

  9. Dude that is just never a good idea, ever.

    http://www.TotalAnon.tk

    1. Why not. =D

      1. Do not argue. You wouldn’t like anonbot when he’s angry.

  10. Yeah, “sharing” is a bit of a misnomer, but at least it’s not 180? wrong, like so many other terms, like ACA.
    And if this allows people to engage in voluntary economic activity without activating their anti free market squeamishness, call it whatever you want.

  11. What’s with this aversion to using the word “sharing?” It just means that you use something jointly. I mean you still have to buy your shares of a company that make you a joint owner.

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