Sharing Economy

Why Hillary Hates Uber

Democrats think attacking the "gig economy" is a winning strategy. They're wrong.


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"I am not a great fan of Uber—you can quote me on that," declared Democratic hopeful Bernie Sanders in August. The main reason he has "serious problems" with the ride-sharing service? It's "unregulated," he told Bloomberg. In this, if little else, Sanders finds himself in agreement with rival Hillary Clinton, who decried the "gig economy" in a major economic address around the same time last summer.

On the face of it, the sharing economy should make people of virtually all political stripes feel warm and fuzzy. Nearly any 21st century stump speech is going to be full of buzzwords—entrepreneurship, fairness, choice, opportunity, consumer empowerment, flexibility—that best describe this fast-growing commercial sector. The vast majority of people who have taken an Uber, shopped on Etsy, or found a place to stay through Airbnb enthusiastically embrace these new services which allow individual buyers and sellers to interact more easily and directly. Yet many sharing-economy companies have faced staunch political resistance.

Initially that hostility mostly came from state and municipal governments, at the behest of local special interests—legacy hotel and taxi companies chief among them—who slyly suggested that their new competition posed a threat to "public safety" by often operating outside of traditional regulatory frameworks. But as more people participated in the sharing economy, as consumers or as workers, cities and states reversed course and began implementing rules that were friendlier to the newcomers, essentially caving to the reality already in place on the ground. It's hard to believe that Virginia was issuing cease-and-desist letters to Uber and Lyft only two years ago. Now the state has regulations, pushed by Democratic Gov. Terry McAuliffe, that are generally welcoming to the ride-sharing industry.

Not everyone is on board. In Chicago there's a push to require Uber drivers to get the same licenses as full-time taxi drivers, for example, and New York City is attempting to crack down on what are deemed "illegal" Airbnb rentals. But those are the exceptions, not the norm they were a few years ago. And both of those measures, like similar restrictions under consideration elsewhere, are likely to fail.

Within states, the sharing economy sometimes pits politicians from the same party against one another. In New York, Democratic Gov. Andrew Cuomo called Uber "one of these great inventions, startups, of this new economy" and said he doesn't "think the government should be in the business of trying to restrict job growth." Cuomo is working with state legislators to harmonize local regulations and bring Uber to all New Yorkers. At the same time, Democratic New York City Mayor Bill de Blasio has assumed a decidedly anti-sharing economy posture. Last year de Blasio unsuccessfully attempted to cap the growth of ride-hailing services in the city, citing concerns over traffic congestion in downtown and midtown Manhattan.

But just as pols from both parties in most localities were wising up, powerful national special interests started taking notice of Uber and Airbnb for reasons of their own. Facing declining membership, especially among young workers, unions have seized on the sharing economy as just another example of evil capitalists exploiting helpless workers.

Today, many Democratic federal politicians beholden to Big Labor blame sharing economy companies for America's tepid recovery from the Great Recession of 2007–2009. The problem, the International Brotherhood of Teamsters explained in its newsletter, is that "these companies are simply recycling old ideas and taking us backwards to a time when workers had no rights on the job." The complaints do not stop there. "Don't let the term 'sharing economy' fool you. There is no sharing. It's really just the 1 percent making money by stripping workers of the rights for which the labor movement has fought so hard to secure." The Teamsters' solution: Reclassify sharing economy workers as "employees" instead of independent contractors, their current status, thus subjecting the companies to burdensome federal labor laws that favor unions.

If successful, this strategy will not only destroy service providers that benefit consumers, costing jobs and damaging the economy in the process. It will hurt these politicians with the next generation of U.S. voters. Unfortunately, national Democrats don't seem to have noticed.

The Battle Brews in Washington
What Hillary Clinton less-than-affectionately refers to as the "gig economy" is "raising hard questions about workplace protections and what a good job will look like in the future," she said at the New School in July 2015. The candidate is promising to "crack down on bosses who exploit employees by misclassifying them as contractors or even steal their wages."

Clinton's only competition for the Democratic nomination, Sen. Bernie Sanders of Vermont, is if anything even less supportive of the sharing economy—though it should be noted that shortly after he went on the record with his concerns about Uber to Bloomberg this summer, National Journal reported that the Sanders campaign was using Uber for "100 percent" of its taxi rides.

On the other side, Sen. Ted Cruz (R–Texas) wrote a letter to Federal Trade Commission Chairwoman Edith Ramirez urging her to resist applying additional or outdated regulations to the sharing economy. "Over and over again, government is sought out as an ally of incumbent businesses to restrict competition from new entrants," Cruz wrote in July 2015. "In a number of instances, and in a number of states, pre-existing regulatory regimes have been extended to new entrants in ways that may ultimately deprive consumers of significant cost savings and convenience that would otherwise accompany an expanded sharing economy."

Meanwhile, one of Cruz's then-opponents for the Republican nomination, Ohio Gov. John Kasich, was repeatedly calling on policy makers to "uberize" government. (By which he seems to mean using technology to bring private-sector efficiency to the public realm.) "Government shouldn't fight Uber by trying to keep them out of places," Kasich has said.

There are two main reasons for this striking difference in tone: labor unions' considerable influence over the Democratic Party, and the effect that federal labor laws can have on the sharing economy.

The AFL-CIO, American's largest labor union, released a statement in February 2016 that made clear how its leaderships views sharing economy workers: as a potential boon to union member rolls. "Making the right policy choices begins with ensuring people who work for on-demand companies enjoy the rights and protections of employees," the statement reads. "The AFL-CIO is committed to ensuring new technology—and new forms of employer manipulation—do not erode the rights of working people. Rest assured that if employers get away with pretending their workers aren't employees, your job could be next."

Nearly all sharing economy workers are classified as independent contractors rather than employees. Union interest arises because federal labor law does not extend the collective bargaining rights laid out in the 1935 National Labor Relations Act to independent contractors. Ultimately independent contractors work for themselves, the thinking goes, so they shouldn't be forced to follow labor agreements that they do not support just because a majority of the other contractors vote for union representation. While independent contractors are free to join groups (such as the growing Freelancers Union) to gain access to benefits and career development resources, these organizations cannot collectively bargain.

The flexibility of being an independent contractor is vital to the sharing economy's success. While some people work on these platforms full-time, the vast majority use them as a way to earn supplemental income. About 8 in 10 Lyft drivers choose to drive 15 hours a week or less, and half of Uber drivers use the platform for under 10 hours a week. Furthermore, half of Lyft's drivers and two-thirds of Uber's work another job while partnering with the company. Independent contractor status allows decisions about when and how long to work to be controlled by individual drivers, not a boss.

Even people who only work with one company don't all have the same priorities regarding work arrangements. Those who use Uber for supplemental income and part-time work have vastly different concerns than those who treat the service as a full-time job. Under collective bargaining, which group's interests will the union represent? Majority rule could take away one of the cornerstones of the sharing economy: the diverse benefits that come from flexible, individualized work opportunities.

Yet the Department of Labor (DOL) is working to categorize all sharing economy workers, regardless of their specific circumstances, as company employees. The agency's Wage and Hour Division recently issued an "administrator's interpretation," effective immediately, to clarify the definition of independent contractors. It states that "most workers are employees" regardless of changes in the way they work. Because the new interpretation was termed "guidance," it didn't have to go before the public for comment, or before Congress for a vote, even though it has the potential to upend the sharing economy.

Under the DOL's new standards, control over workers' hours is downplayed as one of the determinants of employment status. This could be devastating for sharing economy companies, which typically have no control over the hours people work.

The total flexibility is what makes working in the sharing economy so desirable in the first place. The ability to quickly increase earnings to meet rent, pay down student loans, or fund a new business venture benefits real people every day. This "income smoothing" is especially critical for young people and the poor, groups whose earnings often fluctuate wildly. Some 70 percent of Americans between the ages of 18 and 24 and 74 percent of those in the bottom income quintile experience income changes from month to month of 30 percent or more on average, according to the JPMorgan Chase Institute.

Young workers are of particular concern to the organized labor movement. Though union membership on the whole is declining, the trend among young people is even more pronounced. A paltry 4 percent of employed 16- to 24-year-olds were union members in 2015—significantly lower than the 14 percent of workers between the ages of 45 and 64. Millennials may be pro-union in theory, but when it comes to parting with a portion of their paychecks, few are willing to support them in practice.

Labor unions have lost sight of the reality that to remain viable they must meet young workers' needs. Instead, their focus is on satisfying the demands of union bosses and retirees, as evidenced by bloated union leader salaries and unsustainable pension promises. This does nothing to promote an entrepreneurial work environment. Forcing sharing economy workers into a formal employer-employee relationship would further hinder the growth of the promising alternative business models that young people find so exciting.

Getting Government Out of the Way
The driving force behind the sharing economy is nothing new. What has changed is the ability of technology to rapidly increase the speed of progress.

People have always had the desire to buy a hard-to-find product, find a place to stay, eat a home-cooked meal, get assistance on a task, or find a way to get around. But it was often too time-consuming to find someone willing to offer the desired goods or services, especially at a reasonable price. It would be completely impractical to go from door to door asking home owners if they have an extra room to rent and for how much. Now travelers simply have to log on to Airbnb, and with a few clicks of a mouse they can find rooms that fit their needs and budgets.

In other words, the sharing economy lowers transaction costs through increasing consumer and worker empowerment. Sure, the internet made these specific business models possible—but the desire to make products more accessible, affordable, and convenient has been with us for as long as people have been trading.

Thumbtack, a firm that helps small business owners grow their enterprises, recently released a report on its partners showing that the benefits of lower transaction costs extend far beyond Uber and Airbnb. Skilled professionals—everyone from plumbers and electricians to music instructors and personal chefs—gain from innovations that provide easier access to customers. Online platforms make it simpler and cheaper than ever for these workers to market their products. And of course, consumers can find higher-quality goods and services at lower prices.

Waging a war on lower transaction costs is the definition of fighting progress. Americans have always been entrepreneurial by nature, and innovations that make it easier to go into business for yourself should be welcomed by the political class. But many Washington Democrats want to return America to a time when the only efficient way to meet consumer needs was to build a large corporation with many employees and high overhead costs.

The left's attitude toward new work arrangements is epitomized by Robert Reich, a former secretary of labor under Bill Clinton who has called the sharing economy a "fraud" that "should be called the 'share-the-scraps economy'": "In effect, on-demand work is a reversion to the piece work of the nineteenth century—when workers had no power and no legal rights, took all the risks, and worked all hours for almost nothing," Reich argued in 2015. The "almost nothing" part of this statement is especially surprising given that Reich admits Uber drivers earn about $25 an hour, double what most taxi drivers make.

And who is Reich to decide that the millions of Americans who have voluntarily partnered with a sharing economy company are getting ripped off? Though he's not an economist by training, he should be familiar with the concept of revealed preference. People choose to partner with sharing economy companies because, in their view, doing so is the most desirable option available to them. To make this more difficult is to say, in essence, "I don't care if you enjoy driving with Uber as an independent contractor; I disapprove of your decision and will not allow it."

Instead of obsessing over trying to revive the post–World War II era of high unionization rates, politicians should embrace the emerging flexible workplace. Besides the benefits that the sharing economy offers to workers, consumers, and the economy as a whole, it's in lawmakers' political interest not to intervene in the new economy's ascent.

Just 18 percent of millennials believe that regulators primarily have the public's interest in mind, according to a 2015 Reason-Rupe poll—perhaps because they've seen the benefits of the sharing economy (and the inhospitable welcome it has received from many in power) firsthand. Young Americans rightly realize that many regulations do little more than protect established interests, and they, even more than previous generations, appreciate the value of entrepreneurship. Not only do they hold up entrepreneurs such as Mark Zuckerberg, Jeff Bezos, and Steve Jobs as idols, but two-thirds of young Americans hope to work for themselves in the future—a goal that the sharing economy can help them realize. Millennials are essentially libertarians when it comes to this issue set—the term Ubertarians has even been thrown around.

The youth enthusiasm that propelled Barack Obama's campaigns (and now Bernie Sanders') obscures the reality that young people are not particularly politically engaged. Millennial voters eschew affiliation with the two major parties at significantly higher rates than their elders do, and compared to other age groups they're less likely to show up to vote. Turnout among young people nationally was just 20 percent for the 2014 midterms, the lowest level in the past 40 years.

But one thing that's proven successful at getting young people to care about politics is to take away something that they regularly use. When in recent years Uber in New York City and Airbnb in San Francisco came under attack, young people took note, and the measures were either dropped or soundly defeated at the ballot box, union influence notwithstanding.

Some regulations, such as those on the financial and energy industries, have effects on goods and services that are far from clear to the end user. For example, most consumers do not know how much stricter ozone standards will increase the costs of turning on the lights or charging phones. But when policy makers get between voters and their Ubers, the negative effects of government intervention are crystal clear: higher prices, fewer options, and reduced earnings opportunities.

Back in 2013, at the 81st United States Conference of Mayors, a bipartisan group of nine mayors from major U.S. cities inked a resolution urging "support for making cities more shareable." Recent regulatory changes at the local level make it clear that many more than nine mayors are on board with those sentiments. State and local leaders from both political parties increasingly realize that, instead of simply driving existing businesses underwater, the sharing economy increases options for consumers by expanding the proverbial pie of available goods and services, allowing different consumers to find the option that's the best fit for them. A June 2015 National League of Cities survey of 245 chief elected officials found that over 7 in 10 were supportive of the sharing economy, and not just because of the work opportunities it creates. The most popular response when leaders were asked to name the biggest benefit was "improved services."

The gig economy should never have become a partisan issue on the federal level. The schism arose primarily because of labor unions' influence on the Democratic Party. Union leaders know that to unionize the sharing economy, they need federal changes to America's labor laws so that independent contractors—the sharing economy's foundation—can be forced to follow collectively bargained agreements.

But you don't have to be a highly paid political consultant to realize that standing in the way of immensely popular services to aid unions (a special interest that less than 1 in 20 millennials belongs to) is no way to win over the youth vote. Grumpy oldsters Clinton and Sanders may continue to complain about the sharing economy on the campaign trail. But if Democrats turn this rhetoric into action, there will be much less support coming from college campuses and urban centers in November.