Grappling with the Sharing Economy

lyftWhen historians look back upon the cultural history of the United States, they may well conclude that the greatest contribution of the Millennial Generation was its embrace of the sharing economy. Previous generations of Americans assumed as a bedrock principle that it made sense to own their major personal assets: cars and houses. Young people today aren’t so sure. And that presents a challenge to cities and towns, especially in the formulation of transportation policy.

New technologies have made it possible for people to conduct new kind of transactions that were never practicable before —  renting someone’s bike, borrowing a neighbor’s buzz saw, boarding a pet in someone else’s home, renting someone’s spare bedroom, even swapping services. There is no way of knowing how many of the start-up ventures peddling these ideas will survive, but it’s likely that a good many of them will. Young people are taking to them readily, suggesting a lasting sea-change in cultural attitudes.

For the purposes of this blog, the sharing economy is  transforming transportation with an array of peer-to-peer services for sharing cars, rides and even parking spaces.

In an article exploring the implications of the sharing economy for local governments, Governing magazine quotes John Zimmer, co-founder of the Lyft service in which riders and drivers connect through smart phones. Of all cars on the road on any given day, he says, about 80% of the seats are empty. “There are idle cars. There are even idle people. It’s an information problem. We need to collect all the information about who needs these things and who has these things, and then we’ll have a much more efficient economy.”

The immediate advantage of this movement to local governments is that providing another transportation option will allow some people to reduce the number of cars in their households or, in extreme cases, go car-free. Fewer cars translates into less traffic congestion and the need for less parking (space that could be converted to more valuable uses). Also, the availability of such services is an amenity that makes a community more desirable to the demographic segments most likely to use them.

The difficulty is that these new services threaten the viability of traditional, highly regulated services like taxicabs and limo services. Governing cites the example of Seattle where taxi drivers, among other requirements, must take English-proficiency exams, pass a criminal background check, and pass a test on knowledge of local geography, regulations and driver conduct. Governments typically also set taxi fares and limit competition.

In 1979 Seattle tried deregulating its taxi service as a way to create jobs, lower taxi fares and reduce administrative expense. Consumer complaints jumped. Customers encountered dirty cars, inconsistent rates and drivers who refused to give short-haul rides. Public outcry led to the re-imposition of regulation.

That was 34 years ago. A few things have changed. When everyone has GPS navigation, do drivers really need to have an intimate knowledge of a city’s geography? When riders have tools to rate the quality of their service, don’t drivers have every incentive to be friendly, speak English and keep their cars clean?

I think we’re just seeing just the preliminary wave of change. Many more innovations will follow — chasing down possibilities we cannot even imagine today. Local governments should do everything within their power to foster this revolution, not retard it. Not every new business model will work. The process won’t always be pretty. Some people will complain. Some regulation to protect the public safety may be required — minimum insurance policies, criminal background checks, restrictions on drug and alcohol use, that sort of thing. Localities that get the right policy mix will reap rewards in greater mobility and livability for its citizens.

– JAB

34 Responses to Grappling with the Sharing Economy

  1. One of the things that amazes me about issues like this – is how we view them in a USA-only context – as if what Seattle does is what Mogadishu does.

    We talk like a “new” paradigm is emerging – as if the kinds of things we are discussing do not already exist – in spades – especially in 3rd world countries with very minimal govt regulation…

    we act like we’ve advanced “too far” on regulation and now will seek a “new” direction – as opposed to dropping back to 3rd world standards and basically forgetting WHY we started out with no standards and ended up with standards.

    what is the most significant aspect of “protecting property rights” of which the US is cited as far superior to primitive governments and a reason why we have a powerful economy?

    Isn’t it regulation that protects property rights – of the buyer in addition to the “seller”?

    how did laws like the Food and Drug law actually come into being in the first place? Because of some lefty loon sought to institutionalize “do-gooder” ethics or was there a darker side to people (property owners) being harmed by bad food and drugs marketed to the unsuspecting?

    Would you want a de-regulated food and drug world where nutrition labels are gone ( to remove those awful “regulations” that restrict the property rights of the producers?) .. and rely on social media to determine what foods contain what ingredients and have how many calories and grams of fat?

    We call them lefty loons but I predict we’re soon going to see the advent of another moniker called “loony libertarians”.

    Maybe we have too many and too onerous regs and need to go back and “fluff” them but the idea that they are no longer needed because of our “technology”.. well… call me a skeptic… and I LOVE technology but technology won’t keep a driver of a Dollar Van from driving 20 hours straight on a vehicle that has more than 100,000 miles on it’s brakes BUT it’s CHEAPER because it’s SHARED!

    the loony libs say that we are crushing freedom and liberty when we regulate .would be entrepreneurs… I say.. that theres another side – the “other” property owners who are also entitled to freedom and liberty from being harmed by bad products and bad services sold on the cheap to the unsuspecting so the seller can “enjoy” their freedom and liberty.

    there are two sides to this and the Libertarian types are blinded in one eye.

    • And don’t forget how easy ratings systems are to game – fake reviews, name changes if bad reviews accumulate – it’s one thing if you get a bad knick-knack on eBay, another if you get a ride with your friendly neighborhood psycho who likes to drink and drive, is a bit too hands-y with passengers, or worse.

      • yup.. I responded to you first one before I saw this one.

        the whole recent deal about questioning the usefulness .. purpose, reason, rationale for regulations is healthy … the dialogue probably needs to take place … because obviously .. many have forgotten or never knew the things that happened that led to the creation of regulations for some of these things and the current anti-govt narrative is that “govt” did the regs because they wanted “power” and wanted to “protect” cartels and engage in crony capitalism, etc.

        perhaps some of that is true but there are also some fundamental reasons why we have regulations also.

  2. Larry, can you not see the possibility that regulations that might have been appropriate for one age and time are not appropriate for another. The economy changes. Technology changes. New industries emerge. Are taxicab cartels rally sacred to you?

    Should we still be regulating freight railroads like we once did?

    • The economy changes. Technology changes.

      Human nature, however, by and large has remained the same throughout history.

      You will have plenty of honest people using these services both as providers and customers. You will also have dishonest people taking advantage of the honest, and incompetent people putting the less cautious at risk.

      Now, if you want to say, “hey, these are great, just remember you’re taking your money/life in your own hands in the process,” then that’s your right.

      But just as I know that while I’m far safer buying my new guitar at Guitar Center where I can (a) use a check or charge card instead of carrying a lot of cash, and (b) get a refund if it’s a lemon, I can also find a much better deal if I shop around on Craiglist, accepting risks that (a) people using this service on occasion get mugged, and (b) if it’s a junker, I can kiss my money goodbye.

      I’m not sure where I fall generationally (I think I’m too old to be a millenial… Maybe Gen X or Y?), but I definitely am one to use this sorts of tools. My wife and I have used Homeaway and AirBnB before, even internationally, to save a lot of money on lodging, and I find Craiglist to be an excellent place to buy and sell miscellaneous goods. A fair deal of homework should be done anytime you’re meeting, especially to do business and/or exchange money with, a stranger you met online or via a smartphone app.

      The question is, how much risk are we comfortable letting the public absorb in the chase for cost and environmental goals?

      • The world is full of dishonest people. There is always a risk that anyone could rip you off. The old-way method of ensuring integrity in the business marketplace was the Better Business Bureau. That system was OK but it had limitations. Reporting incidents wasn’t easy. Checking records wasn’t easy. The new paradigm — Craig’s list, eBay, etc. — provides instant marketplace feedback. Your online reputation really, really matters. The new way is way better.

        • dishonest people harm others property rights. Regulations are the result and they are advocated for by the people who are harmed.

          online “reputation” has no truth meter. Anyone can (and they do) say what a ‘great job’ so and so did… and it’s totally bogus.

          and I do not want my food and drugs and manufactured automobiles and home furnaces, etc “vetted” by “online reputation”.

          we have .. I know you would find this “shocking” people who run Dollar Vans(buses). They are not inspected and have drivers who have been driving for 14 hours… they have a wreck.. people are hurt and killed and the company goes out of business – and then reappears under another name a few weeks later.

          no amount of “online reputation” is going to fix that.

          what keeps people who harm others from changing their name and continuing to do the same thing?

          • Larry, thank you for bringing up the so-called “Chinatown Buses,” as they are a very good example here of what happens when public transportation becomes unregulated. I’m willing to bet the victims of that horrific Caroline County crash from a few years back have yet to receive fair recompense from the fly-by-night bus company at fault.

            There are those who would say “you get what you pay for” or “you should know you’re taking a risk when buying a $10 ticket from the Carolinas to Manhattan,” but I’m not one of them.

          • Are the Chinatown buses “unregulated” (hard to believe) or are the federal public-safety rules not very effectively enforced?

          • Thanks Neil.

            Jim – you can GOOGLE the subject but basically they operate in the “gray market” until the Feds crack down.

            but the point here is to ask what would happen if there were no regulation …

            what do you think?

            do you think that no regulation will lead to a better product?

            if your daughter takes one of these buses.. gets harmed .. what do you do?

            HOW do you go about getting compensation?

            WHO would you go to to find out about the company?

            let’s be honest.. this is not about “shared”. This is about Libertarian approaches to things that are currently regulated and the narrative is that “cartels” wrap themselves in regulations to protect their businesses from competitors and that removing the regulations will allow competition to offer better service for less cost.

            the whole idea is based on the premise that regulation is an inherent govt evil.. that squashes freedom and liberty and the ability of a hard-working entrepreneur to earn an honest living.

            GOOGLE the ChinaTown or DOLLAR buses and come back and tell me how you’d do with that kind of thing – without regulation.

      • I’m not a stranger to craigslist nor EBAY. I use them both and on EBAY I tend towards the GOLD star sellers that identify their location.

        I’m much more circumspect on CraigsList.

        but I totally buy into the “reputation” thing on Ebay – I’d even trust buying a car there since they do vett the sellers. Be aware that ‘vetting’ is indeed a form of regulation…. and I have no trouble with other forms of vetting – outside of govt on some things.

        but I bet even Neil would not buy much in the way of unregulated food or drugs…

        how many of us going into a store and turn the item to see the nutrition label? we take that for granted.

        how many of us buy tuna or meats and expect them to not have unsafe levels of mercury or antibiotics or hormones in them?

        When you pick up your prescription or buy an off the shelf drug – do you assume they are regulated ? do you take that for granted?

        if you were in a 3rd world country would you buy a bottle of aspirin without a foil seal?

        do you assume the brake fluid – no matter the brand, you put in your brakes meets standards?

        we take a whole bunch of stuff for granted in this country that you’d find totally lacking in other non-OECD countries.

        I’m not arguing that we need the regulation as much as I’m saying that most of us take a lot for granted and have forgotten or never knew the safeguards we do benefit from.

        Our Food and Drug regulation was created in 1906. Think about that. Do we think a bunch of lefty loons just decided we needed a “doo-good” law?

        Remember the income tax was not created until 1913 so the Congress was not exactly full of bleeding heart liberals.

    • I’d think personal safety is an appropriate concern for all ages of man. I don’t particularly support quotas for taxis and limos – but that lack of support doesn’t extend to thinking that background checks and maintenance requirements are bogus. If I am riding with a stranger, I personally want to know that the car has functioning brakes and the person driving isn’t a rapist or psychopath.

  3. fair question Jim, I agree. but when we use words like “cartel” I start to worry that we’re already biased against regulation and can forget why we had it in the first place.

    I’d totally agree that times change but I also know that the anti-regulation movement powered by libertarian wannabes – disregards one of the most fundamental reasons for regulations which is protection of the property rights of the buyers.

    Do I want to take a cab that has not had it’s brakes inspected in two years with a driver who is taking stimulates because he has been awake for 14 hours just so I can celebrate the wondrous benefits of an unregulated and ‘freedom and liberty”?

    Nope.

    If you rent a car and the front wheel comes off and harms you permanently – what options do you have if it is Hertz? What options do you have if it’s Johnny’s “free market” rentals and Johnny has no insurance and no assets?

    has technology changed this circumstance?

    has the regulation become outmoded?

    • Do you want to ride in a car which hasn’t had its brakes inspected for two years?

      No. How do we ensure that shared-ridership services are safe. Simply. Require them to maintain insurance on every car. If the brakes fail, the car wrecks and a passenger gets injured, the passenger can sue and collect big bucks. Even if the business proprietor is not motivated on his (or her) own to conduct proper maintenance, you can be assured that insurers will set standards. Insurance companies might even assign their own inspectors and/or auditors to go over the business’ records. If the business practices are shoddy, the insurance company will charge more to offset the increased risk.

      Bottom online: All we need is an insurance requirement and a functioning tort system. You don’t need cartels or even inspectors on the government payroll to ensure safety.

      • Insurance isn’t going to “make you whole” – money is not going to get you un-raped, un-mugged, and dollars don’t cure paralysis or restore a lost limb.

        Proof of insurance can be (and often is) faked. For that matter, so is proof of identity.

        I would be fine with a ride-sharing app that links up people I know. I would be fine with a ride-sharing app that links up people with background checks and verification of maintenance. Given the number of reckless idiots on the road, I don’t really want to take rides with random strangers.

        • re: insurance and money – agree… but does that mean we’d have a better system without regulation and/or insurance requirements?

          No regulation is every going to be 100% perfect but no regulation is going to be much, much worse. We know this from experience.

          for every guy that might get away with faking something, 10, 20 more are caught.

          it does take some level of enforcement.

          but this line of reasoning used with the idea of 100% compliance of traffic signals would end up doing what?

          I’d agree with the app that provides background checks, verification, etc… but … is there any more assurance with that approach that people won’t game/fake the system than the other ways?

          how would you deal with someone who you found out DID fake their qualifications if there were no regulations or enforcement?

          • Actually, I think the best way is to keep at least some regulation – background and safety of vehicle. I think much of the interest in ride sharing (and MOOCs, for that matter) is being Astro-Turf-ed – “apps” to share rides locally already exists (RideShare, ride sharing boards, you could do it on Facebook or an email list easily – all with KNOWN people) – but you can’t monetize email lists or RideShare – you can monetize a ride-share app.

            Many colleges have good models for online ed – University of Maryland’s UMUC is pretty well done, large, established, and profitable – but MOOCs, works in progress with a 10% or less completion rate and low satisfaction rates, get the press. Why? IMHO because scale allows investors and we all love making money. Same with ride-sharing apps. I believe the amount of press is more related to the potential of making money than it is about the actual current functionality be it app or MOOC.

            Ride sharing can already be done, using easy technology and without monetizing it, within our current regulatory structure, if we want. Limits on # of taxis and such are probably overdone and might need fixing. Tearing down the entire regulatory process structure because we want to do it via apps is probably a bad idea. Why is an “app” suddenly considered a game changer? I don’t want to have to wonder if my taxi driver is a rapist or a drunk or if he has functioning brakes on the taxi.

            The risks of riding with an unknown person are acknowledged from childhood (“dont take rides from strangers”). Regulations, to make sure those strangers are known and licensed and not creepy, are useful. Is every regulation about taxis useful? NO. Does that mean you want your daughter or sister riding with everyone who has a license? Drive on 95 for a half hour and get back to me. I commuted on it for some years and it does give you an idea of what range there is in drivers.

  4. re: ” How do we ensure that shared-ridership services are safe. Simply. Require them to maintain insurance on every car. If the brakes fail, the car wrecks and a passenger gets injured, the passenger can sue and collect big bucks.”

    geesus.. Jim.. isn’t that regulation and not that different from existing?

    ANY insurance? Ultra cheap insurance that pays virtually nothing and has virtually no standards and you don’t even know what they inspect or not?

    and you have dozens/hundreds of cabs and dozens/hundreds of insurance companies with all manner of standards.. some virtually non-existent ?

    how do you do this? do you just say there has to be insurance or is there more to it? Can anyone claim to be an insurer? Can they sell insurance for $5 and it covers virtually nothing? Who decides?

  5. What a CROCK! Of course the technology can change the situation! For instance, near out town, there is the road A14, and it is subject to experiment, this event is described , and in stages those “clever” regulators will manage all roads in UK, there is no doubt it will hepl to crack down on accidents and jams! Thank you!

  6. re: ” fly-by-night”

    that’s a good phrase.

    what does it mean?

    where did the term come from?

    here’s a start:

    The History of Insurance in America

    http://www.investopedia.com/articles/financial-theory/08/american-insurance.asp

  7. You think there are problems now? Just wait until the REAL Chinese start putting buses on the road. Globalism is incrementally removing all the safeguards that our government has in place for our safety. Just look at doggy chicken jerky that killed the family pet. Under new free trade regulations, the Chinese can now buy up American chicken, send it to China for processing, and then import it here totally free of inspection. Next up will be Smithfield Ham. And when they start buying other businesses here with our debt, you can bet, federal inspections of buses, buildings, or any other treaty controlled business will be exempt. Regardless of any current law.

    You want the ultimate in tort reform? Just try to take China to court at the WTO.

    • they own far less of our debt than supposed. The Japanese own about the same – about 8% I believe.

      http://www.washingtonpost.com/blogs/worldviews/wp/2013/10/10/this-surprising-chart-shows-which-countries-own-the-most-u-s-debt/

      whether or not the Chinese or anyone else sells us bad products or services will be determined by the American people through the process put in place by our forefathers – elections.

      I recall toys from China determined to have lead in them .. shut down
      a number of other products from China have been banned from US
      markets.

      but Darrell brings up a really good point in that if we had no regulation – and other countries could sell us bad stuff – how would those harmed get compensation if the company was foreign?

      looks like we’re back to that bad old govt regulation again, eh?

      I fully expect at some point that the faux libertarian types along with their hard right anti-govt brothers and sisters will vent their respective political spleens on this and the American people will, per usual, use some common sense to send the “we don’t need no stinking regulation” types – packing.

      it seems like every generation, we have to suffer through a new breed of anti-govt/anti-people, Ayn Rand type neanderthals…

  8. Regulation is needed when markets fail. Markets can fail when unsafe products are offered for sale; when a seller(s) has/have pricing power; when sellers fail to disclose essential terms and conditions or make misrepresentations. The realities of most markets require some level of regulation.

    But regulations tend to stay in place after market conditions change. That often means we are regulating what we don’t need to regulate and not regulating what we need to do. For example, the FCC took years to eliminate its program access rules that regulate 3rd party access to programming owned by cable TV operators, even though the bulk of the programming is now owned by independent programmers that are not regulated (e.g., Discovery, History). Yet, it doesn’t prohibit bundling of channels by regulators, so each of us gets hundreds of channels we don’t ever watch. The fight to eliminate the program access rules took years to play out. And the fight for consumers to be able to purchase packages of channels they want will take years more, unless Internet programming pushes out the cable companies first.

    We don’t need to eliminate regulation, but we must force it to be up to date.

    • Re: when markets “fail”.

      do “FREE markets” fail? by definition “FREE” means “unregulated”?

      who decides when we regulate or no longer need to regulate or need to update it?

      in the end – isn’t regulation a reflection of what voting citizens want – or not and it gets ultimately reflected at elections?

      Jim had asserted upthread that regulation is not need to protect property rights of those who might be harmed by bad products or services as long as they were required (I assume by govt) to have “insurance”.

      call me a skeptic but what says that a guy can’t say he has insurance and it’s so minimal that it covers virtually nothing and certainly not at all keyed to the potential damage that could result?

      do you see where I am going?

      If you, as the govt, have to get into specifying on a detailed basis what insurance should cover and to what extent – for each type of business or activity – isn’t that essentially “regulation”?

      even then – if a business buys the insurance, still causes significant damage to a property owner and the insurance says it’s not covered – and the business goes out of business – who compensates the injured property owner then?

      and who keeps the guy who ran the business that harmed someone from creating another business later on – that works the same way – like the ChinaTown Buses?

      these buses, by the way, ARE illegal and they get shut down but is Jim
      really advocating that they be allowed to operate as long as they had “insurance” … and that’s it?

      • The public, interest groups and government agencies (as well as Congress) become involved when markets aren’t working right. One or more government processes commence, and, if there is sufficient agreement, a regulation becomes effective. The process is far from perfect, but it does generally work.

        • having listened extensively to self-proclaimed libertarians for the last two years – I can say with some confidence that many of them feel
          the markets work “right” when the govt is not involved and they work “wrong” when the govt gets involved.

          they see every single regulation as having an adverse impact on a free market.

          further, the more virulent of them believe that when the public “votes” for regulation – it’s an indication of abject economic ignorance and if the majority votes for and imposes regulation – it’s using mob rule to use the force of govt to deprive the minority of their “natural rights”. And this is where they then tell you that only what is actually in the Constitution is legal and all the stuff added that was not specifically articulated in the founding document is NOT what the founding fathers intended and that we need to go back to only what the original Constitution permitted.

          You can see elements of these arguments in many narratives and blog posts which deal with regulations as if they are wrong or illegitimate.

          The more careful of the correspondents know when to go up to the edge of the libertarian cliff but not jump off of it.. but the internet is chock full of the latter types also these days.

        • I believe the market makes much better decisions as to what to purchase and what to invest in than regulation. From that perspective, I give some credit to the health care exchange concept. And slam Obama’s stimulus for broadband access. It totally screwed up the investment market. If there are at least three suppliers in a market, there probably is no need for any price regulation.

          There is room for regulation, generally through a complaint process, to ensure sellers make full and appropriate disclosures. Similarly, the feds and, to some extent, states regulate disclosures in connection with the sale of investments.

          • I’m of the view that most regulation exists in response to problems as it opposed to it being dreamed up by “central planners”.

            re: Obama and broadband.

            he can’t spend a dime without approval and authorization from Congress… the broadband was their idea.. but he does agree with it.

            We have to keep in mind that Congress is the one that appropriates money not the POTUS.

          • And what Party passed the Stimulus? Even my Democratic Hill friends predicted disaster from the beginning.

          • The CONGRESS with majority of Dems DID pass the stimulus but it was about a trillion in total and most economists think we would have gone into depression without it.

            It was a one shot deal and George Bush and many of the GOP supported it.

            but to say that Obama has caused the total deficit with spending only he approved is a lie.

            and it’s promoted over and over – which implicates the fairness and objectivity of those who say it.

            they are not interested in the truth nor what it would actually take to deal with the problem. They just want to blame someone even if it’s not the truth.

            Why should we believe anything else someone says if that’s what they are saying about the deficit/debt?

          • Obama is not responsible for the big 2008 meltdown or its effects early in his term. But we gave him keys to the bus on January 20, 2009 and he’s responsible for his policies since. He’s presided over the weakest recovery from any downturn. His Stimulus plan mainly focused on saving public sector jobs. He’s added regulations at a pace not seen in years. His health care reform plan is costing people jobs, hours and income. He’s responsible for the bills he signs, just like every other president.

            I don’t have major problems with his foreign policy, but from an economic standard, he’s the worst president I’ve ever seen.

  9. One would think – that the LEAST regulated countries would easily out-compete the most regulatory “burdened” countries, right?

    after all.. every regulation, no matter how “good” , extracts an economic penalty, right?

    so one might believe that the most regulated countries on the planet would be the least competitive especially since those most-regulated countries seem to also be the most ‘socialist’ – right?

    who can explain this?

    why are the most regulated, most socialist countries on the planet the most advanced with best economies?

    How does “libertarianism” explain this?

  10. Well the simple answer is that in a third world country the offended consumer is prone to hang bad business owners from their executive suite windows. In a ‘regulated’ country the government gives taxpayer provided bribe money to the business owner to not do it again.

  11. you’re a HOOT Darrell!

    ;-)

    yes.. there IS a certain amount of “frontier justice” in those other countries even if you did not cheat anyone.. just made a profit even honestly.

    and of course that means you have an awful lot of “overhead” to hire all that security to protect you even if you are an honest business… you never know which crazy will come after you!

    but what I don’t understand is why folks think we need to have that same system in this country..

    oh yes. I remember now.. the alternative to frontier justice is to have thug govt ….

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