Dean Baker
The Hankyoreh, February 2, 2015

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The latest fad in the U.S. economy is the “sharing economy?” The sharing economy taking a variety of forms, but the common feature is using the Internet to get around barriers and regulations.

The biggest actors in the sharing economy are Uber, a taxi company that now has a market capitalization of $40 billion, and Airbnb, a hotel-type service, with a market capitalization of close to $20 billion. There are also services like Task Rabbit, which allow people or companies to hire workers for limited tasks that can take just a few minutes or few days.

The market for these sharing economy companies has been exploding, with the largest now dwarfing the size of long-established companies in the same industry. Part of this is due to the fact that the sharing economy companies really do offer new and/or better service. Part of the growth is due to the fact that they are able to escape regulations that are binding on their established competitors. In some cases, evading regulation may be a plus, since the regulations are antiquated or never served a real public purpose. In other cases, the sharing economy companies are thriving by imposing costs on third parties.

Starting with the case of Uber, most cities have overpriced and poor quality cab service because they sharply restricted the number of cabs on the road by limiting cab licenses. Uber completely changes the picture by making a large number of cabs available through an Internet service. Uber drivers have their own cars and respond to Internet requests as they choose. The customer can immediately see if a driver is coming to get them and how long they should expect it to take. They also know what their trip will cost in advance. The payment is billed directly to their credit card, no money ever changes hands.

These are all useful conveniences. The downside is that the cabs and the drivers are completely unregulated. There is no guarantee that the car is safe, that it is insured, and that the driver is not a crazed homicidal maniac. Uber has none of the screenings required for conventional cabs.

There is a similar story with Airbnb. The plus side is that it makes it easy for people to rent out a spare room or even a house or apartment. Customers just click on the website and look for potential rooms. The downside is that there are no guarantees that room is safe from fire and other hazards. Also, many of those leasing rooms have created nuisances for their neighbors in apartment or condominium buildings, since they didn’t expect to be living in a hotel with people coming and going at all hours of the day and night.

Task Rabbit and similar services allow for the contracting of causal labor. A homeowner can get someone to mow their lawn, paint their house, or babysit their kids. Many businesses are now also using these services as a way to get temporary employees. The plus side is that it can provide work for people who have irregular schedules and also make it easier for consumers and firms to get odd jobs done. The downside is that this is an unregulated labor market that could undermine pay and working conditions in the traditional market.

It would be foolish to ignore the potential benefits of these innovative services, however it is important to construct an appropriate regulatory structure. This would ensure that that sharing economy companies are profiting from their innovations and not by evading legitimate regulations.

Such regulations would include safety and insurance standards that would apply to both Uber-type services and traditional cabs. It would mean that rooms rented through Airbnb comply with safety and handicap accessibility standards required of traditional hotels and motels. And it would mean that casual labor services like Task Rabbit would be bound by minimum wage rules and other labor regulation applied to conventional employers.

One way to bring about this result more quickly would be to have public Internet services that would compete with private sharing economy companies. It should be a fairly simply matter for a city to establish an Internet service that would connect drivers with people looking for cabs. It may not have the bells and whistles of Uber, but people would have the option of saving 20 percent off their cab fares by giving up these bells and whistles. (Alternatively, the drivers may get higher pay.)

It would also be a simple matter to establish NewYorkbnb or Detroitbnb, where visitors can connect with people who want to rent rooms. In addition to saving money by cutting out the middleman, consumers could also be assured that these rooms complied with fire safety laws and other regulations. The same story would apply to the market for casual labor. Workers who wanted to ensure that they would be treated fairly could sign up at a public system.

Some of the regulatory issues with the sharing economy will prove difficult. But it is important to work them through. There is the potential for real gains to the economy and society, but we have to be sure the market is structured properly.