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The sharing economy needs a public option

from Dean Baker

So-called “sharing economy” companies such as Uber, Airbnb and Task Rabbit are posing policy headaches for governments around the world. Their argument that they should be exempt from existing regulations because their services are ordered over the web does not make much sense, but it provides an adequate fig leaf for politicians seeking campaign contributions from these highly capitalized newcomers.

For those who have missed the hype, “sharing economy” refers to a wide variety of companies that use the web to connect consumers and providers. While there is not reliable data on its size, in part because it is not well-defined, Airbnb now boasts far more room listings than Hilton or Marriott, and Uber has quickly grown to be the largest taxi service in the world.

Part of the response to the innovations associated with these sharing economy companies should be to modernize regulations. It is reasonable to regulate taxi services in ways that ensure that cars are safe and drivers are competent and responsible. It is also reasonable to regulate rented rooms to ensure they are not fire traps. Similarly, both should be regulated in ways that ensure access to the handicapped and prevents discrimination. In addition, employees in these companies should be covered by workers compensation and protected by minimum wage and overtime rules. 

These efforts will require a rewriting of existing regulations, many of which were put in place to protect the existing companies in the industry rather than serve a legitimate public purpose. This sort of modernization is clearly a doable task from a technical standpoint, although sharing economy companies will undoubtedly use their money to try to block the imposition of rules that put them on an equal footing with their old-fashioned competitors.

In addition to a level-the-playing-field approach, we can also treat the sharing economy companies to some new competition: a public option. The idea is that governments can set up public sites that would provide the same services as the sharing economy companies. The difference would be that the public sites would cut out the middle man. They would be set up to benefit customers and service providers with the government only charging the fees necessary to cover costs.

For example, a taxi service could allow for drivers to register in the same way as they do for Uber and Lyft. Customers could use an app to order their services just as they do with Uber and Lyft. The difference would be that the public service would likely take out a lower share of the fare than its for-profit competitors. If its design was effective, only drivers who felt like being ripped off would work for Uber and Lyft.

In addition, a public service could directly apply standards to providers as a condition of participating. Cab drivers would have to meet licensing standards and their cars would have to pass inspection. And they would have to arrange insurance for both car and driver. A public version of Airbnb could require that potential renters had their rooms inspected for fire safety and also provide copies of leases or condo agreements to ensure that these were not being violated by renting out rooms or whole units.

A non-profit in England (with the unfortunate name Beyond Jobs) has established an open-source program for many of these purposes. This system may not be fully up to the job, but it should provide a basis from which to work.

In addition to cutting out the middle man and ensuring that necessary standards are met, a public service could provide other important benefits. Most notably it could ensure that customer reviews are the property of the service provider. As it stands now, the reviews are typically the property of the company.

This means if an Uber driver has established himself as a safe and reliable driver, he can’t use his recommendations with another service. The same would be the case with someone renting out a room or apartment through Airbnb. This issue is perhaps most important with labor-service providers such as Task Rabbit. If a worker has established herself as a reliable electrician, plumber or child-care provider, she should be able to carry this record with her. While Task Rabbit and comparable services may not allow such transfers, a public system could assure workers of transferable recommendations.

Another great feature to the public option route is that it can be implemented at the local level. There is no need to worry about an intransigent Congress or even hostile state legislators. Any city with a substantial progressive base should be able to take the initiative to set up its own public-sharing economy system. Such systems can also be linked between cities, which could be especially helpful in the case of competing with Airbnb.

Naturally, there will be problems in setting up such systems, as is always the case in establishing something new. But there is no reason that a public system cannot be at least as efficient as the private networks now operating. After all, the administrative costs of the public Social Security system are less than one tenth as high as the costs of private retirement accounts.

Rather than trying to squash sharing economy companies, which would almost certainly not be possible in any case, a far better strategy for progressives is to take advantage of the innovations they offer and restructure them in ways that ensure the public and service providers both benefit. This can be done, if we are prepared to try some new tactics.

  1. March 31, 2015 at 6:23 pm

    Yes, it’s interesting how blindsided government has been by this. The so-called sharing economy, or peer to peer, or connection economy, or whatever you call it, is essentially a governance problem: How to organise two groups of the public, sellers and buyers, into a market. Yet government only thought of providing physical services, like transport or affordable housing, and private market-makers emerged.

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