Regulatory agencies do a ton of hearings and other discussions and events that don't get a lot of attention at the time, but turn out in retrospect to be important turning points in economic regulatory history. The FTC has what they are calling a workshop coming up on June 9th to discuss the "sharing" economy (the quotation marks are in the official document) that could well turn into one of those critical moments. Companies like Uber and Airbnb are seeking not just to disrupt existing industries with their new technology-- they want to disrupt the whole nature of regulation in the modern economy. They are a libertarian's dream in terms of creating economic models without rules. No rules, though, mean a dangerous world and we'd better slow down and take a look at what the realities are of how this will play out for regular folks.
Uber and Airbnb want to compete in markets where their competitors have to get licenses and adhere to certain basic rules of health, safety, and reliability. They figure if they don't have to adhere to the same rules, they can gain a competitive edge-- just like Wall Street traders who know if they trade in unregulated dark markets, they get an edge over the bankers that trade on the publicly regulated stock exchange. (Of course, that lack of rules frequently means bad consequences, but for the people making all the money, they don't mind.) If you are putting people up overnight and there are no rules about room safety and security, no health laws on keeping your rooms clean, no accommodations for people with disabilities, and no zoning laws about what kind of neighborhoods your rooms need to be in, it makes it easier to make profits on putting people up overnight- and to hell with anyone suffering the results.
Here are some examples of real world problems (all of these are comments given to the FTC on their website):
"I can also state that as a fact as I had renters in my home who were destroying my personal property. I had to evict them with assistance from the local police. I posted an honest and truthful review of the incident on the Airbnb website. The review never appeared. As a landlord I find that behavior to be extremely dangerous to my well-being. There is virtually no way to discern if a potential lessee has had negative behavior issues with other lessors in the past. Not only do I fear for the safety of my property, but also fear for potential damages to my person. I no longer rent my home on Airbnb for that reason."
And
"The furnishings were sub-standard based on the amount of rental paid, and there was so much noise that was not disclosed that we could neither sleep nor work while in the unit. I would suspect Airbnb suppressed any previous negative, or even simply honest, reviews. Airbnb makes absolutely no effort to ascertain the truthfulness of the lessors' claims. No one from Airbnb ever contacted me as a lessor. I could have been renting a shack in my yard for all Airbnb knew."
And
"Airbnb's refusal to obey the law proved very destructive to our apartment building. As tenants moved out, entrepreneurs rented the apartments and listed them on Airbnb. This proved profitable, allowing one woman to move to France while subletting her place with a two-night minimum. The guests proved intolerable, however, drunkenly wandering the halls, damaging the building and even stealing from the lobby. In the apartment directly above mine, guests flooded the bathroom twice, causing damage to my ceiling. The renter denied responsibility, emailing me that the super should repair it. Airbnb told me to buy renters insurance. At one point we had five apartments in our building listed on Airbnb, from $150 a night to $350. A full-time sublet meant the renter could earn several thousand dollars a month. While actual inhabitants struggled with the rent, these illegal entrepreneurs could pay more and still turn a profit, which clearly would drive rents up. In just a few months, our apartment building turned into a short-term hostel for foreign tourists. Finally the super tired of the endless stream of strangers and banned Airbnb rentals. We are once again a community of friends. Airbnb blithely tweets about "sharing better" while their employees admit they rake in so much cash they'll never self-regulate."
There was a problem with the Wild Wild West of the old frontier days: with no rules, the fastest guns and meanest cowboys did fine, but everybody else tended to get screwed over. When there are no rules, as these kinds of stories suggest, people get hurt on both sides of the equation. There's a reason cabs have signs in their cabs from the local government about the rights and responsibilities for both the drivers and customers; they both deserve to get treated fairly. With no rules, the potential for both to get hurt grows quickly.
Another example of no rules: the creep factor. I am hearing from more and more women that they just aren't comfortable taking Uber anymore because of experiences with the drivers asking them very personal questions or making suggestive comments to them, situations that would cost a cabbie their license very quickly. If a hotel is caught running a human trafficking prostitution ring out of the premises, they get shut down; Airbnb customers doing the same just shift locations and use fake names.
Then there's the jobs issue. Existing industries have existing workforces: there are millions of jobs, for example, in the hotel industry. At Airbnb there is no one who checks people in, no one to clean people's rooms, no one who provides room service, no one who provides security, and no one who does a wide variety of other services done in the hotel industry. If Airbnb succeeds at being disruptive to the hotel marketplace, a great many of those jobs will go away. Will a little bit of extra revenue for those who rent their room out from time to time compensate for the loss of all those jobs? Not even close. And keep in mind that a lot of that revenue is going to hedge funds that are buying up big blocks of condos in places like Manhattan and turning this into big business. And Uber drivers get no benefits and no permanent or stable job, just a small amount of extra money for rides that rarely adds up to a decent income.
As the FTC takes a look at the sharing economy, they need to think through what it would mean for our broader economy, and they need to think about the danger of creating the Wild Wild West in certain marketplaces. Hotels and cab companies are regulated for very good reasons, and the stability of these industries have created a lot of good jobs. To create whole sectors of the economy without rules is a dangerous proposition on several different levels.
