Contribution to GTI Roundtable "On the Sharing Economy"
Juliet Schor is right to downplay the newness of the sharing economy. Many of the features of the sharing economy, such as the recycling of unused items, were made possible as early as the 1990s through innovations like Craigslist and eBay. While there is some potential for progressive uses of the sharing economy as she argues, the main concern is that it will be another vehicle for tax and regulatory arbitrage. If that proves to be the case, the “sharing economy” will provide yet another mechanism for furthering the upward redistribution of income.
Uber and Airbnb, the high-flyers of the sharing economy, do offer genuine gains over pre-existing services. Uber, along with Lyft, promises to shake up an industry that has been controlled by cartels that have long used regulations to restrict competition. This challenge is a clear gain. However, many of these regulations did serve a purpose. It is appropriate for taxis to be subject to safety and insurance requirements. The ones in place now may well be excessive, but it can’t make sense to have a traditional taxi sector bound by these rules and then a group of upstarts to which no rules apply. There are also issues like handicap access requirements that apply to traditional cabs, which Uber and Lyft avoid.
In addition, the drivers for Uber and Lyft are classified as independent contractors. This should not be allowed to become a way to prevent workers from forming unions or to evade regulations such as overtime rules and minimum wage laws. These companies might claim they can’t calculate drivers’ wages. If true, then more computer-savvy competitors will take their place.
Airbnb has made it easier for millions of people to rent out spare rooms and for tourists to get lower cost accommodations, both of which are clearly positive developments. However, it has also in many cases facilitated the evasion of income taxes and local hotel taxes. Moreover, its rentals are not subject to the same safety requirements as hotel rooms. In most jurisdictions, the latter have to be inspected for fire safety at regular intervals. Airbnb rooms are not subject to any inspections. Similarly, there are no requirements for handicap access at Airbnb rooms. As is the case with Uber and Lyft with taxis, if Airbnb drives out many traditional hotels, the handicapped may find it much more difficult to get lodging.
In addition, Airbnb also raises many nuisance issues, especially in apartment or condo buildings. The people living in these buildings didn’t pay to be living in a hotel. In time, apartment leases and condo association rules may come to prohibit Airbnb-type rentals, but for now, Airbnb and its partners will profit by making life difficult for neighbors.
In principle, we can adopt a regulatory structure that allows for the benefits offered by these innovative companies while preventing the abuses, but this will not happen on its own. The obvious precedent here is Amazon. The company has grown into one of the biggest retailers in the world, and its founder Jeff Bezos has become one of the richest people in the world, largely because of the company’s ability to avoid laws requiring the collection of state and local sales tax. The amount of money that it has saved through its tax avoidance dwarfs its cumulative profits since it came into existence.
This tax dividend is great news for Amazon and for its customers who get to share in the savings. Meanwhile, hundreds of thousands of family businesses have gone under because they don’t get the same gift from the government.
There is a real risk that the “sharing economy” upstarts will be allowed to continue to engage in the same sort of tax and regulatory avoidance in order to gain an advantage on competitors. That’s great news if you think rich people don’t have enough money, but not for anyone else.