Some Clarifying Questions

Before I begin my response I’d like to thank Dean Baker, Avi Asher-Schapiro, and Christopher Koopman for participating in this edition of Cato Unbound, I enjoyed writing the first essay and reading the responses. I hope that Christopher will forgive me for engaging with the comments made by Dean and Avi, who both made some points in their essays that I would like to directly address.

Avi begins his essay with a complaint regarding the use of the term “sharing economy.” I share this complaint. The term is clumsy and potentially misleading. It is true that the so-called “sharing economy” does not rely on the sharing of assets but rather offering use of assets (such as a ride in a car or a spare bedroom) in exchange for money.

What is perhaps most interesting about Avi’s response is that it highlights a disagreement we have regarding the role of regulation and public policy. In his essay Avi states the following:

Public policy should, however, put these workers and their economic predicament at the center. Likewise, an honest appraisal of “asset-sharing” platforms like Airbnb must take into account the effect on affordable housing stock, rental rates, and community cohesion

Unfortunately, Avi doesn’t offer an argument for why policy makers ought to concern themselves with economic predicaments or the effect a company like Airbnb has on housing stock or community cohesion. Who decides what an economic predicament is or what counts as community cohesion? Presumably Avi does have limiting principles that describe what ought to be considered economic predicaments and community cohesion, yet he does not explain what these are. My own belief is that regulations are justified only in some instances of market failure. Avi may not like that some Uber drivers are struggling to make ends meet, but that is not a market failure. In addition, it is far from clear to me that the regulatory response to some people making less money than they would like is increased intervention in a market.

Later in his essay Avi points out that he and I agree that drivers who use Uber are “consenting adults in an economic relationship.” He then goes on to mention a regulation also noted by Dean which highlights what I think is a conceptual error.

Both Avi and Dean discuss the 40-hour work week. Avi claims that the 40-hour work week is an example of society’s rejection of the “logic” of consenting adults engaging in an economic relationship, while Dean states that Uber ought to ensure that drivers who work more than 40 hours a week are paid one and half times the minimum wage.

Yet Uber’s business model relies on its rideshare drivers operating whenever they like. An Uber rideshare driver can drive for two hours a week or fifty. Uber cannot control when a driver using its platform picks up passengers, although surge pricing can provide additional incentives for drivers to get on the road. It seems to me that the sharing economy model offers a good degree of choice for drivers. They can work whenever they want, and if they’re not satisfied with their income they may stop using the service.

Uber also relies on an employment model that is different from the model used by many sharing economy competitors. This is because Uber is not a taxi service and its ridesharing drivers are using their own vehicles. Uber is providing a technology that allows private car owners to find passengers willing to part with some money in exchange for a ride. Unfortunately, Avi does not directly address what it is about the relationship between Uber and the drivers and passengers that makes the “employer” designation appropriate. Is it also the case that Airbnb or Feastly hosts should be considered Airbnb and Feastly employees?

In his essay Dean argues for a set of policies that “apply equally to Uber and incumbent taxi services” and goes on to discuss cash payments, handicap access, insurance, background checks, and congestion. However, Dean does not highlight what it is about current rideshare insurance and background check requirements that needs reform. In fact, although Dean mentions that Uber “is now doing some screening of drivers in some cities,” it is actually the case that at least in the United States every Uber driver undergoes a background check.

Dean and I had a brief discussion related to the cash question at a recent Cato Institute event on ridesharing, which can be seen here at around the 1 hour mark. As I understand his position Dean is not arguing that Uber and similar companies should be forced to accept cash, although at the Cato event he did discuss a fee that could subsidize rideshare cash transactions. I would be interested to hear more about the fee, and I hope that Dean will elaborate in his next response.

I found Dean’s suggestion relating to congestion and vehicle caps particularly interesting. Currently, rideshare passengers hail drivers who turn on the app whenever they want. Perhaps Dean’s suggestion that the number of taxi cabs and rideshare vehicles be capped is mostly aimed at traditional cabs, but when it comes to rideshare vehicles I think the proposed vehicle limit is a solution in search of a problem.

I’ll conclude this response with some questions for Avi and Dean.

For Avi:

  1. If the proper role of public policy is to ensure that economic predicaments are avoided and social cohesion is preserved, how should these be measured or defined?
  2. If Uber were to be classified as an employer, should the same designation be applied to Airbnb and other sharing economy companies?

For Dean:

  1. Are the insurance and background check requirements already put in place by rideshare companies sufficient, or should these requirements be the same as those in place for taxis?
  2. How should the number of rideshare drivers be capped? Why not keep the current rideshare system in place in which passengers hail drivers and the rideshare platforms change prices in order to provide incentives for drivers to search for passengers at times of high demand?


Also from this issue

Lead Essay

  • Matthew Feeney argues that the right response to the rise of the sharing economy is often to deregulate legacy industries. Users and service providers alike have tools at their disposal that ease many of the worries that might otherwise come with sharing one’s car, kitchen, or spare bedroom. Meanwhile policymakers should recognize that older regulatory systems often amounted to favoritism. Taxi monopolies are only the most egregious example among many. A level playing field should be the goal of public policy, provided that this playing field does not impose arbitrarily burdensome regulations.

Response Essays

  • Dean Baker points out how sharing economy companies have often received special favors, and he suggests what a truly level playing field might look like. While it’s hard to deny that companies like Uber have offered much-needed services, he argues that limiting the number of taxis in a city is still reasonable, that drivers must be guaranteed standard minimum wages, and that accessibility requirements must also be met. Anything less would amount to an implicit subsidy for one industry participant - in other words, exactly the sort of thing that conservatives should recognize as corporate welfare.

  • Sharing economies do not really exist, says Avi Asher-Schapiro. The glowing term really denotes downward mobility for the middle class. Formerly regulated and stable professional occupations are growing increasingly part-time and menial. Companies like Uber, HomeJoy, and Taskrabbit promote what is ultimately a servile class, one that must wait hand and foot on the desires of the wealthy. This is certainly not what we should want our society to look like. Such companies have succeeded in recent years in large part because many people have been otherwise unemployed. But if we want our economy to serve more than just the wealthy, then we should hope that Uber drivers and the like will exit the “sharing” economy in favor of something better.

  • Christopher Koopman notes that firms like Uber and Lyft are already writing very comfortable regulations for themselves, rules that lock out competitors and hurt consumers. The results will be higher prices, fewer choices, and poorer service. In the longer term, it may mean that many companies can’t innovate by providing entirely new side businesses or related services - things like moving services, delivering goods on demand, or offering autonomous cars for hire. There is no clear reason why these things mustn’t be on offer, but regulation stands to forbid them before they even exist.