Regulators, who are still attempting to respond to the creation of the Internet, will never catch up to America’s entrepreneurs.
By Jared Meyer
July 17, 2016
The following is an adapted excerpt from the author’s new monograph “Uber-Positive: Why Americans Love the Sharing Economy.”
Despite the results of a new Pew Research Center poll showing that Americans overwhelmingly reject the application of outdated regulations to the growing sharing economy, government regulators have missed the message. Places as diverse as Austin, Texas, and Montreal, Quebec, have recently taken steps to suppress the sharing economy—specifically ridesharing—by treating the Uber as a taxi company. Regulators’ attitudes towards innovative new services can be summed up in one phrase: “Regulators gonna regulate.”
But when crafting regulation, policymakers need to keep in mind that the relationship between consumers and service providers has been transformed for the better in the sharing economy. Rather than keeping consumers safe, regulators are now threatening the growth of the new economy—growth that has proven to be a promising way to increase consumer choice, work opportunities, and economic growth.
For example, at every stage in ridesharing’s growth, established interests in the taxi industry have used claims about its dangers to scare politicians into acting. Each time, the claims have been shown to be overstated or blatantly false. Undeterred, the industry continues to use any political means available to maintain its monopoly. Rather than focusing on competing on Main Street, Big Taxi turns its attention to city halls and state capitols.
It is difficult for regulators to embrace the changing economy. Politicians on the campaign trail often talk about the need for regulatory reform, but their rhetoric alone will not be enough to change policy. However, despite the continued attacks on innovation, one major shift has happened in recent years—the rise of the sharing economy. Workers finally have a way to satisfy their desires to work on their own terms. It is now up to policymakers to facilitate workers’ calls for freedom, flexibility, and mobility, rather than standing in the way.
We Like Creative Business Models
Not only do many workers prefer to take part in the sharing economy, but in the current period of low economic growth it is an essential way to increase Americans’ earnings. More than half of those people who provide services through the sharing economy say they became better off financially over the past year. This is above the 32 percent level of other workers who make the same statement.
Partially because of the sharing economy’s success, and the subsequent hostile response of some politicians, only 18 percent of millennials believe regulators have the public’s interest primarily in mind. Young people realize that many regulations do little to keep the public safe. They want companies to be held liable for harming consumers, but they do not support regulations that keep out new competition or dictate how entrepreneurs must meet their customers’ needs. It is difficult, if not impossible, to find a millennial who wants an outright ban on Uber and Airbnb.
Uber’s business model is to start operating first and work with regulators later. This embrace of permissionless innovation flies in the face of the antiquated command-and-control model of regulation. But it should not be the norm for American businesses to have to ask for government permission to innovate. While innovators tirelessly work to drive the economy forward, regulators now function as annoying backseat drivers or roadblocks.
Rather than applying outdated regulations on the sharing economy in the form of limits on its growth or business models, policymakers need to allow legacy companies to update their business models to better compete. In other words, taxi companies need to be allowed to become more like Uber—not the other way around.
Resistance Is Futile
By the time policymakers catch up to a new service such as ridesharing, a new innovation will already be gaining popularity. A regulatory framework for the future must embrace flexibility if it is to allow for the next transformational product or service to reach the market. One way to do this is to regulate by specifying explicit ends (in terms of consumer safety) but leaving the means to reach those benchmarks open to innovation.
Regulations specifying rigid means that only work for current business models will be outdated in a few years, when the next new technology arises. In short, regulators, who are still attempting to respond to the creation of the Internet, will never catch up to America’s entrepreneurs.
Uber’s strategy of innovating around regulations might be compared with the effect e-mail has had on the U.S. Postal Service. USPS still has a monopoly on delivering letters—just as yellow taxis still have a monopoly on Manhattan street hails. But the technological advancement of e-mail and forward thinking by FedEx and UPS have rendered the postal service obsolete for companies and nothing more than the butt of jokes about government inefficiency.
New technology cannot simply be wished away. Rather, established firms face a choice: they can either embrace innovation or they can follow the taxi companies’ lead and dig in their heels as they are pulled toward irrelevance or bankruptcy.
Innovation arises through individuals taking risks—trial and error, success and failure. People must be free to experiment and put their unique knowledge to use. Every time politicians and regulators call an Uber or plan a vacation with Airbnb, it should remind them how the economy actually grows.