The Sharing Economy Under Pressure

By Shane Tews 

Uber, Lyft and Airbnb’s regulatory roadblocks continue.

Twenty years ago, government officials were trying to figure out how to get the solo driver commuting in his gas-guzzling car to share a ride, thereby saving some space on the road and helping the environment. In 2014, people in urban areas are clamoring to ride-share through technology applications that better utilize invested capital in individuals’ cars, reduce the number of vehicles on the road, use fewer parking spaces, and have the added benefit of giving ride-sharing drivers a way to make money on their own schedule. Government officials, meanwhile, are now saying no to the sharing economy and yes to old regulations that in many cases are a source of revenue for municipalities and that keep an artificial scarcity model in place.



Where they are allowed to operate, Uber, Lyft, Sidecar, and similar ride-sharing services are changing the way we get around town and are a simple way to track the cost of the ride through our credit cards (allowing for less cash to change hands, which is safer for all parties). It allows you to go out for the day and not worry about where or how long you can park your car. Or you can go out at night and not have to deal with crowded city parking or risk driving after drinking.
So why are many of the major cities in the world fighting these great resource-sharing services that save time, space, and energy? The New York Times noted in an article on September 20 that New York City taxi medallions are a huge money maker for both the city and those who finance the operation. The article claims that taxi medallions have had a better return than gold, bonds or stock. The average price of a medallion in New York City, which is needed to operate a taxi, is more than $1 million. Of course, most taxi operators don’t shell out the cash, but instead finance the cost through companies like Medallion Financial, a specialty finance company that, among other things, services loans that finance taxicab medallions. Medallion Financial went public in 1996 and has an annualized return of 17.7 percent. The current model works because taxi medallions create a false scarcity in the market. If Uber-style operations could come to town and change the regulation for who can be considered a livery driver, the medallion market would dissolve very quickly. No wonder Medallion Financial and the like are fighting tooth and nail for city hall to keep the regulations in place.

The average price of a medallion in New York City, which is needed to operate a taxi, is more than $1 million.

San Francisco and Los Angeles have taken aim at ride sharing with allegations by the district attorneys that ride-sharing companies are breaking the law. The charges are that consumers are misled into believing thorough background checks have been done on all drivers. While this is an issue ride-sharing services need to clarify, Uber, for instance, does provide the name and picture of the driver, as well as the license plate of the car — far more information than the average passenger knows about the random taxi driver they hail on the street.
Ride sharing has yet to take off in less-populated areas where sports weekend are strong and driving is the norm. Now that we are in full-fledged football season, a weekend ride-sharing service in a college town as well as for pro-football games would seem to be a great idea. Yet in most of these smaller cities, customers are limited to only licensed taxi companies — many of which have an hour or more wait time and no guaranteed pick-up for the customer. Shouldn’t we be promoting the efficiency and safety aspects of ride sharing? Some traditions are not worth holding onto, and sitting in traffic for hours after a game is one of them.
The sharing economy also includes companies like Airbnb who face challenges here in the United States as well as Europe.  Currently, regulators in Germany and Portugal are sending sharing economy companies to court for lack of licensing and safety violations. If these are valid concerns, isn’t it time to update the regulations so that individuals and companies can benefit from new technology?
We need our government officials to promote policies that have positive benefits for society by allowing for the best potential behavior of individuals. We should be encouraging — not stifling — better use of our collective resources, and the current sharing economy of cars and condos may just be the tip of a mutually beneficial iceberg.
Shane Tews is a visiting fellow with AEI’s Center for Internet, Communications, and Technology Policy.