Lambert here: I’m pleased to have this wrap-up; I’d summarize the issue this way: “It’s not sharing, it’s renting” (and hence subject to regulation). I’ve used AirBnB, and it’s very clearly a business transaction, and not part of a gift economy. I do see that from a rentier’s marketing perspective, it’s better to frame transactions as sharing to direct attention away from the cut that rentiers take for inserting themselves as middlemen. And from a rentier’s personal perspective, conflating sharing and renting could be useful as a psychological buffer from the real nature of the power relation involved, in much the same way that servants or slaves are always “part of the family.” Still, most us aren’t rentiers, so we don’t share those perspectives, although perhaps we will come to, as we “share” our apartments, power tools, closet space, shelves in our refrigerators, cupholders in our vehicles, etc.
By Jérémie Cohen-Setton is a PhD candidate in Economics at U.C. Berkeley and a summer associate intern at Goldman Sachs Global Economic Research. Originally published at Breugel.
What’s at stake: As sharing economy companies become valued in the billions, grand claims are being made for the future of these new providers. But the question remains open as to whether the success of these companies, which often relies on lower standard of regulatory oversight and taxes, are a net plus for the economy as a whole.
Rents, regulations and the sharing economy
Dean Baker writes that the “sharing economy” – typified by companies like Airbnb or Uber, both of which now have market capitalizations in the billions – is the latest fashion craze among business writers. Although these companies facilitate the use of underutilized resources, the reality is that this new business model is largely based on evading regulations and breaking the law.
Dean Baker writes that insofar as Airbnb is allowing people to evade taxes and regulations, the company is not a net plus to the economy and society – it is simply facilitating a bunch of rip-offs. Others in the economy will lose by bearing an additional tax burden. If these services are still viable when operating on a level playing field they will be providing real value to the economy. As it stands, they are hugely rewarding a small number of people for finding a creative way to cheat the system.
Ashok Rao writes that it’s fair to argue that perhaps the new era sharing services harm the old guard unfairly as they are beholden to a higher standard of regulatory oversight. But Baker’s column then should have been militating against the many useless regulations that bring about a need for this sort of service in the first place. It is unfair to suggest that these services are not as safe as the traditional ones. Consumers would not be using the wildly popular sites apps such as Uber and Airbnb is they were repeatedly unsafe.
Mark Thoma agrees with Dean Baker about the level playing field, but suggests that it may serve as a catalyst for changing regulations that “were originally designed to serve narrow interests and/or have outlived their usefulness”?
Cullen Roche writes that the growth of these businesses is just a sign of demand for better services because many of the businesses that currently provide those services aren’t providing what people expect. And so what we’ve seen is growth in competition because the competitors are simply providing a superior product that delivers the consumer a better overall experience. Enrique Dans writes that the paradox in all this is that the traditional players in these sectors have undervalued the competition. Hotels think that Airbnb is a cheap alternative for backpackers, imagining that the accommodations on offer are pigsties. Taxi drivers are fearful of Uber, believing that it only attracts drivers with criminal records and worn-out old bangers. The paradox of the sharing economy is that in many cases, the service on offer is better than that it is substituting. What’s more, the businesses suffering the disruption have no idea what’s going on.
New work opportunities in a depressed economy
Ashok Rao writes that it’s really bad economics to assume that these services don’t increase taxes. Even if no direct taxes are paid (and despite what the article would suggest, this is plain false) it gives a lot more spending power to those likely to spend it, which, through the multiplier, is a key driver of local taxes in the urban areas where these services thrive. The real value comes not just from convenience to the customer, but giving poorer people an easy way to supplement their income.
Fahrad Manjoo writes that rather than simply automate workers out of their jobs, technology might create new labor opportunities for people who haven’t acquired formal credentials or skills in an economy where low- and medium-skilled workers face a bleak outlook. Like the ride-sharing service Uber, Instacart – a company that allows customers to order their staples online and having them show up at their door a short while later – creates work by connecting affluent customers who have more money than time with part-time workers who have the opposite problem — lots of time, not enough money. But unlike ride-sharing or apartment rental services, Instacart isn’t intruding upon a regulated industry, and its service poses little risk to its customers’ health or property, so it faces few of the complications that have dogged other sharing companies.
Susie Cagle writes that the sharing economy’s success is inextricably tied to the economic recession. Across the U.S., high costs of living are driving more of the employed toward “side hustles,” i.e. unprotected freelance work, the kind fostered by the sharing economy.
From c2c to b2b
Ben Schiller writes that so far, the sharing economy has mostly been about consumers, but the opportunity for businesses is at least as large. While individuals can share their houses, cars, tools and parking spaces, companies also have valuable assets that might be useful to someone and could generate some extra cash. One company might not need a van for a week, so a manager tells the rest of the community. Another might have received an extra order, so rents the van. One side gets rental income, the other takes care of business without heavy investment.
The Guardian writes that what has the potential to be truly transformative is less the technology than the culture that it both facilitates and on which it relies. Passengers and drivers are encouraged to rate one another, a system of peer review that puts mutual trust at the heart of the system in a way that reduces the importance of a rule-based culture while – by fostering relationships between individuals – enhancing social capital.
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What economist such as Dean Baker and others who see the ‘sharing’ economy as a ‘rip-off’ need to understand is these middlemen are filling needs that would otherwise not be there. Someone renting a couch is not likely to spend money on a hotel room. We live in a depressed economy where McJobs and therefore McRipoff salaries are the norm. Put yourself in the shoes who might be put in such a situation. That might be the only place to get a roof over your head for a period of time.
Of course, anyone doing the ‘renting’ needs to come clean with the IRS at tax time. Not claiming income should be punishable by public flogging.
I find it ironic economists who favor more competition for lawyers, doctors and other priveledged occupations suddenly heap scorn on those who challenge established norms in our McEconomy.
I do like Dean but I disagree with him on this one.
I certainly disagree on the flogging part. Certainly if we lived in a relatively just political economy taxes should be paid. But this system is broken and very unjust and cannot (if we believe in justice) be supported but should be resisted and undermined whenever possible.
I don’t know…it only seems to make sense that if you let someone crash on your couch, you should also make a contribution to the imperial coffers to help pay for drone strikes and oil subsidies. [/snark]
Hahahahahaha!!!! Amen, Brother!
Remove the part where predatory billionaires strip all worker protections and I might be more excited. The “sharing economy” only works because of a soaring disemployment rate fostered by the exact same billionaires. Sharing stuff is great, but explain to me why we have to engorge a squadron of investment vultures to do it.
The Apple crowd high-five themselves over how transformational and creative they are, which is to say they’re rich enough to own a smartphone with a data plan. For now.
“Consumers would not be using the wildly popular sites apps such as Uber and Airbnb is they were repeatedly unsafe.”
‘Consumers’, particularly the needy, do obscenely unsafe things all the time in order to save money. This is an unbelievably stupid argument. Ashok Rao, is, apparently, a freshman college student. It might be better to hold off on quoting this individual until they complete, say, their second year courses?
Contra, the illusion that Air bnb caters to “couch surfers,” I travel a lot for business and my company picks up the tab. I could stay in a luxury hotel if I wanted but I prefer to stay in a nicely furnished flat in a good residential neighborhood. Air bnb makes it possible for me to do this. Yes, Air bnb is a “middle man” but they provide a great service that would otherwise not exist.
I too have used AirBNB for travel related to business. It has saved our small company money to have us do so as the rates are generally cheaper per person compared to individual hotel rooms in better cities. We also tend to buy groceries and eat out less because we’re in a furnished home/apartment with a kitchen. More savings. And sometimes comfort. Now, here are the downsides in my experience:
1. Stock can be limited. Hotels are near where you want to go generally. With AirBNB that is not always the case. In Dallas I stayed in a fine house, but it was 10 miles outside downtown and in an area with very little beyond check cashing establishments and fast food restaurants.
2. AirBNB property managers vary in attentiveness. In San Francisco we rented an amazing three bedroom house in the Tenderloin. It was incredibly clean with well thought out amenities. It was also being run essentially as a full time AirBNB rental so the manager was very responsive to customer needs, in the way that a hotel manager would be.
In San Diego I stayed in a fine two bedroom condo. The owner failed to stock the apartment with basic cooking utensils. The furniture was cheap and especially uncomfortable. We were advised not to talk to the neighbors, who were apparently upset that a condo adjancet to theirs was a full time AirBNB rental (who can blame them?). And to add insult to injury, there were two of us on this trip and only one set of keys. An FOB was needed to get into the building. Thus on the one day we had separate agendas we had to coordinate when we would be back at the apartment. And the owner was completely unresponsive to any requests. It left me wondering what would have happened if we had lost our one key? For a hotel they just make you a new one. For this place it was not clear if we would get into the apartment before we had to leave for the end of the trip. Who would resolve this issue if it arose? AirBNB? It’s not like we had legal grounds to get into the apartment. This experience, while successful, made me question the reliance of AirBNB for essential trips.
3. Finally, I never had an issue with arriving to a city and not having my arrangement be ready. But what if that had been the case? Maybe AirBNB would find me something else, but would it be where I want in the city with similar amenities? Again, unclear.
In the end, booking a hotel eliminates a lot of uncertainty that comes with AirBNB. While I appreciate the plusses, there are lots of potential downsides. With customer service requirements, I don’t see how AirBNB can live up to the profit hype, even has a “frictionless” middleman.
anyone commenting on airbnb who hasn’t tried it should be disqualified. what’s more, you’re nuts if you travel and haven’t used it. my husband and i, in our seventies, used it about eight times last year. it’s a very efficient outfit and provides all sorts of checks. have never felt in the least ‘unsafe,’ whatever that’s supposed to mean.
That’s great, but the fact that you like it airbnb has nothing to do with the reality that the argument “if people are doing it it can’t be unsafe” is simply wrong.
8 times in one year?
You must have a nice retirement. (Social Security, pension, savings)
My generation is going to be happy to not be living in the streets when we “retire”.
Have used both many times. Nobody is commenting on the fact that airbnb is better for social reasons: you get to meet locals, talk with them, interact, ask them what’s hot and what’s not, and sometimes (much) more. A nicer experience than the corporate hello you get at a hotel (cue the scene from Fargo when she checks into the Radisson…)
Same is true with Uber, but less so. I always talk to cabbies. But there’s something “shared” about the Uber experience, rather than just being a transaction.
Actually, there already is a thriving business sector that uses online customer feedback and reputation to foster a safer environment for customers who traditionally had a more dangerous time acquiring their products: black market drugs. Since the original Silk Road site went down less than a year ago the darknet has exploded with new marketplaces for drugs. Its a thriving sector but one that has massive growth potential given that most drug-dealing is still face to face. The precursor to this was international pharma sales via black/gray market pill shops, which have helped those without health insurance who can’t afford to see a doctor just to get the medications they need. That business has also heavily moved into the darknet in order to evade regulation and law enforcement.
If you think about the potential for reputation management and cottage industry offered by such services, including uber, airbnb, etc., on the darknet and clearnet, and then think about where 3d printing and electronic component printing will be in 5-10 years, big players are going to be facing serious competition for the first time in history. The internet and technology are finally beginning to offer a better way for the masses, and its just in time given the way the leadership in the west has decided its time to lock us down and suck the lifeblood from us. If they try to regulate airbnb, etc., out of business they can just move to the darknet. Frankly, it will be better if they do because then you won’t have rentiers who own these websites extracting ridiculous percentages (especially if darkwallet and its associated potential technologies are successful).
Except…what is darkwallet but just another rentier?
There is a difference between respecting the law to better society and respecting the law to benefit the incumbents. Those who start businesses will understand how hard it is because right now the rules are made for the TBTF.
We are all givers, takers or a mix of both. Every human transaction can be mentally registered as a credit or debit whether it has a monetary value or not. We all take a cut. So when we pejoratively look down on rentiers it should be because their cut is failing to better society or they are taking more than their fair share. Before judging a rentier, It’s important to determine whether their actions can lead to a bigger pie or a smaller one.
How are laws meant to protect against very real safety issues going to fit all this spin?
Safety is overrated or better yet, misvalued. We already have helmets for nearly every activity, I’m surprised I don’t have to wear one to sleep or cross the street yet.
Safety is so disabused that we are afraid of our own shadows. In fact, because of this safety issue, the Fed created this mega bubble to protect us from failures.
We need more monitoring and less regulation…. cut the number of regulators and increase the number of testers.
Most of the red tape isn’t about safety anyways, it’s about protecting the incumbents.
You have to sleep in a 400$ per night room, it’s the law… or else you’re going to get bed bugs? Research has already shown that expensive hotels are full of bed bugs.
Change is dangerous… when the US had its Boston tea party, I’m sure they did not change the law to make it safe.
All three comments anount discounting safety which tells me you have no real answers
Safety is way overrated. An over attachment to safety and security may well be unsafe.
Maybe if you pin-point which specific safety issues you want me to address, that would help. We could start with AIDS, there are surely people who catch it in expensive hotels.
I’ve used AirBnB and I don’t have ethical qualms about that use case. However, I don’t like the triumphalism that surrounds it and similar efforts, and I especially don’t like the corrupt language of “sharing.” The corrupt language is big red flag for me, because I don’t see any stopping points (which is why I gave ridiculous examples of what might be shared).
For example, I’ve heard that AirBnB wants to get into food, too. Food prep is highly regulated for a reason. And while FaceBook likes may be sufficient to regulate sleeping space, will they be sufficient to regulate vermin, or food poisoning?
Your post reminded me of the link about Webster’s dictionary. Here is the link to the the 1913 unabridged edition’s definition of sharing: http://machaut.uchicago.edu/?resource=Webster%27s&word=share&use1913=on&use1828=on. I would say none of these definitions and uses of the word “share” fits the so-called “sharing economy”.
Well, except for maybe Milo Minderbinder: “And everybody has a share!”
I think where you stand on this depends on a deeper political analysis. If you believe that the basic political economy is ok but needs some adjustments you want the new sharing economy to play by the rules. If, like I believe, the political economy is seriously broken and much of the regulation has been trending not to protect the public but inhibit competition then you adopt a different view. I was involved in a small business where large players managed to go to various state houses to rig the regulations to keep smaller businesses out by charging large fees and heavy paperwork burdens.
The society we live in today is too corrupt to continue–and it is corrupt at every level. As I’ve tried to explain before, ideally, social democracy should and would create policies and regulations with the idea of benefiting the public. But we do not live in a social democracy–we live in an authoritarian state dominated by an oligarchy who rule us through lobbyists, PR, propaganda, law-enforcement agencies and a government that has trashed civil liberties, rule-of-law, and the Constitution. As such our duty, as Chris Hedges likes to say, is to resist. The most important part of resisting, in my view, is to form alternative structures. Uber and other companies are a start in creating those structures. I would prefer less money being made by those that have control over these structures but they are setting the pattern of what is possible. We need more not less freedom to just get together, kids, and put on a show (cue Mickey Rooney).
The sharing economy is a step towards anarchy and thus I favor it because this historical moment demands anarchy and, yes, libertarianism (people here wrongly call me libertarian but I differ from them because I’m not a materialist and don’t believe private property is sacred) as a process not a final end. The final end is anything but the sort of radically materialistic and alienated society we live in with its amazingly high levels of stress and disease. I like social democracy but, at this time, it is just not possible at least in the U.S. for a number of structural and historical reasons. We need, as consumers, citizens, neighbors, members of communities to empower ourselves and, yes, even if we court some danger that abandoning regulations entails. Right now we are steaming full-speed ahead, if we allow things to stand as they are, to a hereditary aristocracy and neo-feudal system so we have to risk change and comfort.
Let the sharing economy begin to open up some possibilities for folks that can’t afford to lobby for their gov’t guaranteed privileges. Let’s take a close look at what actually happens with regulation–do the agencies that govern the financial community regulate for our benefit? The answer, unless all the posts over the years on this site is a resounding “no.” Why?
At some point we need to look in the mirror and ask if we really want change to happen or not and if so we need to undermine and mine the current system for our needs not the need of oligarchs.
“The sharing economy is a step towards anarchy and thus I favor it because this historical moment demands anarchy and, yes, libertarianism (people here wrongly call me libertarian but I differ from them because I’m not a materialist and don’t believe private property is sacred) as a process not a final end. ”
Perhaps the fact that “the sharing economy” is a PR buzzword used by insanely wealthy Silicon Valley venture capitalist plutocrats to sell firms intended to leverage technology to bust up vested interests in other sectors of the economy, and is therefore an entirely obvious and logical extension of the existing plutonomy, should disabuse you of this notion?
It’s part of a process not an end in itself–we are moving towards enabling the public even if it enriches a different class of plutocrats (you have to admit they are different than the Wall Street types).
The political economic problems you’re pointing to are related to wealth disparity and consequent political control by the ultra-wealthy, not hoteling and taxi regulations. Dispensing with the latter and doing nothing about the former is not “enabling the public”. The notion that rejiggering things so some Californian plutocrat receives the rent income that formerly accrued to some taxi operator in London or New York is a blow to Wall Street is bizarre.
Amen.
That would be a great argument supporting the English Enclosure Acts in the 17th Century. No subtle political analysis is needed – the “sharing” economy is an assault on one of the last remaining areas where the individual can still impact public policy, local governments.
Just as the Enclosure Acts removed feudal barriers to allow a new order to emerge, private greed is rapidly dismantling the remaining actual democratic institutions (flawed as they are).
Who knows what new order will come into being, the Dis-Enlightenment?
No equivalency I can see–but what do I know?
Still, of course you have a point here but we are already moving “beyond” government because most of us, as a practical matter, don’t trust government because it has largely been captured by the rich. As I said in my comment, I agree that governments should be based on social democracy but that is not the direction we are going in–therefore we need lots of alternatives at this point in history.
Shorter Banger: Government by the rich is terrible, therefore we should give all our money to rich venture capitalists to destroy the last vestiges of democratic law in order for them to profit at the public’s expense.
Banger, you make many excellent points (as usual). Please, please, please just don’t call it “sharing.” ‘Cause as any kindergartner could tell you, it’s not.
I agree – to put it differently, why is AirBnB a rentier and those voting for these zoning regulations not?
I’m not sure that the culture of libertarian Silicon Valley squillionaires is the first place I’d look for alternative structures.
The point I’m making on “it’s renting, not sharing” is that “the ideas of the ruling class are in every epoch the ruling ideas.” I can see an ethic where we want everything to be shared; I think Graeber calls that something like “everyday commununism.” But do we really want everything to be rented? Where is the line to be drawn? I’m asking because I don’t see these guys drawing it, because markets. And if they use what is to me corrupt language, and conflate renting with sharing, then that means to me that in their minds there is no line.
Just because something is an alternative doesn’t mean it’s an alternative one can live with.
Two things. Rentiers extract value from passive investments, from holding some asset and collecting rents for nothing. AirBnB entrepreneurs are amateur hoteliers, advertising, doing the reservations thing, and often doing the Room Service as well. That sounds like they’re a lot more like workers than rentiers … and getting paid (their cut) … the property owners on the other hand are extracting rents for otherwised unused assets.
No, there is no “sharing” going on in AirBnB transactions. It is a purely commercial business model. The “sharing” language and the rest of their posturing is an attempt to differentiate their business model from that of the traditional hotel and to avoid the horrific barriers to entry erected by the Hospitality Industry in larger communities.
I think the rentiers in this situation are the website owners charging a fee to hook up consumers and providers.
Agreed. However, the ability of Ai bnb to extract ‘rents’ from the part-time hoteliers and their guests stems from the fact that but for the Air bnb on-line network the hosts and guest would probably never connect and no economic exchange would take place.
Whether the market place appropriately values Air bnb’s intermediation service remains to be seen.
Yes. Although the owners are, I think, trying to get everybody to think like they do.
Here are a few more (critical) links:
Is Sharewashing the New Greenwashing? ~P2P Foundation
Sharing Isn’t Always Caring ~Al Jazeera
And something a little more positive:
Cooperatives give new meaning to the sharing economy ~SFGate
Sharewashing. Good one.
Another monetization of the local public commons, whether the public transportation network, or zoning and use regulations.
Basically VC giving a big finger to local governments and public policy.
I should just start farming in a neighborhood public park and “share” my harvest with my neighbors (for a small fee, to help offset the app development, of course).
Networks vs. hierarchies
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2014/06/11/networks-and-hierarchies.aspx
I seem to me that this “sharing” is just another step toward the crapification of everything. It make seem like a good deal but give it time.
I see it more like air travel is too cheap relative to the cost of real estate…. I’m not sure how much longer so many people will be able to travel for so cheap…. time will tell I guess.
Uber is just gypsy cabs with technology. The idea of drivers and passengers building mutual trust through online reviews is nonsense, as any reader of Yelp knows. OTOH, Uber exists in large part because of taxi monopolies, of which New York’s medallion system is an egregious example. Loosen the medallion grip, and the need for something like Uber diminishes.
banger : “” … we need to undermine and mine the current system for our needs not the need of oligarchs.””
There are over 65,000 pages of IRS federal taxcode regulations alone ( not including state or local ) that guarantees the top 20% in annual income , especially the plutocrats ( ie. rich oligarchs ) , can get a better rate-of-return on their investment ( paid taxes , all taxes combined ) than the other 80% ( the masses ). It is the ROI that matters more than the higher percentage of taxes paid by the rich . The gov cannot justify this discrepancy . The remedy for this outrageous government sponsored taxscam could be easily phased in over a period of 5 , 10 or 15 years . In reality , it would probably take a violent revolution to implement . Regardless , here it is —
The only fair tax is a flat rate tax — the same rate for everyone — on income { where income is any money that you receive and can use to pay for living expenses ; and it includes capital gains }.
This means that your rate-of-return
(( where your return is the money that you have remaining after all gov [ federal , state , local ] taxes [ includes sales taxes and all other kinds ] have been paid ))
on your investment ( ie. paid taxes ) in gov , as previously defined , is the same as for everyone .
What could be more fair than everyone having the same rate-of-return on their investment in government ?
The ancient Egyptians of Babylon realized this thousands of years ago when they first collected a flat rate income tax of 10% . Russia understands this and has only a flat rate income tax — same rate for everyone — and a corporate tax . The corporate tax exists only because that money can be moved thru offshore tax havens where it gets lost and becomes virtually untaxable ; otherwise it would simply become taxable income .
Why do progressives not understand this simple fair tax concept ?
No other kind of tax has the quality of fairness that a flatrate income tax has . Why would anyone anywhere ever want to pay a less fair tax than the flat rate income tax as described herein ?
The question is — how much should YOU , no matter who you are , pay for government ( federal , state , local combined ) ?
The answer is — YOUR fair share no matter who you are .
The next question obviously is — what is your fair share of payment for government ?
The answer is — the same flat rate on your income as everyone else has .
That way your rate-of-return on your investment in government is exactly the same as everyone else in your locale . How can the gov justify any other tax scheme ?
Get rid of all taxes except the flat rate income tax and perhaps the corporate tax unless the offshore tax haven evasion can be eliminated . Get rid of unjustifiable governments wherever they may be .
What could be more fair than everyone having the same rate-of-return on their investment in government ?
—————-
We did the same job for 40 years:
I on the public side have a guaranteed pension worth 1 million
You on the private side have accumulated 500K saving and investing the same amount or more.
Now, let’s make sure we have equal rates of return so it can all be really fair.
“” Now, let’s make sure we have equal rates of return so it can all be really fair “”
I am not sure what you are getting at . Your private investments usually are not investments in government . Paying taxes is tantamount to investing in government . You are compelled to ” invest ” in government ; but you are not compelled to make private freemarket investments . Seems like your comparing apples to oranges and legitimately doubtful of any equality . Taxation can be dauntingly complex unless you are clear about the fundamentals . Fairness , equality and justice are the three basic and intertwined concepts especially relevant to government taxation . However , there is no gov obligation to make sure that your voluntary private freemarket investments have the same rate-of-return as everyone else . Russians are wellknown for their often comprehensive and deep rationality concerning matters of government . I used them as an example to make a long story short and sweet since taxation is simply a matter of paying for government and not a complex finance or economic problem as it is often made out to be . And yes you do pay taxes to pay for gov spending and progressive wordsmithing to the contrary is not with standing .
Can we all stop calling it the ‘sharing’ economy? Its basically renting when it comes to businesses like AirBnb! As far as I know, the concept of sharing goes beyond charging someone else for money. If we all see it for what it really is, maybe we can properly analyse it and benefit from it.