True Story I: The Philadelphia Airport is a dozen miles south of downtown Philadelphia. There is a 400-unit condominium in a suburb immediately north of Philadelphia proper. One of the residents of this condo is retired and makes a few extra bucks driving his fellow residents to and from the airport. His service was generally known among the condo residents, particularly those who traveled regularly. By reputation, he is available, dependable, a safe driver and has a decent car. He charges less than a cab would and his clientele are generally satisfied with his service. Every trip to the airport involves an exchange of service-for-dollars to the mutual satisfaction of both parties.
True Story II: In a New York apartment building a few blocks south of Central Park, a furnished one-bedroom apartment is available for daily use at a fee below comparable quarters at a Manhattan hotel. The apartment was owned by someone who spends only limited time in New York; the owner chooses to rent the unit out to defray the costs of owing his pied-a-tier. Most guests find these accommodations through word of mouth, mainly among the other condo owners. For many, this apartment is their guest bedroom. The transaction – keys, money, concierge advice –is handled by a full-time resident of the building who gets a cut. Again, we have a classic economic exchange with both parties satisfied with what they give and what they got.
Both of these activities were illegal. The providers in these cases are not cab companies or hotels but they do offer similar services. These economic activities are usually licensed. With virtually certainty, the preamble to the licensing law says something about protecting the consumers of taxi rides and hotels rooms. Preambles notwithstanding, these laws are primarily about two things, neither of which is the safety of the consumer. They are about money for the controlling entity and monopoly protection for more-established service providers. Safety is at best an afterthought; at worst, a cynical excuse to exercise the power to tax and the power to protect political allies from free-market competition.
Both the Philadelphia and the New York mini-entrepreneurs offer their services to a small community of insiders. They either choose not to make their activities known to the broader public or are unable to do so. They either choose or were forced to limit their market. Maybe it is fear of the authorities, maybe fear of dealing with strangers in unknown situations. This is fine if they have all the business they want but a loss if they want more.
Small scale entrepreneurs are not unusual; they certainly predate the internet. The internet, however, has facilitated new ways of doing things. Up pops AirBnB and Uber and Lyft and other firms which organize and protect the process of providing person-to-person services.
AirBnB is an online registry on which people can offer or find overnight accommodations virtually anywhere in the world. These can be rooms in private homes or whole apartments; even houseboats and treehouses. The service includes a rating system wherein both the providers and users of these accommodations are rated by the other. The company has insurance protecting the owner’s property. AirBnB offers more accommodations for short-term rentals than the world’s largest hotel chains.
Uber and Lyft provide a dispatch service similar to that which cab companies use to route its cabs. Private individuals pick up extra bucks driving others around town. By agreement, the company and the drivers split the fares. Again, there is a rating system and overriding insurance. If Uber or Lyft were more formally a cab company, either would likely be the largest on the planet.
So what’s the problem? To the statists, it is simply offensive that someone would engage in economic activity without the express approval of the government. What modern communication capacity brings to the table, however, is an alternative to government control. For service and safety, customer/provider ratings are generally superior to government inspection and approval. The aggregate experience of all users provides much better information than a simple up-or-down approval based on some bureaucrat’s annual inspection.
Can something go terribly wrong? Yes, and the bigger the system, the more likely there will in fact be serious failures. Someone will die on the way to the airport in a private car. But someone will die in a government-sanctioned cab as well. Would you rather rely on multiple users tagging a provider for a rickety car or on a government inspector of unknown diligence, infrequently making a similar determination on narrow grounds? Poor service is more likely to be identified much sooner and more accurately with a rating system.
Those with a stake in the status quo ante predictably balk at these innovations. New York has enforced laws which make it illegal for accommodations to be rented out for under a month at a time. A Manhattan elected official opposed short-term rentals due to the alleged inconvenience and danger to other tenants. Taxi owners wonder why they spent $100,000 for a medallion. French cabbies block the roundabout at the Arc de Triomphe in a protest against licensing more cabs. Unlicensed freelancers? That’s even worse.
Why would government agencies try to control these ventures? The obvious answer is they want their piece of the action. All other reasons notwithstanding, above all else, they want their piece of the action.
Companies like AirBnB, Uber and Lyft have allowed Joe to be a one-cab taxi company and Mary to run a one-room hotel. This a threat to existing providers of these services. The question remains, however, why would the government want to prevent simple economic transactions between consenting adults who judge their exchanges to be of mutual benefit? Are hotels and taxi companies entitled to provide their services to the public to the exclusion of others who might also opt to do so? Why should those who benefit from government licensing be entitled to that benefit in perpetuity to the exclusion of all others?