Uber and Airbnb are convenient, but at what cost?

Remember Napster? In the late 1990s, Napster was the go-to place to download free MP3s. I have fond memories of downloading *NSYNC and Blink 182 songs before Napster was shut down by a court injunction. In retrospect, it’s hard to imagine why someone thought they would get away with so blatantly ripping off the music industry, but the reality is that institutions not keeping up with technology allowed for tech-savvy folks to exploit the slow-moving legal system to provide people with a cheaper alternative.

It may seem like this happened eons ago, but we’re going through the same thing today. Only instead of free MP3s, we’re experiencing that same dynamic with Uber, Airbnb, and similar applications–but with much worse consequences.

Before diving in too deeply, I have to admit that I’ve used these apps: the premise of this article is not to malign individuals for using these services. In a number of cases, Uber and Airbnb–the two main apps I will focus on–are simply cheaper than their establishment alternatives–taxis and hotels. For many working class people, these apps provide a way to supplement their meager incomes. But, as I will explain, the so-called “gig economy” comes at a significant cost.

The main premise of “gig economy” apps is that they allow normal people to make money on a gig-by-gig basis using skills and facilities they already possess. Apps such as Uber, Lyft, and Curb give individuals a platform to give people rides for money. Airbnb, HomeAway, Innclusive, and similar apps allow people to rent rooms in their homes on a short-term basis. I’ll be focusing on the two biggest “gig economy” apps–Uber and Airbnb–but others apps with other functions exist.

Despite Uber and Airbnb presenting themselves as different from the industries they resemble, the reality is that their business models are predicated on undercutting their entrenched competition while providing the same basic services. To be blunt, these entities cut costs by avoiding regulations and not hiring full-time employees.

“Regulation” has become a dirty word in the United States. No one quite likes the idea of the government forbidding them from doing what they want. While some regulations may be counter-intuitive or superfluous, more often than not they attempt to address gross negligence. A constructive debate would revolve around which regulations to enact, preserve, or retool; instead, politicians have taken “anti-regulation” stances in the name of political expediency.

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Although some may view the economic success of Uber and Airbnb as an argument against government interference, the reality of these “gig economy” apps makes a more compelling case for increased regulations.

Putting aside individual fears of Airbnb hosts murdering and raping guests or spying on guests using secret cameras, Airbnb’s regulatory grey area has other implications. In 2013, at least six people died of carbon monoxide poisoning in Airbnb, whereas in a number of states carbon monoxide detectors are required in hotels. The numbers of deaths or injuries are also hard to calculate, because Airbnb keeps these numbers secret. This is assuming that you are able to stay in an Airbnb at all, as studies have shown Airbnb hosts frequently racially profile–which is illegal for hotels or motels to engage in.

Uber also has problems with murder, rape, and spying, but focusing on ridesharing apps’ side-stepping of commonsense regulations shows macro issues with their business model. Taxis have a set fare, whereas Uber can set its own pricing scheme; when demand is high, the prices increase exponentially. In the midst of numerous emergency situations, survivors had to pay big bucks to flee the scene in Ubers, an intentional aspect of their app they were forced to change; if taxi companies attempted this, they would likely be blocked by local governments. Although Uber last month agreed to tighten background checks, it boggles the mind that Uber existed for 9 years before making this decision. If that’s not enough to be worried about, Uber drivers’ cars are not subject to the same safety testing as taxis are.

At this point in the article, Airbnb and Uber users might get the feeling that I am saying that traditional taxis and hotels are perfect; they are far from it! Part of the success of “gig economy” apps can be attributed to the failure of traditional institutions to keep up with technology. Although hindsight is 20/20, how could taxi companies not see that customers want to call cabs with smartphone apps? How could the hotel industry not realize that high prices were a barrier to many travelers? They are not beyond criticism. 

Many taxi companies’ proximity to local governments make them a particularly odious case. For years many cities have granted private taxi companies a near monopoly in their respective localities. The lack of competition gave taxi companies no incentive to innovate in terms of convenience (cab calling apps) and accountability (cab tracking using GPS). Nor was there any impetus for cab drivers to clean their cars, aerate offending odors, or be polite to riders. Anecdotally, most of my friends have sworn off cabs in favor of Uber altogether not due to price, but because they felt traditional taxis were unclean, unsafe, and unaccountable.

Keep the big picture in mind: Uber, Airbnb, and similar apps may be capitalizing on the mistakes of traditional industries, but they are doing so by avoiding regulation. It’s understandable to want lazy taxi monopolies to feel the heat of competition. But, many “gig-economy apps” rake in the big bucks and ignore major social issues they may cause along the way.

Airbnb has caused rent to skyrocket in some cities, which has even led to some tenants being evicted so landlords can list the property on Airbnb. In large cities where rent is already sky-high, this is problematic.

Uber and other ridesharing apps have had an equally disastrous effect on taxis. In addition to stealing customers, they are destroying what used to be a solid way to earn a middle-class income. This not only manifests itself in unsustainable wages, but also in licensing. For example, New York City issues a limited number of medallions to taxi cab drivers; this not only gives the city government a way to control the number of drivers on the road, but it also gives cab drivers a tangible investment instrument. Not anymore:

Cab drivers who saved up a 10 percent downpayment could finance a medallion through a credit union. As long as the medallions kept increasing in value, the drivers could build equity, which they could then use as collateral to buy a house or send their kids to college. Once they reached retirement age, they could lease the medallion to another driver for anywhere from $3,000 to $3,600 a month, or sell it and keep the profits. […] New York City periodically auctions off new medallions […] but most sales involve existing medallions.

But medallions are worth only as much, or as little, as buyers are willing to pay for them. And with the rise of Uber, Lyft, and other competitors that don’t require costly permits, many medallion owners are facing a disturbing reality: medallion prices have plummeted in the past three years.

Replacing full time taxi jobs with part time gig-economy jobs may be a reflection of the broader economic trend toward part time employment that has become all too common since the recession. While the taxi industry needed to be shaken up, it is hard to ignore the human cost involved. 

Furthermore, taxis play a vital role in public transportation systems. While technically not “public” per se–most taxis are privately owned–they are still essential to most cities’ transportation infrastructure. They cut down on congestion and carbon emissions by allowing people live without owning a car. Taxi services allow people to get to and from places that would be too costly and used too infrequently to construct public transportation access. To quote a 2016 report from Germany’s Federal Ministry for Economic Cooperation and Development, “Taxis should be part of the transport solution in a city, not [viewed as] a problem.” Ridesharing apps may provide similar services, but they effectively undermine local governments’ ability to regulate this key component of public life.

This evasion of regulations is their gameplan. In the last presidential election, Republicans went out of their way to praise Uber:

Jeb Bush made a point of riding in an Uber earlier this month during a campaign stop in San Francisco. Marco Rubio has been touting Uber for over a year, and he tweeted in support of Uber during this week’s confrontation with New York Mayor Bill de Blasio. […] Ted Cruz compared himself to Uber last December, saying he hoped to disrupt Washington in the same way Uber has disrupted the taxi business. Rand Paul tweeted in defense of Uber earlier this month, and Scott Walker signed Uber-friendly legislation in May.

It’s natural for conservatives to side with a business fighting regulators, but the inclination to highlight this particular business has a lot to do with political demographics. Republican voters tend to be older and more rural than Democrats. Uber has a young and disproportionately urban customer base. If Republicans can turn Uber into a salient example of government regulation, it could broaden the GOP’s demographic appeal without compromising on conservative principles.

So, what should be done?

Banning them entirely seems heavy-handed, politically difficult, and would stifle innovation. Instead, municipalities should force these apps to play by some rules. If Airbnb wants to be a platform for room rental, then that’s fine–but force them to adhere to laws that apply to landlords and hotels. If Uber wants to operate in a city, let them–as long as they provide benefits to drivers, perform rigorous background checks, and adhere to basic regulations.

Some municipalities are taking good first steps. Both Houston and Kansas City negotiated expanded background check requirements for Uber drivers in their cities. Airbnb has faced regulation in Los Angeles and Chicago, where local governments have passed “home-share” laws to crack down on longterm rentals being conducted through the service.

If “gig-economy” business models are unable to survive when held to a basic level of ethical scrutiny, then perhaps these businesses do not deserve to exist.

As I said above, I am not going to throw shade at anyone who uses these platforms. A handful of boycotters will not cut into these corporations’ bottom lines enough to make an impact. Governments must intervene to protect against these regulation-evading apps and their harmful effects on local economies. At the same time, let’s hold traditional industries accountable; it was largely due to a lack of innovation that these startups were ceded so much ground. It’s okay to appreciate the ease of these apps, but understanding their true harm should inform public policy.

 


In Post Notes, I add some additional thoughts or context to a blog post I’ve previously written. That can be found here.