Harnessing the Potential of the Sharing Economy
By Anders Fremstad
American capitalism generates an astounding amount of waste. Nowhere is this more clear than in our hugely inefficient transportation system. In the United States, the average private vehicle is driven only 1 hour a day and transports just 1.7 passengers. But the sharing economy is starting to change how Americans get around. A 2014 poll by the Center for a New American Dream reveals that 9% have used car-sharing services like Zipcar and RelayRides, and 8% have used peer-to-peer taxis like Uber and Lyft.
As these online platforms gain traction, criticism of the sharing economy is growing as well. Uber, which created a ride-sharing app that is now valued at $40 billion, attracts special attention. In a debate at Cato Unbound, Dean Baker argues that Uber competes unfairly with traditional taxi services, because it does not require its drivers meet safety standards, carry commercial insurance, or acquire a taxi medallion.
Local governments struggle to effectively regulate global companies like Uber. While some cities have attempted to set rules for how Uber may operate, they often fail. In recent article, Its Already Over and Uber has Won, Johana Bhuiyan describes Uber’s basic strategy. The company moves into cities without regulators’ approval. If local governments try to ban the service, the company often offers to pay legal fees for drivers who break the law. Once Uber builds a critical mass of drivers and riders in a city, it presses governments to rewrite regulations. So far, Uber’s strategy has been remarkably successful.
Given how difficult it is to regulate, some economists have made the case for socializing Uber. Mike Konczal and Bryce Covert argue “a transition to workers’ owning their firms is necessary, economically smart, and one way for workers to gain power in the digital age.” There is a good case for democratizing the sharing economy. Online platforms like Uber are natural monopolies. As more people use Uber, the platform can better match riders and drivers, while the cost of facilitating the marginal ride is basically zero. Companies like Uber can abuse these “network externalities” and “economies of scale” to vanquish competitors and gouge users by demanding a huge cut of the transaction. That said, it’s important to recognize that sharing economy platforms are not the only tech companies that have the potential to abuse their users. The commanding heights of the 21st century economy are controlled by natural monopolies like Comcast, Google, and Facebook. If there is a case for socializing Uber, there is a case for socializing the rest as well.
More importantly, transforming Uber into a worker cooperative could raise drivers’ wages, but it would not harness the full potential of the sharing economy. Uber has disrupted the taxi industry, but it has failed to significantly decrease the number of vehicle-miles traveled. Although it’s easier now to get around without owning a car, taking a (regulated or unregulated) taxi from point A to point B is no better for the environment than driving yourself. What we need is a service that uses existing technology to seamlessly coordinate real-time carpools. Drivers and riders could simply plug their final destination into an app, and the service could quickly match riders with drivers who were already going along the same route. An app could easily split the travel costs, providing an incentive for drivers to pick up riders, and providing riders with a cheap and convenient alternative to car-ownership.
In this model of ride-sharing drivers would earn less than Uber drivers, but they wouldn’t be exploited cabbies, they would be ordinary commuters trying to save a buck – and the planet. Digital technologies should make most taxis redundant. (Next time you’re waiting for a cab, think about how many of the passing cars are going the same direction.) There’s no reason we can’t use mobile internet, GPS, and reputation systems to take advantage of America’s ridiculously low vehicle occupancy rates. Doubling vehicle occupancy through digital carpooling would decrease vehicle miles, reduce emissions, and complement mass transportation by helping riders complete “the last mile” of their trips.
Facilitating digital carpooling may be more difficult than building an unregulated taxi company. Since most car owners only drive a couple of routes a day, digital carpooling would require a larger critical mass of users than a taxi service like Uber. But keep in mind that we have already overcome what would have seemed to be the greatest obstacle to ridesharing a decade ago. Thanks to Uber, we know that most people are perfectly happy to hop in a car with stranger to get where they need to go.
BlaBlaCar facilitates inter-city carpooling in Europe, but big players like Uber don’t seem to have much interest in promoting real ridesharing. Why not? Digital carpooling probably looks less profitable than running unregulated taxis. Uber currently takes about 20% of a rider’s fare. In digital carpooling riders might pay half the current rate, so the company would have to charge 40% to “earn” its normal profit. Demanding that large of a cut could seriously turn off carpoolers, especially since the actual cost of matching riders and drivers is basically zero.
So, yes, there’s a strong case to be made for transforming digital taxi services into worker cooperatives. However, there is an even better case to build a real ride-sharing service that takes advantage of the 3.3 empty seats in the average American vehicle on the road today. If capitalist firms won’t invest in digital carpooling, then people and governments should. Whether it takes the form of a public utility or users’ cooperative, a platform built on real cost-sharing — rather than profit maximization — is our best bet for harnessing the power of the sharing economy to reduce waste, protect the environment, and improve everyday life.