Regulators will stifle sharers, too

Ronald Reagan famously summed up the logic of government thusly: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Ridesharing companies Uber and Lyft move, so naturally, the state of Massachusetts wants to tax them. And since taxis aren’t moving nearly as much as they used to, the state wants to hand about a quarter of the tax — five cents out of a 20-cent per-ride levy — to the taxi industry. It is a shamelessly unjustifiable giveaway to special interests, paid for by taxing a competitor that’s eating their lunch.

To be sure, a fee of 20 cents is probably not going to put Uber and Lyft out of business. On the other hand, such fees have a way of metastasizing over time. They start out as a tiny fee that no one could possibly object to, and then, when no one’s looking, they’re raised a bit. Then a bit more. Then you eventually find they’re hefty enough to make the new service as expensive and inefficient as the old service that it replaced.

This is one of the underdiscussed risks to Uber, or at least the more outlandish claims made by people who think that the sharing economy is going to revolutionize the way we live. At the moment they’re operating in a sort of regulatory dead zone; they don’t quite fit neatly into any of the existing regulatory categories, which means that they often elude the onerous regulatory requirements and taxes that make existing services so expensive.

The problem is that there’s a reason for all those regulations. I’m not saying those reasons are good; a lot of them are quite irrational. But there are political reasons, if not economic reasons, and little evidence that has changed simply because we all now have smartphones.

Many heavily regulated services were once young, and enjoyed all the boundless freedom and possibility that characterizes youth everywhere. Over decades, regu- to get into a market, allowing protected incumbents to charge high prices, give you stuff you don’t want, and maybe be less attentive to quality. We should not simply cast regulators as the bad guys, colluding with special interests to rip off the consumer. Consumers, in their role as voters, often demand the very conditions that allow companies to keep ripping them off.

Sure, they hate the local cable monopoly, but they will bitterly complain if the city council allows any Tom, Dick or Harry who wants to sell them cable service to spend two years ripping up streets in their neighbour- the neighbourhood.”

Over time, consumer/voters are the ultimate engine of the regulatory cycle that begins with a fledgling startup and ends with a behemoth utility that treats you like dirt if you manage to get someone to take your phone call. And, over time, companies learn to like it. At some point, they’re so heavily regulated that the regulations themselves become a form of competitive advantage: Existing dominant players can negotiate the sea of red tape, while new incumbents don’t have the maps.

The cycle will not necessarily end in the death of the new sharing services; on the contrary, Uber and Lyft probably are more likely to prosper if they can get themselves into position as heavily regulated incumbents. But it does mean the death of the idea of the sharing economy as some revolutionary force that is going to provide us an endless supply of formerly luxury goods at bargain-basement prices. The sharing economy, at the moment, is being subsidized by two things: the lack of regulation, and a flood of venture capital. Neither is a permanent condition.

The future of sharing is more likely to look like the past than the future oft predicted by enthusiasts. History doesn’t necessarily repeat itself, but it tends to return to the same few thoughts over and over and over again, just like the humans who act it out.