Don't judge a gig econ­omy by same reg­u­la­tions

The Pak Banker - - OPINION - Noah Smith

IF you trav­elled to Ja­pan in the 2000s as I did, you re­mem­ber how dif­fi­cult and ex­pen­sive it was to find a place that was both nice and in­ex­pen­sive. Ho­tels were pricey and of­ten booked. A mul­ti­week stay in­volved mov­ing from place to place, since few ho­tels were avail­able for large blocks of time. A few years ago, some­thing changed: Airbnb. Ja­panese home­own­ers and prop­erty man­age­ment com­pa­nies alike have been rent­ing out their empty space at large and grow­ing rates. Not only did Airbnb make travel to Ja­pan much eas­ier, it has given many nor­mal Ja­panese peo­ple a much-needed boost to their in­come in an era of fall­ing wages.

Mean­while, the ex­plo­sion in sub­let­ting has helped ac­com­mo­date the in­crease in the Ja­panese tourism in­dus­try, which will only grow as the 2020 Tokyo Olympics ap­proaches. But now Airbnb is un­der threat in Ja­pan. New regulation by the Shinzo Abe ad­min­is­tra­tion threat­ens to kill most of the sub­let­ting web­site's busi­ness in that coun­try. The key pro­vi­sion would re­quire that Airbnb not of­fer rentals for less than one week.

That wouldn't af­fect trav­ellers like me who tend to stay for longer pe­ri­ods, but it would cut down a lot on us­age of the ser­vice by many tourists, whose num­bers are far larger. There are some good rea­sons for this. When you buy a condo or rent an apart­ment, you're not just pay­ing for the space you oc­cupy - you're also pay­ing for the neigh­bour­hood. You ex­pect to live around cer­tain kinds of peo­ple, and you gen­er­ally pay for the priv­i­lege.

This kind of con­sumer be­hav­iour can be bad for so­ci­ety - for ex­am­ple, it can help per­pet­u­ate racial seg­re­ga­tion. But it can also make a lot of sense. For ex­am­ple, I might need peace and quiet for my in­som­nia or my work, and I might pay a pre­mium to live in a sleepy, quiet apart­ment build­ing.

Airbnb messes with this for­mula. My quiet, sleepy neigh­bours may sub­let their rooms to a band of rau­cous tourists, and I have no way of know­ing ahead of time whether they'll do this. So I can never be cer­tain I'm get­ting what I paid for.

Many so-called gig econ­omy com­pa­nies have spillover ef­fects like this. The ride-hail­ing ser­vice Uber, for ex­am­ple, might in­crease the num­ber of cars on the roads, caus­ing con­ges­tion and pol­lu­tion.

So the Abe ad­min­is­tra­tion has some le­git­i­mate con­cerns about Airbnb. But more wor­ry­ing is how the ho­tel in­dus­try played a ma­jor role in the push to reg­u­late Airbnb. Ho­tels have a point that Airbnb rep­re­sents un­fair com­pe­ti­tion, since it is much less reg­u­lated.

But the push by the ho­tel lobby un­der­scores the strength of vested in­ter­ests and their abil­ity to squash new tech­nolo­gies through arm-twist­ing and favourable regulation.

The prob­lem isn't lim­ited to Ja­pan. In New York City, it was also ho­tel in­dus­try lob­by­ing that stymied Airbnb with a rule that would re­quire min­i­mum rentals of one month un­less the owner is also present. Uber has been more suc­cess­ful in its bat­tle against the taxi lobby, but other cities have been much more hos­tile.

This is a wor­ry­ing trend. Smart­phones and the in­ter­net rep­re­sent new tech­nolo­gies that of­ten al­low pro­duc­tion to be ef­fi­cient at much smaller scales - in­stead of a few large ho­tel chains dom­i­nat­ing the mar­ket, lots of lit­tle lodg­ing providers can now com­pete ef­fec­tive- ly. In a way, it's the op­po­site of what hap­pened when Wal-Mart and other big chains de­stroyed small mom-and-pop re­tail­ers across the coun­try.

Now, tech­nol­ogy gives an ad­van­tage to the lit­tle guy.

If reg­u­la­tors ban ser­vices such as Uber and Airbnb at the be­hest of pow­er­ful in­cum­bent in­dus­tries, it lim­its the de­gree to which new in­for­ma­tion tech­nolo­gies can con­trib­ute to pro­duc­tiv­ity. If we block the chan­nels by which IT creates im­prove­ments in pro­duc­tiv­ity, we will limit the de­gree to which it causes the same kind of growth as ear­lier tech­no­log­i­cal rev­o­lu­tions.

That doesn't mean we should leave ser­vices like Airbnb and Uber un­reg­u­lated, of course. The prob­lems - ex­ter­nal­i­ties, asym­met­ric in­for­ma­tion, moral haz­ard and all the other rea­sons that mar­kets break down - are still present. Uber's in­ter­nal driver rat­ings are not enough to pro­tect cus­tomers from crim­i­nal driv­ers, who only need to strike once to have a dev­as­tat­ing im­pact. Airbnb's renter rat­ings sys­tem won't pre­vent noisy tourists from dis­turb­ing the in­som­niac next door.

In­stead, what we need is for regulation to work with "gig econ­omy" ser­vices in or­der to make them sus­tain­able in­dus­tries. Ya­suyuki Tan­abe, the head of Airbnb in Ja­pan, puts it well when he says that "Rather than ho­tel laws, we'd like to think about cre­at­ing a new rule from scratch that ap­plies to plat­forms like Airbnb."

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