Cities that try to block ‘shared economy’ risk missing an innovation trend

Whether the phenomenon is called the “shared economy” or the “on-demand economy,” companies that capitalize on making more efficient use of people and their possessions are changing some traditional business models.

The most familiar examples are mobile applications that facilitate ride-sharing — Uber, Lyft, and Sidecar are prominent examples — or ways to rent other people’s homes, such as Airbnb.

But the shared economy has spread into other sectors, ranging from routine chores such as grocery shopping and laundry (Instacart, TaskRabbit, and Homejoy are examples) to legal and other professional services. In Wisconsin, where natural resources and outdoor recreation are a big part of life, shared-economy companies are emerging to rent hunting lands and watercraft.

It’s a trend called the “Uberization” of the economy, an app-driven labor market that advocates see as more efficient, liberating for workers, and satisfying for customers — and that opponents see as unregulated, unstable for workers, and fostering a piecework approach to employment that could disrupt society.

The debate is taking place in cities such as Madison, where ride-sharing companies such as Uber have become an issue on the floor of the City Council and in the race for mayor. It’s also a subject of debate in the Wisconsin Legislature, where a bill to establish a statewide permit and safety regulations for ride-sharing networks has been proposed.

In the City of Milwaukee, the issue has been resolved … in part. The Milwaukee City Council voted unanimously last summer to approve an ordinance that lifted a cap on taxicab permits and opened the door to tech-based services such as Uber and Lyft. The ordinance took effect last fall, essentially bringing operators for Uber and Lyft under the same system as traditional taxicab companies.

The ordinance requires Uber and Lyft drivers to follow the same licensing and background investigation requirements as other drivers, but those companies say Milwaukee’s regulations are still too rigid and expensive for drivers who are predominantly part time.

(Continued)

The ordinance at least allows such companies to operate legally — which is not the case in Madison, where municipal fines have been issued against drivers. It also lifted the cap on permits. A Milwaukee County court had ruled the cap unconstitutional, anyway, so the city had little choice but to formally open up the market.

In other major cities, the regulatory climate around ride-sharing is much more relaxed because people like the service and have voted with their feet and wallets. During a recent visit to Washington, D.C., my own experience with ride-sharing services was superb — and pricing was competitive with traditional cab rates.

A few clicks on the mobile app and a ride appeared within minutes, usually in a new, freshly washed vehicle driven by someone who knew the city streets well. In many major cities, competition from ride-sharing companies is raising the level of service among incumbent cab companies.

Municipal opposition to ride-sharing and other shared economy trends is partly motivated by public safety. City officials worry that ride-sharing drivers won’t be fully insured, that their vehicles won’t be safe, or that their backgrounds aren’t fully vetted. 

There’s also an undercurrent of “fence-me-in” economics at play. Many cities appear reluctant to unleash market forces and innovation. In the process, they may be costing their own constituents a chance for part-time work that pays pretty well. A recent report by Princeton economist Alan Krueger noted that Uber had 160,000 drivers working regularly in the United States at the end of 2014. Those drivers worked fewer hours and earned more per hour than traditional taxi drivers — even after accounting for their expenses.

Cities that want to stand out as innovation hubs to the rest of the country and the world should walk the walk as much as possible. That means accepting the fact that the shared economy is here and growing.  Protecting public safety is one thing; hiding behind it is quite another.

Click here to sign up for the free IB ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.