The Myth of the Sharing Economy and Its Implications for Regulating Innovation

• Publication year: 2017

The Myth of the Sharing Economy and Its Implications for Regulating Innovation

Abbey Stemler

THE MYTH OF THE SHARING ECONOMY AND ITS IMPLICATIONS FOR REGULATING INNOVATION

Abbey Stemler^*

Abstract

A deflated air mattress rests in the corner of Airbnb's world headquarters. It symbolizes how Airbnb allows regular, local people to earn extra income by renting out space in their homes. Yet, this symbolism fails to represent what the company has become—a unicorn receiving much of its revenue from professionals with full-time listings. The poorly folded wad of plastic exemplifies the Myth of the Sharing Economy, which has been consistently used to subvert regulation.

The Myth convinces people that the sharing economy is comprised of self-regulating Platforms, which allow microentrepreneurs to utilize their excess capacity in an altruistic manner. However, the sharing economy is actually comprised of companies driven as much by market forces and failures as any taxicab company or hotel chain. The Myth possesses an appeal that is simple and seductive. It takes the familiar idea of sharing to make the claim that Platforms are unique and should be subject to new and different regulation or no regulation at all. This Myth not only harms Platform users, the environment, and the culture and diversity of communities, but it has enabled sharing economy Platforms to become powerful influencers in Silicon Valley, state legislatures, and beyond.

While much has been written regarding the benefits of the sharing economy and how to regulate it, and disruptive innovations more broadly, this Article is the first to critique the sharing economy by exploring the intersection between narrative and regulation. It also distills lessons for regulating future

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innovations and demonstrates the importance of questioning the difference between rhetoric and reality to achieve public policy goals.

Introduction

If you walk through the sundrenched spaces of the world headquarters of Airbnb, the online accommodation Platform, you will notice that there are no private offices, not even for the CEO. Instead, collaboration spaces fill the 72,000-square-foot building, many of which are literal translations of Airbnb listings around the world.¹ If you look closely, you will stumble upon an unremarkable space: a perfect replica of Joe Gebbia and Brian Chesky's apartment circa 2007.² It was there that the two blew up air mattresses for the first time and allowed people to pay a small fee to sleep on their floor. It was also there that they monetized their excess capacity, made rent, and birthed a $31 billion company.³

A deflated air mattress rests in the corner of the facsimile birthplace.⁴ It symbolizes the inspirational story of Airbnb, where "regular, local people [can] make a little extra money by sharing their homes with respectful guests from around the world."⁵ Yet this symbolism of "democratizing capitalism"⁶ fails to represent what the company has become. Only approximately 1% of Airbnb revenues in New York City come from sharing rooms like Gebbia and Chesky did.⁷ By contrast, much of Airbnb's revenues in many cities come from full-time Airbnb listings.⁸

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Airbnb provides a platform that enables a cadre of new hoteliers to access customers. But, instead of utilizing excess capacity, these "hosts" are snatching up desired spaces solely for the purpose of listing them on the site. And in many places, at least initially, they benefit from loose or absent regulations made possible by Airbnb's rhetoric.⁹ This lack of regulation not only puts consumers at risk, damages the make-up of neighborhoods, and disrupts the existing accommodation industry, but it has helped Airbnb become a powerful influencer in Silicon Valley, city councils, state legislatures, and beyond.¹⁰

As Part I of this Article explains, in addition to Airbnb, other "unicorns"¹¹ within the Sharing Economy¹² convince communities, regulators, and courts that they are facilitating altruistic activities that utilize excess capacity, support job growth, and alter how we consume. This Myth helps these Platforms¹³ avoid everything from employment laws (by claiming supply-side¹⁴ users are independent contractors) to liability for consumer harm (by claiming they are technology companies shielded by the Communications Decency Act). As argued in Part II, this subversion produces numerous market failures and gives the dominant players in each modality the space they need to grow strong and powerful via network effects.

Once successful, these Platforms are armed with more than the cash necessary to influence regulators and courts via lobbyists and attorneys. They are fortified with formidable legions of users. These users are encouraged, largely through Platform interfaces, to advocate on behalf of the Platforms and

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drive regulatory agendas. As a result, Part III demonstrates how most Sharing Economy regulations simply codify existing business practices, leaving concerns about consumer privacy, worker protections, anticompetitive behavior, and discrimination among other issues unaddressed. How Platforms have accomplished this type of regulatory avoidance is worth understanding, particularly as regulators prepare to tackle the market failures of future network technologies.

While much has been written about the benefits of the Sharing Economy and how to regulate it,¹⁵ this Article is the first to critique the sharing economy by exploring the intersection between narrative and regulation.¹⁶ In particular, it shines a light on how start-ups that defy existing legal norms and classifications achieve and maintain power. While excellent articles have been written about the strategy used by innovative firms to avoid regulations, this Article breaks down the rhetorical devices used by firms to avoid legal rules

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and obligations.¹⁷ The Article concludes by distilling key lessons for regulating future innovations and demonstrates the importance of questioning the difference between rhetoric and reality to achieve the desired ends of regulation.

I. Myth Making

This Part briefly describes the initial excitement surrounding the Sharing Economy. It then exposes the elements that make up its Myth. By clearly understanding the Myth, we can begin to see how it has contributed to the under-regulation of the Sharing Economy.

A. The Honeymoon Stage

In the early 2010s, the Sharing Economy was considered a social, political, and economic transformation that was "democratizing how we produce, consume, govern, and solve social problems."¹⁸ Many thought, and some still do, that the Sharing Economy signaled a revolution that would empower ordinary people to utilize their personal excess capacity in a variety of ways.¹⁹ Others believed it could present a new form of the American Dream.²⁰

The Sharing Economy excited people, governments, and entrepreneurs around the world because it appeared to provide economic opportunities for a broad cross-section of society.²¹ Many believed it allowed people to bridge the gap between permanent job opportunities and to pursue entrepreneurial endeavors and the creative arts.²² And with some Platforms, that may be the

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case. For example, Airbnb reports that 45% of their hosts in Portland, Oregon are "self-employed, freelancers, or part-time workers, [and] 12% of [these] hosts . . . have used Airbnb income to support themselves while launching a new business."²³ Uber reports that 74% of its drivers do so "to help maintain a steady source of income to supplement . . . unpredictable earnings."²⁴ However, as described in the subsections below, there is more to the story because supply-side users either lack needed worker protections or are full-fledged businesses subverting regulations.

With regard to the environment, some thought that by tapping into excess capacity, the Sharing Economy could help save the world by allowing people to "meet the speed, scale, and local adaption requirements [necessary] to address climate change in time to prevent the catastrophic change that we've set in motion."²⁵ In fact 76% of adults familiar with the Sharing Economy believe it is good for the environment.²⁶ Presumably the Sharing Economy can reduce the need for capital-intensive infrastructure (such as hotels) and durable goods (such as cars) since the excess capacity in these spaces and goods is exploited.²⁷ And, because people often have a personal interaction with the owner of assets in the Sharing Economy, they tend to be more considerate when using those assets. As Airbnb reports, guests in North America consume

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63%-71% less energy than traditional hotel guests.²⁸ However, we are only seeing part of the story because many of the environmental benefits of the Sharing Economy have yet to fully materialize.

While the benefits of the Sharing Economy were and are many, the honeymoon phase of the Sharing Economy revolution is certainly over.²⁹ The Sharing Economy's "dark side"³⁰ has been revealed in many ways—lack of worker protections,³¹ discrimination among participants,³² damage to the fabric of local communities,³³ and threats to consumer safety³⁴ and fair competition.³⁵ While these kinds of market failures are not uncommon among burgeoning industries, what is troubling is the role rhetoric has played in convincing people that the Sharing Economy need not be regulated.

B. Elements of the Myth

In Plato's Gorgias, Gorgias defined "rhetoric" as "the art of persuasion."³⁶ This Article employs a similarly expansive definition of rhetoric and includes all speech used with the intent to persuade. This broad definition is necessary because rhetoric, as applied to public opinion formation, is a topic of study for a variety of disciplines (political science, psychology, communication, sociology, economics, etc.). This Article draws upon several of these disciplines, but most heavily relies on contributions from the field of political science.³⁷ Generally...