Who Needs Regulation?

The debate about rules for the ‘sharing economy’ creates its own kind of disruption.
 
 

There have been two great waves of the American deregulation debate. The first was during the Carter-Reagan era, when entire industries — airlines, railroads, trucking, natural gas, long-distance telephone service — were freed from government constraints on what markets they served and what prices they charged.

And the second? You’re experiencing it right now.

You might not recognize it as a debate about regulation, because the terms more commonly bandied about to describe it include “sharing economy” and “disruption.”

Nonetheless, this is a debate about the purpose and point of government intrusion into and control of markets, about whose interests are truly served by regulation, and about what’s gained and lost by adding to or subtracting from the regulatory load.

The most current and prominent controversy in the broader fight involves ride-sharing services like Uber, which has been the most aggressive in pushing back against the rules about taxi service, ignoring them or arguing they don’t apply.

Uber styles its case as a matter of its powerful technology obliterating the old market structure and its rules. Technology, though, is the least interesting and relevant aspect of the debate. Unregulated and rule-bending ride-for-hire services were around long before Uber showed up. And licensed, regulated taxi companies have smartphone apps, too; the supposedly disruptive technology is hardly unique to Uber, et al. (The countervailing argument would be in telecom, where state regulators are getting out of the business of telling phone companies what to charge for landline service because cell/mobile/wireless technology has made it largely irrelevant in the consumer marketplace.)  

Nor is the development of a supposedly cutting-edge technology necessary to touch off an argument about government regulation. The first deregulation wave wasn’t launched because someone invented a new airplane or truck. It was triggered by a sense that the existing system wasn’t benefiting customers and wasn’t working financially.

That’s where Uber is on more solid footing when it makes its case for changing the rules of the ride-for-hire business on the grounds that doing so would give consumers better service. But then, the established cab companies can argue that the rules were set up in the first place to protect consumers from being taken for a ride in both figurative and literal terms.

Concern for the plight of the consumer is nice, but protection of financial interests — the incumbent cab operators who have bought the right to participate in a government-controlled marketplace, the investors backing Uber because they see a rewarding opportunity — plays at least as significant a role. 

Those factors are colliding in other regulation debates, such as the one pitting Airbnb against hotel operators and landlords or Tesla against the car dealers over restrictions preventing auto manufacturers from selling directly to consumers.

The regulatory debate isn’t always about whether or how much to loosen. Coming up this year in Seattle will be a contentious fight over rent control — whether government has any business telling residential landlords what they can charge for homes or apartments, and whether such controls would really do anything to make the city more “affordable.”

That controversy sets up a battle over who really represents the interests of consumers and whose financial interests are rewarded or penalized by doing something or nothing. It also magnifies the uneasy political coexistence between the left-leaning segment, which believes rent control is a good starting point, and the tech sector, which contains a sizable libertarian element.

What’s also worth keeping in mind while watching these debates play out is that disruption may be the result but it’s not necessarily the disrupters reaping the spoils. The airline industry’s regulatory structure may be considerably different from four decades ago, but the surviving players are mostly names that were around then. 

Monthly columnist Bill Virgin is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.

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