Blurring the Lines


Aaron Renn of the relentlessly engaging Urbanophile posts on the need for our legal structure to change to accommodate peer-to-peer, where people more efficiently share resources rather than owning a lot of unused or idle capacity:

But beyond the sheer efficiency gains, I think it’s under appreciated in developed countries how economic informality can create economic dynamism. Peruvian economist Hernando de Soto noted that lack of property titles and difficulties of the formal economy perpetuated poverty because people in developing countries couldn’t access the system for credit to fuel business, etc. In the developed world we’ve got a similar problem brewing. Our economy has been largely entirely formalized to the point where we are choking in red tape that has produced an economic system that has failed too many of its residents and leading to the creation of these informal economies as a safety valve. And our societies are very ill equipped to deal with that as we’ve become excessively formalized.

We don’t need to establish property titles as we already have them, but we do need regulatory systems that enable entrepreneurship and new business models like peer to peer to thrive. What’s more, I think enabling some level of an informal sector to flourish is actually a good thing, as it’s a de facto “incubator” for new ideas that can later be developed into a more officialized system. Without a toleration of informality, these would never get off the ground.

These innovations are getting stifled by incumbents, and it’s tying up a lot of the economy’s capital.  You can’t rent a room in your house through AirBnB because that supposedly turns you into a hotel, and you’re avoiding the hotel tax.  Uber can’t schedule limos because that somehow is unfair to Yellow Cab or Metro Cab.  The car-sharing stuff seems to have found favor, though, for some reason.  Lyft began service in Denver a couple of months ago.

I agree with some of the commenters that there’s a qualitative difference between creating new value – like nanotech and 3D printing – and wringing the most out of existing resources.  Living standards really rise because of the former, not so much the latter.  The big improvements in quality of life happen when productivity jumps, and that’s not going to happen through renting out that spare room on a regular basis, or sharing cars.

Bear in mind that not all restrictions are just naked rent-seeking.  There are externalities associated with many businesses, and making sure that infrastructure gets paid for, and that you’re not taking up your whole block’s available parking with your in-home B & B are perfectly reasonable concerns.  I think most of that is already recaptured by excise taxes and gas taxes and incorporation fees and oh, income taxes.   So tying up capital in inventory is something most US companies have been avoiding since the 1980s, and no fair keeping us from joining in on the fun.  But unless you’re turning that money into productive ideas, someone else is going to end up capturing the benefit of your thrift.

The wrong model will end up raising the cost of owning-your-own outright to the point where it becomes a luxury.  I’m not entirely sure that’s healthy, and given the way these things tend to work, it could end up reinforcing a socialist model where ownership itself becomes a blurry concept.

For that reason, among others, I tend to prefer the Lyft model to the Car2Go model, although I hasten to add that that shouldn’t be enforced through regulation.  (Neither, of course, should Car2Go get the benefit of a parking subsidy as they do now.)  I think it’s healthier when the individuals own their own cars, rather than surrender ownership of a large part of the available fleet to what will end up being a small number of owners.  Private ownership also ends up making it more likely that individuals will recognize an individual payment, rather than just avoiding an expense.  Not only is that likely more satisfying, it’s also likely to result in more of the experimentation that we’re trying to encourage.

The other reason that a company going into business as a clearinghouse might prefer the Lyft model to the Car2Go model is the capital expense.  Car2Go has to spend a lot of money to buy a fleet large enough to make the service worth using, to make sure that there will be cars available.  And right now, it seems to be all tiny SmartCars.  I suspect that the existing vehicle inventory out there on the road (or in the garage, as it were) pretty closely mirrors the overall composition of what people actually want to be driving.  Why try to guess at a fleet composition, when the country has already done that math for you?

As always, read the whole thing.

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