Confronting the sharing economy

Sen. Elizabeth Warren (D-Mass.) is right: Work is changing in America. The recent explosion in start-ups that make up the “sharing economy” (such as Uber, Lyft, TaskRabbit, Instacart and others) allows people to connect and exchange in ways unimaginable a decade ago. Fueled by a generation of workers seeking flexibility and opportunity through part-time gigs, and willing to shed the stability of the full-time employment sought by previous generations, the sharing economy has come to challenge the status quo.

{mosads}In doing so, it is disrupting long-established industries like transportation, hospitality, finance and personal services. It is making life more affordable, convenient and efficient. And it is disrupting government, too.

This, in many circles, has become the hallmark of the sharing economy’s growth. Whether intentional or not, the sharing economy has come to represent a challenge to outmoded public policies regarding issues such as consumer protection and employment. And while these old attitudes may soon lose their practical relevance, they may nonetheless play a significant role as courts, juries and regulators all try to understand how to treat these platforms and their participants.

Sen. Mark Warner (D-Va.) recently observed, however, that federal policymakers have mostly remained on the sidelines as many of these issues play themselves out — taking a wait-and-see approach to the questions surrounding the sharing economy. On the other hand, state and local governments have not been so careful. As a result, responses to the sharing economy amount to a patchwork of state laws and municipal rules that have gradually filled the void.

As the sharing economy continues its ascent, and receives increased focus from federal policymakers looking to respond in their own way, a reaction from Washington may be inevitable. How should the federal government respond?

The first — perhaps most important — step federal policymakers could take is to begin with what already exists, determine what is working and fix what is not. Beginning here will provide a clear road map to reform, and give policymakers simple solutions that will solve more problems faster than trying to create additional layers to an already increasingly complicated regulatory puzzle.

In particular, the rise of the sharing economy offers the perfect occasion to critically evaluate existing laws and regulations in light of today’s economic realities. One such reality is that individuals are the main drivers of the sharing economy, and they are finding it increasingly difficult to understand the tax implications of their activities. When asked in a recent survey about the biggest sources of pain from operating in the sharing economy, over one third of respondents cited “understanding tax or legal obligations,” while a quarter cited “tracking income and expenses.” If policymakers want to begin anywhere, they could start by simplifying the tax code, making it more accessible, and ultimately encouraging individuals to put their idle time, talents and resources to productive use.

A second— and no less important — issue that Washington will soon confront is whether individuals using these sharing economy platforms are employees or contractors. As Warren recently noted, “there is evidence that increasingly employers use independent contractors not in ways that were originally intended.”

Indeed. In fact, these platforms — and the smartphones that make them possible — were the stuff of fantasy when many of these laws were initially put into place. As a result, a tension is growing between these innovative business models and outmoded employment laws across the country. The latest episode in this drama is taking place in federal court, where drivers seek to be designated as employees of ridesharing companies Uber and Lyft. According to the judge, the current legal test provides nothing close to a clear answer, and the jury “will be handed a square peg and asked to choose between two round holes.” Regardless of the outcome, it may likely be necessary for Congress and state legislatures to clarify the law by either ensuring that the court’s decision applies to all the firms in the sharing economy or stepping in to correct where the court goes wrong.

Finally, a role federal policymakers could play in the sharing economy — that goes beyond passing new laws and repealing old laws — is encouraging reforms at a state and local level. Removed from the hyper-localized, parochial interests, federal policymakers can play a unique role in supporting pro-competitive regulations in other levels of government across the country. Moreover, with a newly empowered Federal Trade Commission, the federal government could also take active steps to ensure that state and local regulators support competition and consumer welfare over protecting established firms and industries.

The sharing economy is here to stay, and Washington is beginning to take notice. While we often enjoy talking about jobs, growth and opportunity in abstract terms, the sharing economy offers a chance to support these ideas in a very concrete way. For the 80 million Americans engaging in the sharing economy, both to make money and make life more affordable, this offers a crucial opportunity for policymakers to remove barriers to making it work for everyone.

Koopman is a research fellow on the Project for the Study of American Capitalism with the Mercatus Center at George Mason University.