Obsolete laws threaten the global online sharing economy, but who will win in the end?

- May 15, 2014 3 MIN READ

During the early 19th  century, the Luddites, a north of England organisation of workers whose jobs were taken by newly-invented machinery, tried to resist the change by sabotaging machines.

The new technology, however, won in the end with steam and electrically driven machinery dramatically increasing productivity. That made a relatively small number of business owners very rich and a large number of manual workers redundant. Yet the surge in industrial output created countless better-paid jobs that in turn led to more spending and greater economic activity. In short, though there were winners and losers, society as a whole became richer.

Today, businesses established for decades feel threatened by newly arrived competition using the Internet in novel ways. This applies especially to what is broadly termed “the online sharing economy” – a system that uses the Internet to connect people who have a specific need for a product of service with those who have spare capacity of the product or service.

The accommodation sharing company Airbnb and car sharing companies like UBER, are big players in this area. These kinds of businesses make sense for many reasons. For one thing, they make a temporarily idle resource more productive by giving people short-term use of it at a reasonable price while generating income for the person renting it out. They also put competitive pressure on the old established, often overpriced, incumbents.

Not surprisingly, not everyone is happy with the sharing economy. Hotel owners and taxi drivers in many parts of the world are angry at what they see as unfair competition. It is unfair, they say, because participants do not have to pay hefty entrance fees or abide by stringent regulations, are not properly insured, and pay no taxes. So their costs are just a fraction of those of the traditional businesses that they are disrupting.

This anger has even led to “Luddite” behaviour in some places: Taxi drivers in Milan and Paris have maliciously damaged cars participating in sharing schemes and threatened drivers.

Some authorities are not happy either. A court in Brussels barred car owners operating through UberPOP (Europe’s version of UberX) from accepting paying passengers. The car sharing startup, RelayRides, stopped operating in New York because it was unable to comply with the arcane local vehicle insurance regulations.

Airbnb also has insurance issues: Renters’ insurance policies do not always cover paying guests. In addition, people who sublet properties without the written agreement of the owner are often in breach of their lease conditions and may be breaking the law.

In San Francisco and New York, Airbnb has come up against laws enacted to prevent homes being used as unlicensed hotels. Those laws outlaw short-term lettings. Critics claim the authorities are unfairly victimising ordinary people who just want to earn a few dollars by occasionally letting out rooms in their homes. The authorities deny this, and say they are after people who rent multiple properties on a continuous basis for short periods – people who effectively operate unregulated businesses.

Regulators are averse to change and move at a snail’s pace. Established businesses are averse to competition and do all they can to thwart it. Neither welcomes the kind of sudden change driven by new technology that quickly upsets the status quo.

One thing is certain, however: These problems will be sorted out sooner rather than later because too many people all over the world believe that Internet-enabled sharing is a good idea, and a huge number are already involved in it. The Luddites failed to block technology’s progress in the 19th century. In the 21st century, their descendants and collaborators will also fail.

Image: Co-founders Nathan Blecharcyzk, Brian Chesky and Joe Gebbia in Airbnb’s San Francisco office.