Regulation Will Always Chase Innovation, Not The Other Way Round 

The following is an excerpt from author Jared Meyer’s new monograph Uber Positive: Why Americans Love the Sharing Economy. This has been republished here with the permission of the author.

You can get hold of Jared Meyer’s book here.

When crafting regulation, policy makers need to keep in mind that the relationship between consumers and service providers has been transformed for the better in the sharing economy. Rather than keeping consumers safe, regulators are now threatening the growth of this new economy – growth that has proven to be a promising way to increase consumer choice, work opportunities, and economic growth.

At every stage in ride sharing’s growth, established interests in the taxi industry have used claims about its dangers to scare politicians into acting. Each time, the claims have been shown to be overstated or blatantly false. Undeterred, the industry continues to use any political means available to maintain its monopoly. Rather than focusing on competing on Main Street, it turns its attention to city halls and state capitols.

It is difficult for regulators to embrace the changing economy. Politicians on the campaign trail often talk about the need for regulatory reform, but their rhetoric alone will not be enough to change policy.

However, despite the continued attacks on innovation, one major shift has happened in recent years – the rise of the sharing economy. Some workers finally have a way to satisfy their desires to work on their own terms. It is now up to policy makers to facilitate workers’ desires for freedom, flexibility, and mobility, rather than standing in the way. Not only do many workers prefer to be part of the sharing economy, but in the current period of low economic growth it is an essential way to increase Americans’ earnings. Over half of those people who provide services through the sharing economy say that they became better off financially over the past year. This is above the 32 percent level of other workers who make the same statement.

Partially because of the sharing economy’s success, and the subsequent hostile response of some politicians, only 18 percent of millennials believe regulators have the public’s interest primarily in mind. Young people realize that many regulations do little to keep the public safe. They want companies to be held liable for harming consumers, but they do not support regulations that keep out new competition or dictate how entrepreneurs must meet their customers’ needs. It is difficult, if not impossible, to find a millennial who wants an outright ban on Uber and Airbnb.

Uber’s business model is to start operating first and work with regulators later. This embrace of permissionless innovation flies in the face of the antiquated command and-control model of regulation. But it should not be the norm for American businesses to have to ask for government permission to innovate. While innovators tirelessly work to drive the economy forward, regulators now function as annoying backseat drivers or roadblocks.

Rather than applying outdated regulations on ride sharing in the form of limits on its growth or business model, policy makers need to allow taxi companies to update their own business model. In other words, these companies need to become more like Uber – not the other way around.

By the time policy makers catch up to ride sharing, a new innovation will most likely already be gaining popularity. A regulatory framework for the future must embrace flexibility if it is to allow for the next transformational product or service to reach the market. One way to do this is to conduct regulation by specifying explicit ends (in terms of consumer safety) but leaving the means to reach those benchmarks open to innovation. Regulations specifying rigid means that only work for current business models will be outdated in a few years, when the next new technology arises. In short, regulators, who are still attempting to respond to the creation of the Internet, will never catch up to America’s entrepreneurs.

Uber’s strategy of innovating around regulations might be compared with the effect that e-mail has had on the US Postal Service. USPS still has a monopoly on delivering letters – just as yellow taxis still have a monopoly on Manhattan street hails. But the technological advancement of e-mail and forward thinking by FedEx and UPS have rendered the postal service obsolete for companies and nothing more than the butt of jokes about government inefficiency.

New technology cannot simply be wished away. Rather, established firms need to face a choice: they can either embrace innovation or they can follow the taxi companies’ lead and dig in their heels as they are pulled toward irrelevance or bankruptcy.

Innovation arises through individuals taking risks – trial and error, success and failure. People must be free to experiment and put their unique knowledge to use. Every time politicians and regulators call an Uber or plan a vacation with Airbnb, it should remind them how the economy actually grows.