Published in the Financial Post on April 2, 2015
By: Finn Poschmann
Finn Poschmann is vice president, policy analysis, at the C.D. Howe Institute.
Uber in Toronto now faces 36 by-law related charges
If you stay at an inn or hotel in Ontario, and fail to pay your bill on leaving, after two weeks the innkeeper has the right to place a lien on your horse, and to sell it.
The innkeeper, however, must sell your horse at public auction, and only after publishing a classified ad in the newspaper within his municipality or, if none, the newspaper published nearest to it. The Innkeeper’s Act is specific on this point, and it is clear that neither eBay nor Kijiji will do.
While the Act does not rule it out in so many words, neither does the law seem to allow the possibility that the innkeeper might wish to keep the horse, and earn money from it in a ride-sharing program. If you wanted, however, to contract a horse ride-sharing arrangement, you can find one on the web – the neat thing about markets is that they have a way of evolving to serve needs and wants, provided law and regulation allow them to flourish.
Which brings us to the new fangled “sharing economy,” meaning how to find low-cost, efficient taxi rides or a place to stay, and perhaps keep your horse. Catching up with the sharers, like Uber and Airbnb, poses terrific legal and regulatory hurdles – and clearing those hurdles will provide us all a nifty economic boost.
The new web- and phone-based services, which link service suppliers and their potential clientele in more or less real time, do the same job as classified newspaper ads once might have done, even if they did so at an ossified pace.
The current technology, and ubiquitous access to it, provides real-time supply and demand information. That helps sellers and buyers almost instantaneously find a market-clearing price: The pace of the action is terrific for doing deals.
There is much more, owing to the network characteristics of these evolving markets. While the phone apps save time on finding prices that match buyers and sellers, as important is the scale, which allows more buyers to find more sellers. Together with the time-saving and lowered search costs for the parties to any deal, this drives down dramatically the overall transactions costs involved, a familiar economic phenomenon.
The new business models do not shift a finite amount of business from one part of the economy to another. When transaction costs fall, deals happen that otherwise would not. This increases the economic pie overall, which makes us on the whole better off. People’s assets and time are put to good uses, under terms they decide.
To see why, consider the slack resources available in unfilled car seats on highways, or rooms in a house going empty while the owner is away, as travelers wrestle to find a place to stay. The information flow – enabled by the new communication, deal-making and payment platforms and networks – lubricates those ordinary market frictions.
The changing market squeezes margins for hoteliers and existing taxi owners and drivers, and they protest that loudly; their prices, profits, and employment levels are all under pressure. Airbnb squeezes Hotels.com, which squeezed travel agents. Investments are under threat – in Barcelona, where exactly 10,523 taxi licenses are available, the going price is in excess of 145,000 €. Toronto, a bigger city, has less than 5,000, and the prices are much higher.
Nonetheless, the fact that more transactions happen between willing buyers and sellers, given the inexpensive network systems, unambiguously expands our economy’s capacity to do the things we apparently want it to do – like help us get from here to there and have a place to stay when we do.
For those of us who have a spare room, spare time, a spare car, we are able to earn a return on assets that otherwise would rest idle. And the gains are not evenly distributed – the benefits seem to go disproportionately to relatively low-income households.
Researchers at New York University looked at a recent peer-to-peer car rental market, and discovered what might seem obvious as soon as you say it. The mechanism enables people who need car services to substitute rental for ownership: that lowers used car prices, and increases consumers’ benefits. And the effect is bigger for low-income renters, who also provide a lot of the rental supply. Households get a better quality of rental service, and they get the income from renting things they are not otherwise using at the time.
Regional fights over market access are inevitable, and occasionally make headlines, and centre on things like zoning, licensing and regulation, special taxes on hotel visitors, and … it is a long list.Uber in Toronto now faces 36 by-law related charges, and the city has filed an injunction against its activity.
Yet some things are even more fundamental, like the business laws that come before regulation and detail.
And the related business law questions are fascinating, and force new approaches to things like what is a business and what does it mean to carry on a business, and when must you register as one. Are our sales tax reporting thresholds appropriate? When is some form of incorporation required, if at all? Every jurisdiction has its own web of intricacies, and that is even before we get to zoning and property taxes and liability insurance.
The implications are simple. Technological change, as it often does, offers tremendous consumer benefits, and is putting on tremendous pressure for change in our legislation, regulation, tax and licensing frameworks. The potential benefits to consumers are huge, and our legislators and policymakers can help their constituents gain from this “sharing economy.”
Something to keep in mind as we refresh the laws and regulations resting uncomfortably on the books.
