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Does The Sharing Economy Have a Shadow Side?

Recent legal and regulatory troubles for companies like Airbnb, Lyft and Uber are alerting people to the fact that sharing isn't always rainbows and bunnies.

The rise of the sharing economy has been chronicled in books and magazine stories. It's brought half-billion-dollar exits (Zipcar to Avis), and billion-dollar valuations with IPO rumors for some of its darlings (Airbnb, Etsy). It's spawned startups dedicated to exploiting excess capacity in areas as diverse as children's clothing (Thredup), errands (TaskRabbit), transportation (Lyft, RelayRides), even home-cooked meals.

It's also occasioned a lot of rhapsodizing about the collaborative creation of a more sustainable, productive, close-knit, and abundant future. Sharing just feels good, too, which is the most important reason people do it.

But as the sharing economy reaches a critical mass, some observers are starting to see a potential shadow side emerging. The informal, good-vibes nature of the participatory economy can run afoul of regulations designed to ensure safety and fairness, both for those who provide goods and services and those who use them. In New York City, an Airbnb host was fined $2,400 for violating city hotel laws, and ride-hailing apps Uber and Hailo have faced injunctions by cab drivers for unfair competition in several cities, raising the question of just who benefits from sharing—and who doesn't.

"I admit, the sharing economy is mind-blowing and its potential to transform commerce is amazing," writes attorney Janelle Orsi, the director of the Sustainable Economies Law Center in Berkeley, California, and a foremost expert on the emerging law of the sharing economy, in her book "At the same, the lawyer in me hears all this and thinks: Oh, boy. . . . " Here are just a few of the issues raised by the sharing economy:

The Sneeze-Guard Rule

Sharing organizations tend to operate in a gray area between personal and commercial, public and private, Orsi writes, which makes it difficult to figure out how regulations apply. She uses buffet sneeze-guards as a handy example. A restaurant is required by the health department to install a sneeze guard over its salad bar, but a church potluck is not. What about a pop-up restaurant? At what point along the continuum should regulations kick in?

The Power of Trust

In some cases, Orsi tells Fast Company, "accountability and involvement" between producers and consumers can work to mitigate risk as well as, or even better than, regulations like health codes. This is why successful sharing companies like Airbnb and startups like lean so heavily on identity verification and the use of the social graph to foster trust. As a bonus, direct contact between the two parties in an exchange is already the basis for waiving some regulations—for example, at farmers' markets, which don't have to do the same labeling as at the supermarket.

Global and Local?

In other cases in which people are using excess capacity, like renting out their spare room or an unused car, there is precedent for getting around commercial regulations based on less-frequent, smaller-scale, or local use. For example, in most neighborhoods you're allowed to hold garage sales a few times a year, but a "sale" that ran 30 hours a week would actually be considered an illegal store. Orsi suggests that hospitality platforms might petition for hosts to be allowed to rent out a room, say, 50 nights a year, to limit the potential nuisance to neighbors.

However, the power of the sharing economy comes from aggregation. When a company like Airbnb is calling itself the "world leader in travel rentals" with rooms available in 192 countries, it's hard to simultaneously ask cities to hold it exempt from hotel taxes on the basis that each rental is just a private exchange.

Members Only

Regulations designed to protect people are naturally higher stakes than those meant for property. A thorny potential legal issue Orsi brings up, which to my knowledge has yet to arise in the real world, has to do with antidiscrimination rules. Racial minorities and the disabled have the right to equal access to hotel rooms, public transportation, and restaurants. What happens if someone raises allegations of discrimination in getting a Lyft? Should sharing platforms be exempt from these rules, as some private clubs do? "The sharing economy has great potential to perpetuate the same inequalities and segregation that exist in the regular economy, to the extent that we’re sharing only with our Facebook friends or people in our social networks," says Orsi. "The difference is, I think it’ll be harder [in the sharing economy ] on a case-by-case basis to say, This person’s discriminating. It’s such a distributed system, there’s no single actor you could point out. There's that grey area again."

Workers' Rights

Sara Horowitz, the founder of the Freelancers' Union, has been thinking about the economic impact of the sharing or excess-capacity economy from the perspective of workers. The proliferation of the "gig" and even the "microgig," found on platforms like Mechanical Turk, Taskrabbit, and Fiverr, breaks down jobs into individual tasks. Devoid of protections like worker safety, minimum wage laws, overtime, or any benefits, "micro-gigging leaves people incredibly vulnerable," she writes.
"Employment law I think is going to be the biggest barrier to the sharing economy overall," says Orsi.

Catching Up to the Law

In recent remarks at a conference in London, Airbnb founder Joe Gebbia compared the company's legal hiccups to local ordinances briefly passed banning cars in the early 20th century. His point was that the sharing economy is on the right side of history—the rest is just noise. But it's a telling analogy, when you remember that traffic accidents are still a leading cause of death and when you think of all the legal protections that have arisen since the era of the Model T, from Breathalyzers to speed limits to texting-while-driving laws.

Clearly, there's important work to be done. A legal framework that enables fair sharing benefits all of us: those who create these platforms, those who use them, and even those who don't. In a future post, I'll take on questions about the economic impact of the sharing economy and who benefits from various ways sharing is structured and performed in the real world.

[Image: Flickr user NYCDOT]

Add New Comment


  • Christopher Anna

    The shadow side does exist. The grey area covers more than legalities, like AirBNB's relations with disregarding hotel taxes. With more and more people purchasing metro properties for the sole purpose to make cash on AirBNB the rest of the local residents are forced to compete with higher rent prices on the apartments that don't have an AirBNB owner. This potential sharing community leaves traces of gentrification and many homes left vacant until someone's next holiday comes around. Go ask the San Francisco Tenants Union.

    Janelle, great to see your knowledge in this publication. I heard you speak a while back in Kenn's course at SFSU.

  • Tom Atlee

    Janelle's great short video Economy Sandwich covers a lot of this ground  And all this looks different if you think that 100 years from now the economy is going to look pretty much like it does today, with just some more sophisticated sharing systems in place - or, on the other hand, if you think the global money economy is going to crumble and gifting and sharing and cooperation and DIY economics are going to become the mainstay of people's livelihoods, rather than working for someone else.  During a transition to that kind of economics, the emerging sharing economy becomes a way for unemployed people to meet their needs.  As I get more involved in gifting and sharing circles, I am amazed at how much abundant resources and capacities exists already, hidden beneath the formal money economy.

  • javierruizdiaz

    Surprising that taxation of the generated income dos not appear as a basic concern or risk.

  • phood

    Good article that outlines the issues. The sharing economy has a lot to recommend it. At least a significant portion of value trickles down to individuals. But as with Google, Facebook and other examples, the new economy creates a ton of value that is not captured monetarily by anyone. Google doesn't capture half the value it creates for the world, and it makes musicians and other content creators poorer. There will be fallout from replacing hotel staff or taxi drivers who at least have jobs and benefits, with contract workers who have no benefits and no guaranteed income.

  • laughtiger

    These are great points. There is an almost slavish worship of "disruption" involved in some parts of the tech industry, with no regard to consequences -- or rather, a simplistic faith that the Invisible Hand will intervene somewhere along the line to make everything work out.  To get to a sustainable economy, we need to keep our heads attached, and be willing to think critically. Part of that involves separating the legitimate sharing practices, from the "sharewashing" companies (like AirBnB or Lyft, for example:

  • Barterball

    While this article makes a number of valid points, I think we have to step back and let it evolve. People are grown-ups and are capable of assessing risk-reward, and over-regulating this organic movement might undermine its potential.