Guest post: The sharing economy as strip mining

A reader emailed me with a connection between the Reagan Era and the New Deal, one I had never considered before. His argument leads to a critical view of “the sharing economy” associated with firms like Airbnb, Taskrabbit, and Uber:

I’ve said … that the post-deregulation American economy resembled strip mining.  Just as [Secretary of the Interior under Reagan] James Watt‘s dispensationalist/eschatological worldview led to the idea that we should be maximizing resource extraction from our lands because there would be no need for them after the Rapture, the plutocratic mind saw the Reagan administration as offering an opportunity to finally harvest the bounty that the New Deal state had been nurturing for decades.  So, for example, the public trust in fair financial markets could be exploited, just as a seam of coal, by a peddler of junk bonds; the gains would be privatized, and the only thing that would ultimately be lost was the public’s trust in the fairness of the system, which (after all) belonged to no one person.

It’s a “tragedy of the commons” story, really, except in this case the commons was the middle class and the economy that had been created through regulation–of labor relations, of financial markets, of consumer safety, of environmental protections, of food and drug safety, and so on.  And, really, that’s what 2008 marked the culmination of–the final extraction of value from the economic system by the plutocrats, at the expense of the system; our economy would shrink, or not grow, but the fortunes of a few people would rise.  A law and economics type might point to it as not so different from the worst of the leveraged buyouts of the 80s–a takeover, followed by profit-taking, followed by the deployment of golden parachutes, followed by the deluge.

Which brings me to “the sharing economy”, which promises to use technology to lower transaction costs to usher in a more liquid world in which more people can participate in voluntary transactions that should make everyone better off.

But what has it done, really, other than offer a platform for a declining middle class to capture value from what little it still has left?  So airbnb allows you to rent out a spare room, or even your entire apartment or house.  Uber and Lyft allow you to take your car and become a driver for other people.  These are just ways for the purveyors of networks to extract rents from the sorts of desperate moves that the middle class makes as it finds itself slipping into poverty.

Selling life preservers on a sinking boat would be bad enough, on its own.  But as we hear more about Uber drivers punching their customers (or even sexually assaulting them), and about airbnb’s plans to allow its users to host not only overnight guests, but serve as pop-up bistros, we start to see the more nefarious project of the professed libertarians behind “the sharing economy.”  Uber, Lyft, airbnb, and the others are free-riding on the consumer protections that taxis, hotels, and restaurants (and their customers) have all paid for.  What the “disruptors” threaten to do is use their competitive advantage (which comes from refusing to be regulated and paying the necessary compliance costs) to drive the incumbents out of business, while all the while benefiting from the customer expectation of a minimum standard of safety that comes from the very regulations they eschew.  People are fine with staying in hotels because they know there are rules; they take cabs because they know there are rules in place to protect them from dangerous drivers and unsafe cars; they go to restaurants because they know safety inspectors exist. What “the sharing economy” companies do is take that goodwill, and exploit it–in effect, strip mining the trust and goodwill that makes portions of the service economy function and making money off of it while the aggregate trust and goodwill decline (due to poorly-regulated service establishments that are encouraged by the “disruptors”).

This is a story that’s not very often told–that our economic commons are the product not of nature, but of trust that was in large part created by consumer protection regulations and labor regulations.  And as we’ve let those regulations fall away, with the faith that “market discipline” would take over, the commons have suffered while those who would despoil them have flourished.

Welcome to the golden age of strip mining.

NB: I also wanted to throw in the example of Google Translate. As Jaron Lanier has pointed out, Google Translate depends on actual translators continually making translations of new texts, and these new texts getting posted to the Internet. But the translators get no share of the benefits gained from their work. Google and its users get the benefits. In a worst-case scenario, Google Translate could end up representing a form of strip-mining, in the sense that the guest poster mentions: as Google Translate becomes better and better, people may employ translators more and more rarely, and in turn there will be fewer good translators and fewer good translations being posted online — at which point, Google Translate may become worse. In other words, the translation mountain will have been strip-mined.

I also think the guest post highlights what has ended up being a recurring theme on this blog: our tendency in America today (inherited from classical liberalism) to ignore the pervasiveness of the government in any market economy. As I’ve said before, the libertarian (or even the moderate contemporary conservative like Greg Mankiw) thinks of the market as private individuals privately making private agreements between themselves — ignoring that these agreements are enforced by the government, and that if the threat of government enforcement did not always exist in the background, agreements would be far different and fewer. In fact, it’s unclear what it would even mean to remove the government from virtually any transaction today, because so many aspects of the transaction depend on the historical constitution of the existing market and economic actors by the government. The economic libertarian is often blind to all of this.

What the guest post suggests is that we have a tendency to ignore the influence not only of nineteenth-century market institutions like property and contract rules, but twentieth century market institutions like hotel safety regulations as well. Just as everyday transactions take place in the shadow of property and contract law even when the transactions never end up in court, where the government role would become more visible, so transactions in “the sharing economy” — if the guest poster is right — take place in the shadow of progressive era/New Deal regulations and their descendants.

We’ve been aware for several years of extreme forms of blindness toward the role of government in the New Deal-era economy — I’m thinking of the angry senior citizen demanding “keep your government hands off my Medicare!” during the debate over Obamacare — but the guest post suggests there may be more subtle and widespread forms of this blindness as well.

A similar point was made recently by Ta-Nehisi Coates in a great article in The Atlantic. Coates draws attention to all the ways in which blacks in America in the twentieth century — even in the North — got economically screwed through deliberate government action, especially through the Federal Housing Administration’s racist redlining policies, which encouraged segregation in housing and helped confine American blacks to ghettos. Coates uses this evidence to argue for the legitimacy of reparations. Alternately, it could be used to argue against the coherency of the so-called “state action” doctrine in constitutional law. The state so thoroughly pervades the economy that it is hard to find any aspect of the economic realm that it does not touch or has not powerfully shaped in the past.



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