[Transcript] The Gig, Sharing and Peer to Peer Economy

 

The Gig, Sharing, and Peer to Peer Economy Policy ConsiderationsRoger Royse:

Okay. The gig economy, the gig, sharing and peer-to-peer economy, policy considerations and constraints. I want to welcome you to today’s webinar. My name is Roger Royse. I’m the founder of the Royse Law Firm. I also run this webinar series, and this is the first in a series on the new economy. Today’s webinar is going to be on the policy considerations, legal aspects, high-level issues that we have to confront as we approach this new economy and developing economy. A few housekeeping items. First of all, if you are tweeting, you should tweet to hashtag Royse University. You can also follow us on Twitter @RoyseUniversity. This webinar is being recorded. You will be able to find it later posted to the Royse University website.

It’ll also be on the Royse Law YouTube site and available for download as a podcast in the iTunes store. During the webinar, we have several excellent speakers. If you have questions, if you’re using the mobile app, you’ll see down at the bottom of the app, there’s a dialog box for questions. Just click on that question mark if you’d like to submit a question to us. If you’re on your computer and the right-hand side of your screen towards the bottom, you’ll see a little arrow that says questions. Go ahead and click on that and ask us a question. We’ll gather them and try to get to them at the towards the end of our discussion.

Before I introduce the speakers, I want to give you a little bit of background on why we are doing this series and why the gig economy is so important to us. Those terms gig economy, sharing economy, peer-to-peer, it’s a little bit elusive to people. In fact, the Department of Commerce has just replaced all of it with its own term digital matching firms. Meaning that a company that uses information technology as a mobile app to facilitate peer-to-peer transactions. It offers its workers a digital matching platform and some flexibility in choosing their hours, and it relies on workers to use their own tools or assets to provide a service.

I think that’s what’s creating a lot of the problems as we try to figure out how to classify these companies and how to regulate them. However, according to one study, 72% of all Americans of now use some type of shared or on-demand online service, even though only about 10% of the people know we’re talking about when we say gig economy. Transactions, depending on who you ask, are $10 billion to $15 billion. Pricewaterhouse reports in $15 billion. It’s expected to be at least that big in, and the Pricewaterhouse report expects it to be a $335 billion business by 2025. I think we’re all expecting a huge amount of growth in this area and even now, the gig economy companies are rivaling some of the biggest companies in the country. Uber is valued at $62 billion.

Lyft is valued at five billion, just raised a billion dollars from its investors this year. Just to give you a sense of perspective, Honda and Ford are both valued at around $60 billion. Airbnb is around $25 billion, and again they give you some perspective. The entire Hilton Hotel chain has a valuation of about $25 billion. It gives you an idea of how much people are valuing these companies that have no brick and mortar. A few other statistics that are worth noting here say 72% according to into a JP Morgan study of US persons have used the service. However, only about 1% of US adults have earned income on the platform in any given month. You can see that there’s a lot of room for growth.

There’s still a lot of people who are not yet using that even though it’s grown quite a bit and just from my own perspective, I think it’s the great recession and this very slow recovery that  has been incentivizing people to look to the gig economy to supplement their income. I think that’s been contributing to the rise. I think the fact that the technology has gotten so good now and it’s made it so easy to use and it’s given us all confidence and the security of the payments. We also have review systems in place that make these services much more reliable. This has helped with the rise, as has  just media and social acceptance and cultural acceptance.

I mean five years ago, I never would have believed that I would just ask some stranger to come pick me up and give me a ride across town, but of course, now we know that’s all a lot of you. That’s how 72 million people get across town these days. The other big trends that I want to hit on and all of our panelists will talk more about it that I’ve noticed as a lawyer in this is one of those industries where unlike traditional industries where you have to make this huge capital investment before you can do business, there’s hardly any capital investment involved in a gig economy business. You just set up a website, which is not that hard to build these days web 2.0 or beyond.

It’s pretty low cost to get into, and as a result, I’m seeing this phenomenon in this space that we’re also seeing in cannabis for that matter where companies just do it and take risky positions and ask for forgiveness later rather than going and getting regulatory approvals ahead of time. I think that has profound policy implications as does the way the legislators and the regulators will address this. I’ve noticed that this has been setting itself up, this whole area, as a political issue, sometimes certainly an issue that can be contentious.

For example, last summer you may recall that Jeb Bush when he was running for president published a long-form post on LinkedIn about the sharing economy and how much he supports it. At the same time, Hillary Clinton also made a speech about the sharing economy and her belief that it needed to be more protective towards workers’ rights. This issue has worked its way into the political landscape as well and certainly across the country, you see lots of lobbying and lots of PR among consumer groups who will weigh in under legislation, privacy groups who objected to some proposals that would have gathered data on people’s usage of some of these apps, especially the Uber apps or the Lyft apps.

It’s really now that we have set up a battle between the old economy and traditional protectionism, which tends to regulate sometimes to favor the regulated and the new economy, which seems to be much more consumer-oriented. Now the last thing that I want to say about this is that why are we talking about this. I mean even though it’s very interesting, this has real-world consequences for our clients and our companies because even though these companies like Lyft and Uber and Airbnb have humongous valuations and are raising tons of money, that’s going down. In fact in 2016 by my count, only 76 startups in the space received outside funding.

I think there has definitely been a cooling of capital investment and I can only tell you anecdotally that I think it is because of what has been going on in the legal landscape. There have been some very widely publicized lawsuits around especially the independent contractor versus employee issues, and there’s been some widely publicized failure in homes when it comes to mind around these issues and these lawsuits. There is definitely a need for us all to get on the same page as a policy matter and we certainly are not as what I would say.

I noticed just in reading up on this material for today that there was a very big convening of people in San Francisco recently to talk about gig economy issues and part of the dialogue was how do we enable this new and exciting economy, but another part of the dialogue was well gee, how are we going to spread the wealth, how we’re going to harness the technology, so those bad venture capitalists don’t get at all and that we can spread it among all the people who are progressive and green and utopian, et cetera. I think there is a lot of room for discussion here and there’s certainly a lot of a lot of different directions that this could go in the future.

Now our panelists. Briefly, I’d like to just give you an outline of who we have today and then I’m going to turn it over to them to offer a few comments. George Yang is the CEO at EtaCar.com. They are a business that provides mobile transportation solutions to tourists, seniors, and residents. He’s also the sustainability advisor to the Silicon Valley International Groups. He has a lot of experience in international business and transaction and has also been very active in social and political causes. He’s been a candidate for office several times, most recently for California US Senate.

Justin Erlich is a special assistant attorney general to California Attorney General Kamala Harris. He’s the principal advisor on technology and data. He oversees the Department of Justice’s involvement in policy issues such as open data, privacy, cybersecurity, the sharing economy and clean tech. He is driving multiple operational initiatives in the office including open justice, which is a digital engagement strategy, an internal research group and innovation office, and the cyber accelerator. Justin previously was a manager at Mckinsey and Company, and he also clerked for the Honorable Rosemary Barkett in the Court of Appeals eleventh circuit. He got his JD from my old school NYU, so we’re very happy to have Justin here.

Then finally professor Michael Munger is a professor in the Department of Political Science and Economics and Public Policy at Duke University. He has a Ph.D. in economics from Washington University in St. Louis. He’s worked as a staff economist at the Federal Trade Commission and taught economics at Dartmouth and University of Texas at Austin and North Carolina Chapel Hill before going to Duke. Michael also is the author of several books most recently one called “Choosing in Groups”. He researches and writes quite prolifically on the study of the morality of exchange and the working of the new middleman economy, which is very related to what we’re talking about.

With that, I’m going to turn this over to George to say a few words. George if you’re there …

George Yang:

Yes, I am.

Roger Royse:

Okay, thank you.

George Yang:

Yes. First of all, a small introduction, the company that I ran is for Chinese tourists and actually I’m also working with another one that’s like Airbnb but also targeted to Chinese and Asian tourists. A couple of issues I want to talk about is the legal barrier to entry for small businesses, especially in terms of fees and permits and insurance requirements. The second one is how the nature of the global market and also from a perspective from a smaller start-up, that’s patent application adjudication in terms of time and also uncertainty. Those are things that if I have a chance today, I would like to talk about a little bit. I have been in IT industry for about 20 years.

I have the master’s degree in telecommunications management from Golden Gate, and one of the things that Roger has talked about which is very interesting is the regulation. One thing that people should ask is that why are we regulating or who are we trying to protect, are we trying to protect the consumers, are we trying to protect workers, are we trying to protect legacy businesses, or for example, in the PUC in California, are we protecting people who are underserved? In the old days in the telephone marketplace, we have monopolies so that a phone company can spend that money they can make in the wealthier areas to serve underserved areas. Now with this gig economy, this becomes a lot touchier.

For example, Uber and Lyft have both been under fire for not serving underserved communities, and those are issues, whether or not the free market can solve those problems, laws must be passed to do that. Those are issues that I think it would be nice to have a discussion on those.

Roger Royse:

Okay, thank you, George. Justin Erlich as special assistant attorney general, would you like to maybe say a few words to introduce yourself and how you come to the topic?

Justin Erlich:

Yeah, absolutely. First, thanks for having me and thanks to all who are joining the webinar. I am, as Roger said, the advisor to the attorney general on all technology matters, and how that really manifests up on some levels is that the technological evolution is going at an incredibly rapid rate and obviously law cannot evolve at the same pace as technology is. A lot of my role is around thinking about the impact of emerging technologies on law and thinking how law shapes and impacts emerging technologies. In that capacity, one of the things that we have been looking at a lot is with the innovation of these new startups exploring new business models and new approaches. How should we think about applying a very decades-old law to these types of behaviors?

Roger as you mentioned, there are some dynamics that are making this particularly interesting. Really, the surrounding the low barriers to entry and the low capital needs to enter into this space of “digital matching,” means that many folks tend to seek forgiveness rather than permission with the idea that the best strategy is to start building a core user base rather than try and go through the traditional regulatory approaches. I think that is part of the function of the need to be quick to market. It is so vital in this space, particularly as what technology products are effective today may be different than six months from now, and also we’re a class of regulators who are still grappling with this changing landscape.

I think we’re at a critical moment in our innovation versus regulation dialogue where we really need to start exploring new more agile ways of regulation that can both continue to ensure consumer protection and also make sure that we don’t stifle good ideas. I think the coming months and years will really be defined by exploring new ways to balance both of those, so it’s not really a false choice, but actually, a better dialogue where both parties are coming together at the table. I think that’s generally the lens that our office has been looking to take.

Roger Royse:

Okay, thanks. Thank you very much, Professor Munger, are you there and would you like to say a few words?

Michael Munger:

I am here, and of course I’d like to say a few words. I’m a professor, so thank you to the organizers and thanks to the listeners. I’ve been working on and have almost finished a book called Tomorrow 3.0, and I’m comparing the revolution that was undergoing now to the industrial revolution and  the Neolithic Revolution. That’s pretty grandiose, but it’s interesting to think about the changes that have happened in the last 10 years and what they bowed for our future as an economy and a political society. Seems to me there are three value propositions in what we’re calling the gig economy and they’re quite different. So unless you can be different things, it’s actually hard to understand what’s going on.

The first is excess capacity. We have a bunch of stuff that we don’t use very much. We have apartments, we have rooms, cars, bicycles, all sorts of things that are in storage, and we pay a lot for storing them. We store them in parking lots, in garages. We store them in closets, and we could make better use of them. The second is our ability to sell reductions in transactions costs, and that’s the matching part. It’s difficult for us to find each other in order to take advantage of these reductions of these things we could sell for excess capacity, and transactions costs have three parts. There’s the triangulation; we have to find each other.

The transfer, we have to make the exchange, and we have to pay the money in a way that’s convenient, and the last is trust. We have to be able to trust each other, and if we can accomplish those three things, well there’s a bunch of bearded hipsters right now making pickles in Brooklyn and selling them all over Manhattan Island because it’s easy to find them. There’s no excess capacity there, but there are new products, new local products moving back to the thing where in the 1940s and 1950s we had milk and other things delivered to our house. We might be able to go in that direction again if we can sell reductions in transactions costs.

The third value proposition is that a lot of these new companies are workarounds for what many people might say are restrictive regulatory policies or high taxes and to some extent, that third one is a kind of piracy because we have a lot of people who have in good faith work to obey the rules, they’ve gotten the registration, they paid their licenses, they’ve paid their taxes, and for somebody to say well consumers would be better off we don’t have to pay that, that’s true, but we have to worry about the fact that in good faith people have done what the government said they needed to do. It’s interesting to see that when you think about the companies that have actually succeeded, it’s at the intersections of those three value propositions.

I have a car in a few minutes, you need a ride, we can find each other, and I can avoid the fact that I need to pay for a tax medallion, that’s uber. In a way, it’s taking advantage of excess capacity, it’s taking advantage of the reduction in transactions costs, so we can trust each other, but it’s also a way of working around taxes and licenses. We’re in the wild wild west; it’s hard to know how that’s going to shake out. One of the most interesting companies that I think people in the US don’t know it but I encounter it often in Europe is BlaBlaCar. I’m giving a talk about this, I’ll ask a young lady, “Ma’am do you hitchhike?” She’ll say, “Well no, no I would never hitchhike.”

Well, when you think about it there’s a bunch of trucks and cars that are traveling between cities, they have an extra seat or two, you need a ride. If you could have the density of transactions that would allow you to find a seat in a truck that was leaving when you wanted, was going where you wanted and was safe, you would use it. Well, BlaBlaCar sells seats, sells excess capacity. It also sells reductions in transactions costs and BlaBla means you get to choose the level of conversation you want. Bla means you don’t like to talk. BlaBla means in their words enjoys an utter and BlaBlaBla means you can’t shut up. You can find a truck going from where you are, to where you want to go, when you want to go, and you can control the level of conversation.

That’s the sort of thing taking advantage of excess capacity, that means we can actually do a lot better job of working within the resource constraints we already have rather than focusing on always making new stuff and throwing it away. I think there’s both exciting possibilities and some challenges that we need to work through.

Roger Royse:

Okay. Well, thanks very much. I really like that BlaBla idea. I think Uber should incorporate that for people like me who are not as social as the drivers usually are. I want to circle back Justin to some of the things you were talking about and just the legal aspect of this, and then we’ll go back to some of these economic issues. Let me go right to the heart of this issue, and that’s whether the law is really restricting or enabling innovation, and you mentioned that you have a balancing act here in consumer protection versus not stifling innovation. Also, I think I heard you say that it’s just really difficult for the law to a ball fast enough.

I mean can you give me some examples of how the law, especially at the regulatory level, has changed or can change or is changing to enable some of these new technologies that are coming along that especially like BlaBlaCar which sounds like it could be very sustainable and green?

Justin Erlich:

Sure. Yeah. I think laws that are written decades ago can never really foresee the types of behaviors that will happen in the future. There’s a lot that’s been on the books for decades that avoids fee splitting for people who give referrals to doctors, with the idea of being that if you’re getting advice about what doctor to go see, it should be objective and no one should be profiting from it.

That law makes sense, and it underscores protecting consumer principles, but what happens in the technology era when you have an ad or a posting of a coupon for a doctor that the poster gets some percentage of, is that considered fee splitting? Even though it’s just a technology platform that’s not trying to point you in any one way, but it is a middleman in the technological marketplace that is getting some fee for connecting people. I think there are issues like this that just start to complicate old standing laws and oftentimes leave regulators wondering what’s the best way to come down on an issue.

I think in terms of how laws are evolving, if we actually look at who has been regulating the Ubers and Lyfts in the world in California, it is here too for having been the PUC, the public utility commission and they have been finding a statutory or regulatory language stemming from stagecoaches and trans TNCs, these very old statutes that they are modernizing themselves to apply to the current network. That being said, I think we’re also then realizing the shortcomings of some of those. There’s a lot of legal issues right now around in the current regime ride-sharing with other passengers.

We’d all agree that carpooling is probably on the whole great for the environment should be encouraged, but the way laws are currently written is that it might actually prevent. At the same time, we try and breathe life or figure out questions about how to approach these existing laws. There’s either new legislative bills being passed in Sacramento or new regulations being proposed by agencies like the PUC to make sure that we’re modernizing our legal regime to accommodate for some of these new and better uses, but that’s it. On the other hand, regulators are falling on both sides of this. Some are trying to figure out new ways, some are trying to adapt existing, and some are looking to just shut down operations altogether.

I think at one point Portland and Fort Lauderdale shut down Uber completely for violation of existing law. I think we see a real spectrum of responses and I think that’s in part because it’s unclear what the best regulatory approach is when you have these new behaviors brushing up against existing law.

George Yang:

Roger I just want to interject. I agree with Justin and to the extent that we have a lot of hodgepodge of regulations in this country, whereas I want to make a comparison between here and China. China has a very one regulation about taxis, and that’s why Didi Chuxing, that’s one of the companies that just bought part of Uber, they are able to basically serve all the taxis in China, and they have a million transactions a day. Now in this country, we have many cities having their individual regulations about taxi companies, and I talked a lot of taxi companies.

They would like to adopt new technology, but they are under very stringent regulations about the fares, which means that the Uber model will try to address your charge or cost based on real-time demand is not really possible. Some of those legacy laws also pockets of regulation is really hurting American innovation.

Roger Royse:

Well, let me give you an example I read about my paper just this morning, and I don’t want to make this all about Uber, but they’re such a good example. There was a bill in the legislature this year that would impose restrictions on just how Uber does background checks. I don’t know if it passed or not, but all I know is that it was on the legislative agenda and that to me again if somebody came into my business and told me, if they micromanaged me, and I’m in a regulated industry, I’m a lawyer, but I don’t think anybody regulates to that level of detail. That seems like there’s a lot of building there for a new entrant.

If they have to learn the law to that extent to get into the business, that’s not a deal breaker of course, but it is a cost, it is an additional cost. That one struck me as going pretty far. On the other hand, I can certainly see the consumer protection requirements for having something like that especially in view of some high-profile cases that have come up. Again, I want to come back to you Professor Munger because you had cited restrictive regulatory policy. I mean how do you even get around that when we’re in a place where we’ve got rules that apply to stagecoaches that we are now trying to apply to bus services for example?

Michael Munger:

It’s a terrible problem. One of the first concerns I think should be equal protection. You can’t just pick and choose, which companies are going to apply this to. George is right. A lot of taxi companies face regulations that prevent them from changing, but we can’t just say we’ll waive it for Uber. It happens I was just in Austin, Texas and Uber pulled out of Austin, Texas because there were requirements of background checks. Within six months, there are several other companies the one that I used was fare, and it’s basically Uber. There are three or four Uber light companies that now operate in Austin in the absence of Uber, and really all that was happening was that the Austin City Council wanted Uber to face the same background check regulations the taxi companies faced.

We do have to worry about equal protection. I think a lot of people on my side who are enthusiasts about the new economy just want to say, “Well this is a way of subverting the system. We should worry about equal protection,” but interestingly here in North Carolina, there was a statute that was passed to preempt any municipal ordinances that would regulate Uber-like it was done in Austin, Texas, and this was done at the behest. This was a point that George brought up earlier. This was done at the behest of some very leftist legislators in the state Senate led by Floyd McKissick from Durham, North Carolina and his argument was we have to have Uber everywhere because poor people cannot afford taxis, they’re too expensive.

The benefit to poor people who can get to the doctor, who can get to the grocery store is a really important part of this. We often worry well the profits are all going to venture capitalists. Maybe, but a lot of the benefits of having these products available go to poor people, and so Austin by kicking Uber out or just to be fair, what Austin did was imposed the same regulations on Uber that the taxi companies in Austin were already subject to. Uber said we’re going to stand on the floor and kick our feet in we turn blue; other companies come in. It’s interesting to see whether companies from different areas are going to be able to solve this problem of negotiating taxes and a number of places, and I think this is true in North Carolina also.

Airbnb has started to pay local municipal taxes that hotels would be required to pay. It seems to me that’s essential you can’t say the reason I’m going to use Airbnb is I don’t have to pay hotel taxes. This was a problem for a while for Amazon. Amazon wouldn’t pay state sales taxes, and now they do, and that means that it’s actually a more level playing field at least in the tax and regulatory area. I realize I’m jumping around, but the problem is I think this is a very confusing issue. It’s easy to see that both sides have a good point.

Roger Royse:

Thank You, professor. I want to shift gears a little bit on that. I want to stick with you because the economic aspects of this are really fascinating to me, and so we’ve got another phenomenon going on the past four years crowdfunding and crowd financing. The basis of the original bill introduced in the house was to apply the wisdom of the crowd to investing. Rather than letting a regulator decide what was good for the investor, we would let the crowd decide. Now, of course, that was the JOBS Act, which President Obama signed in 2011. It originated in our republican house, and the Democratic Senate changed it, and what happened to that bill shouldn’t happen.

It went from access to the capital bill to another protection bill, but during that, what one of the good things that came out of that was a lot of discussion about social capital and about the wisdom of the crowd and about democratizing the entire process. Regardless of where we end up, I think that was a really good discussion to start, and we’re seeing that now on a lot of the sharing economy. There’s a lot of these benefits that we don’t really measure in dollars. For example, I’ve read it recently that the car-sharing sites in some foreign countries have become a real social media, so the way for people and meet people.

I don’t know, it’s like Tinder for cars or something, but there are other ancillary benefits here that are coming out of this new economy that we haven’t even thought about and even conceive of or imagine. We got to I guess weigh that against some of the social costs. Maybe it’s explaining labor; maybe we’re subverting something some consumer protection laws. As an economics professor, any comments about some of the benefits of a less regulated state and I guess a structure that encourages new ideas to get out in a market and have a chance?

Michael Munger:

Well, one of the things we haven’t talked about yet is a sort of buzz word, but I think it’s very important, and that’s permissionless innovation. Permissionless innovation means that the state sets up infrastructure and regulates its basic properties, but anybody who can connect on to it and can design something that benefits consumers, they can then do that in a way that’s cheap enough. We’re not really very good at measuring its value because we tend to take the number of units that are sold and multiply them by the price, but many things, Google, Facebook, Twitter have a price of zero at the point where someone’s actually using it.

Now we’re selling eyeballs in some cases to advertisers, but GDP, the gross domestic product is just not very good at measuring the value of these things. In an economy speaking as an economist, the value of things is the difference between what consumers would pay for it and what they have to pay for it. The technical term for that is consumer surplus. The consumer surplus of many of these new software platforms is so large; it’s almost unmeasurable. The usual way that we think about things that economies produce GDP and jobs, that’s not actually what economies produce. What economies produce is human flourishing. I think we’re going to have to rethink how people can connect to permissionless innovation and we have to have a new set of objectives for government policy.

As Justin said, we can’t really blame the state for lagging behind because the regulators are obliged to enforce the law. They don’t get to say we’re going to ignore the law, they have to enforce the law, but legislators are having trouble keeping up with the pace of economic innovation. We want to encourage permissionless innovation. It means that some mistakes are going to be made, but let me give an example of what happens when we don’t. For a very long time, Bell Telephone would not allow people to connect their own equipment to the end of the lines that run to your house. You had to rent that from Bell Telephone and so what we had was these big heavy frankly Soviet looking telephones with rotary dials, and for years and years, they were always the same.

As soon as Bell Telephone and AT and T were obliged to let, so it was deregulated just at that end. You could get your own equipment. A huge set of innovations was started, but as long as innovation required the permission of the owner of the network, you’re going to hold innovation back, and you’re not even going to know of the things of the innovations that are foregone because they’re unimaginable.

Roger Royse:

Yeah, for sure. I want to remind our audience that if you’d like to ask questions, you can go ahead and type your question in the dialog box in the lower right-hand side of your screen or if you’re on the mobile side, it’s at the bottom, just click on the question mark. George, I promise I’m going to come back to you on this. I know you’ve got some things to say, but before we do, I do want to circle back on something Justin said about consumer protection, and it seems to me to be one of the goals of the law end of the regulator’s. I noticed a lot of these apps now, well almost all of them have a review feature. They’re all Yelp-like now.

In fact every ride I take now whether I want to or not, I have to review the driver, those reviews and every place you might rent. I mean do you view that as sufficient to satisfy the consumer protection goal?

Justin Erlich:

There are a few upsides of the rating system that you can’t get in the traditional regulatory regime. On some levels, it can bring improve customer service. On the other hand, there are still some issues with it, which is what about for the first few rides when there’s not really enough information or the last ride or service if the provider is thinking about getting off I think, they no longer have the incentive anymore. I think there are some issues that are still present just conceptually in a rating system, and we saw that in the early days of eBay. They actually wouldn’t really guarantee any transactions for the first five transactions online.

I think that’s one open question. I think the other is just the value of rating systems themselves. We really want to make sure that they are truly working, and so the methodology, the rating system becomes very important. I think in a world of grade inflation, it’s unclear how many people are really thinking a lot about their rides. It often ends up being pretty binary. For anyone who’s taken Uber or Lyft, you might just often do five stars except if it’s really bad and then you might do something low. I think that’s often what tends to happen with a lot of review sites is you really get the extremes doing reviews.

It’s a little unclear on how well those systems work and I think a lot of economists have done studies on some of that, but I think if done right, it can provide a 21st century way using transparency to help improve customer service and consumer protection.

Roger Royse:

Okay. Anybody else wants to weigh in on that before we move on?

George Yang:

Actually I want to say that is that I’m looking at the review system and the review system the way that I see it is that as flow as it might be, it is still better than two legislate this too because we not only have reviews, we have a review of mobiles. There are websites out there where you can say that that companies reviews a bias or flaw and the consumers, it’ll ask can make that decision and whether or not … Because some people don’t care. For example, if I’m taking a short ride in the middle of the day from my home to my work, do I really care if that guy’s one star? I don’t; it’s up to the consumer to make that decision. I think there is enough information for the consumer to make a wise or at least fit decision for his own purposes or her own purposes.

Michael Munger:

Let me say I think it’s a really important issue and there are two elements of it, and I’ll be brief. One is that we need to be concerned about the barriers to entry that are created by the fact that the first movers here already have a bunch of reviews, suppose I only want to use somebody that has 10 or more reviews. Nobody else can enter Airbnb, nobody else could become an apartment sharing site, and Justin said this before there are no reviews, there’s only one review I’m not going to use it. It actually prevents entry because it has this value of being a network economy.

The other factor though that we should think about is some … Well, the other day I thought it would be nice if we had something like Orbits that’s but for ride-sharing because Orbits will look at all the different hotels and we’ll look at reviews and will tell you what the prices are. Well, maybe unsurprisingly it turns out there is something like Orbits for ridesharing, it’s called GoA2B. If you go if you look at GoA2B and you put in your destination, it’ll tell you all the ride-sharing companies that are available, that are going from where you are to where you want to go, the price, the amount of waiting time. There is a way of curating this.

As George said, there are reviews of reviewers; there are ways of curating this. I think once that happens, the network economy problem will be less important.

Justin Erlich:

I would just add one other thing on the rating perspective, which is it’s probably about finding the right balance of those things we think should have a minimum threshold versus those where we want to allow some freedom and for innovation and transparency to take place. For example, we might feel that we don’t need a lot of regulation around the type of car that someone is driving, but we might want regulation that a car driver should be background checked because the very high risk of someone having a severe criminal issue and then attacking a rider might be too great sets that we don’t want to leave it up to transparency.

I think you could imagine a world, and I’m not sure this is the best outcome is, where we just say anything can be rated, so we stop health inspections, so we stop any sort of basic standards, and say we’ll leave it up to the transparent rating market, and that probably seems up perhaps a little too open without a safety net. I think this is inevitably the balance of how do you make sure that consumers are protected, but also given a lot of choices.

Michael Munger:

Compared to what? I worry that we don’t do a very good job with taxi drivers either if we stick to the Uber example. I have no way of saying this guy was aggressive, he yelled at other drivers, he went way too fast. There’s really no way for me to register my dissatisfaction. I actually tried to complain about a taxi that I had in New York City. It’s basically impossible. Uber doesn’t have to be perfect. They only have to be better with taxis, which often frankly suck.

Justin Erlich:

I think you seemed to be talking about this as a binary, you can do one or the other. Uber …

Michael Munger:

Well, the background check is a good idea. The background checks sure at least …

Justin Erlich:

Uber does background checks, right? Uber wouldn’t need to do background checks in a world where we say the consumer is welcome to choose among anyone, those who do no background check, and those who are, and it’s up to the consumer to decide. I imagine one reason they probably don’t do that is that you could probably get a cheaper ride without a background check. but there’s like a lot of consumer confusion. They’re trying to simplify the choice for the user. I’m not saying you shouldn’t do transparency, but there might be a certain set of basic things that you would want to ensure are in place for minimum safety standards.

Roger Royse:

Okay, okay great. Thanks. Let’s move on a little. One of the issues, we have some questions for me around an issue that I’ve come across in the literature, an argument that claims that the economy cites all the good intentions are with, really just reproducing X gender and racial biases and hierarchy. We have a question here. It is fair that the shared economy is beneficial for consumers, but how does it serve the others, for example, Uber doesn’t have a service for the indigent, or an Airbnb doesn’t have a service to shelter a homeless? Any comments from our audience as well.

I guess number one is, does this economy help I guess the underserved and secondly is this a proper I guess consideration or concern or policy goal as the law develops to encourage and enable this economy? Any comments about that?

George Yang:     Yes. I talked about earlier that in the whole a PUC model for telephones, the telephone companies, we see the monopoly in exchange for serving underserved areas. They don’t want to give them the cream called the crop, but that wasn’t served outside. One of the issues they talk about as car-sharing services that my company used to you have is that what about disabled people, for example, they want to have mobility for that as well. Now I think that is a policy issue that we need to have discussion on and whether we should require companies to provide it or should we use some kind of taxation and then using that taxation to subsidize a service, for example, like Redi-Wheels in the San Mateo County that will serve people who are disabled who need wheelchair.

Not every car has a wheelchair ramp, so those are questions that I think is actually a good policy discussion or a community discussion on seeing how those people can be better served.

 

Michael Munger:

I guess I’m of two minds about that question. On the one hand, as I said before, you need to recognize that some of the consumers that benefit from the availability of Uber are poor people that are trying to go to the doctor, that otherwise would have to take two buses and it would take a long time. Taxis are too expensive. On the other hand, there has been a problem in several cities and we’ve seen this happen in Reykjavik Iceland, London, and in Paris where a lot of people have recognized that they can make more money by buying entire buildings and renting them out on Airbnb because they don’t have to pay hotel taxes.

What the effect has been to reduce the amount of rental property that’s available and of course that mostly harms the people that are at the margin. They’re not quite indigent, but these buildings are sold, they turn into coops, and they rent almost all the time on Airbnb. This is an economically neutral tool like most revolutions. The reason my book is called Tomorrow 3.0 is both of those revolutions, the Neolithic, and the industry was extremely corrosive on institutions that until then had been used to take care of the poor and indigent. We may actually face some really difficult problems that we can’t foresee.

The fact that if you live in New York, you can buy up an entire building of relatively low rent apartments, convert it and sell it all for Airbnb $1500 a night. That means that we’re going to lose a lot of rental property.

Roger Royse:

Yeah, that is a problem and of course the flip side of that is if you happen to be in the hotel business and you’re competing with the Airbnb, you’re probably a little concerned that they don’t have the same compliance issues you might have that are for the protection of people who can’t otherwise protect themselves, like ADA compliance and things like that. From where I sit, I have to weigh in on this, even on the moderator and I shouldn’t I have to.

From where I sit as a lawyer, during every economic downturn, I see people lose their jobs, their companies do big layoffs, they’re looking for something to do, and I think the sharing economy and these apps has been just one of the greatest things because it’s an opportunity for no capital investment, for people to go out on their own and do something and be able to earn an income and continue to support themselves, even when the economy might be in decline or when their old economy business that they work for all these years has gone under. If we look at this as a social tool, I would say that this is an enabler of upward mobility or at least of serving.

I know that’s not exactly what the question was aimed at, but certainly, I think we have to consider that that’s really important and that’s why just personally I really like to see government policy enable and help these sort of things. Okay. Well, thanks for that. Let’s move on to I guess a couple of other areas. We’ve talked about where the law has changed. I’d like to talk a little bit about some of the traditional legal issues that we see. I mean just what I’ve been reading in the papers mostly about the problems that have come up, misrepresentation for example. For example, some of the ride-sharing sites have been sued for misrepresentation.

San Francisco and Los Angeles have both sued over under existing consumer protection laws on misrepresentation grounds. There have been claims of neglect and fraud. There has been data access problem, data security breaches, for example, and of course, we haven’t even gotten into contractor versus employee issues. What I wonder about is, do you think the traditional common law legal systems are sufficient to address these problems or is there something different about the sharing economy that requires a regulatory overlay? For example, is misrepresentation may be a driver’s background so important?

I think you’ve convinced me that background checks are a good idea just because the consequences of misrepresentation would be really bad there, but is there something different about all the data they’re collecting that requires an additional overlay? This is one that I know there’s been a lot of discussion about, but I haven’t seen any. Maybe I’m just not aware of any direct legislation. What do we think? Do we need new rules and a new regulatory system or are our sufficient rules good enough? Any comments?

Justin Erlich:

I’ll jump in on that one. I think this may be a question not just about the sharing economy and regulation, but maybe where the economy more generally is heading, and so we could explore whether the principles that we see here export elsewhere, which is I think there is a general sense that as we all talked a little bit earlier that certain issues the technology platforms have, the use of transparency, the use of better understanding the services might mean that less regulation is required in general.

I think everyone feels like there is some disciplining force of having a ride or a driver rating such that there is a reason that Uber and Lyft actually can provide you with sometimes a better riding experience than a taxi, and maybe that’s because they know that they are working to stay above a certain rating to stay on the platform. That does have its own impact, which might mean that the government can look to think just take a step back on some of the regimes that it might have more heavily enforced before. To your point about misrepresentation, that’s only if we know that the things they say they’re doing, they’re actually doing.

Maybe we need some way to regulators if they’re going to take the trust in changing an approach need some way to audit or ensure that that’s actually happening. There needs to probably be sort of a tit-for-tat strategy of considering changing approaches at the same time that the companies might share more of their data about what is actually happening, are they actually covering certain areas of the city that they say they’re going to or are the ratings actually what they appear to be. Some sort of overlay will be needed if you’re going to probably pull back on other areas.

Michael Munger:            

I’ve wondered about that and Roger you brought up the common law standard. I have wondered whether someone could succeed in a suit. Supposed I’m in Uber and the driver robs me, murders me so I have a wrongful death action against them, and it turns out that this person had a history before of violence, but Uber said well we didn’t know, but you have a negligence action because maybe they didn’t know, but they should have known because even a simple background check would have told them. Could you win under the common law and just saying well this is negligent, you could easily have checked, you failed to, you put me in danger.

I wonder how that’s going to work out and if we might use something like a common law standard. It’s not a strict liability; it’s just everyday precautions. A standard background check would have told, you this you put me in danger.

Roger Royse:

Yeah, and I can find lots of lawyers that will take that case. I guess the issue here that Justin has pointed out or I think you pointed out that is there’s such an important societal interest in this that the government really does have to post background checks because, without it, there are going to lapse. I mean the first time until somebody actually is violent, they’re not going to be reviewed as being a bad driver, right? I can certainly see both sides of the issue I’d like to think that the legal system can take care of these problems, but I’m realistic enough to know that it probably needs a little help. We’re getting towards the end of the hour.

George Yang:

In terms of … Sorry. Can I just comment on that point in terms of?

Roger Royse:    

Well, okay well George, why don’t we use this as your opportunity, to sum up, your position, but why don’t you go ahead because we’re getting toward the end, and I’d like to have some fun time.

George Yang:    

No, I want to sum up on this one. As a small business, a small startup, I feel like that there is quite a lot of barrier entry into the marketplace. One of the examples that I want to talk about having had the chance is that, for example, Uber and the LAX have an agreement to allow Uber to pick up people in LAX, but that agreement contingents upon Uber or any company like that to pay $2500 a month to LAX. Now that is pretty easily a barrier entry to smaller startups. I want to caution to this size that bigger companies that are in the established marketplace, they are trying to use laws to create barrier entry to new competitors, a new entrance to their markets.

When we talk about regulation, we need to keep in mind just like what Michael says, what is the desired result, are we regulating this to make sure that everybody level playing field or are we regulating this to protect either legacy businesses or the unions and whatnot, so in terms of hotels. We want to make sure that when we write a regulation, we need to be clear what are the objectives that we are trying to achieve and be open and transparent about that as well.

Roger Royse:    

Okay, thanks very much. Justin any concluding remarks for us?

Justin Erlich:

I think that this conversation just highlighted how complex the whole topic is and why everyone is searching for the best approach forward. I think we all would agree that this these developments offer so much in terms of upside for consumers that is vital for us to figure out how to continue to deliver that, particularly given there’s also an impact potentially on the environment and other issues with the idea better using excess capacities as Michael said. I think we also highlighted that there are some intrinsic risks if we go too far, too fast without any oversight and there are some equal protection issues for those who were involved in the previous system.

It really needs to be a discussion with the startup community, with regulators and consumers themselves to figure out what should be the new pathway forward to balance these underlying consumer protection principle as we’re still unlocking the innovation to come. I think that has to be a really focused dialogue in the coming months and years and actually, our office will be hosting a discussion around this exact topic later in September as we try and bring open-minded parties from both sides or all sides to figure out what this new regime needs to look like.

Roger Royse:

Okay, thanks very much. Michael, you get the last word here.

 

 

Michael Munger:

Well and I talked too much already, so I just want to thank George ingestion and of course Royse University. I learned a lot from participating in this, and I’ll look forward to hearing more about it in the future.

 

Roger Royse:

Okay. Well, thank you very much. I really appreciate the panelist being here to kick off our webinar series on the gig economy. This is the first as I said of a series on September 13, Tuesday same time, we will have our next presentation the future of the innovation economy. We will have a panel of entrepreneurs and venture capitalists to discuss where they think the market is going, what the new opportunities are, what’s hot, what’s not.

Wednesday, September 21, we are going to spend an hour talking tax issues around the innovation economy and some of the unique issues that have come up arising under the new ways of doing business, and then finally we’ll conclude on October 19 with a webinar on employment issues because those seem to be where we’re having the most discussion and the most interesting issues and really the most uncertainty. Again, this webinar has been recorded. You can find it on Royseuniversity.com. It’s also available for download as a podcast in the iTunes Store, and you’ll find a recording on the Royse Law Firm youtube site. Again, thank you, panelists, and thank you, attendees, for being here and we will now conclude the webinar.

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