From city halls around the country to Washington, DC, and other world capitals, lawmakers and regulators lately have come under intense pressure to regulate upstart Internet market platforms such as Uber, Airbnb, UpCounsel, and Heal, as they rapidly transform entire sectors of the economy by providing simple and elegant new ways for buyers and sellers to connect and do business online.
Uber's market capitalization has now skyrocketed higher than the annual revenues of the entire U.S. taxi industry, and Airbnb's value is almost on par with that of hospitality titans such as Hilton and Marriott, so it comes as little surprise that a loose coalition of advocacy groups and aggrieved incumbents have protested the disruption they are causing. Against this backdrop, the kneejerk reaction for some policymakers may be to rein in the Internet upstarts with specially tailored regulations. But if lawmakers take time to carefully sort through the facts, they will find that existing statutes give regulators all the power they need to oversee the new generation of companies powering the so-called "gig economy" -- and piling on would do more harm than good.
The first thing to understand about these new Internet platforms is that they create enormous value for buyers and sellers of all sorts. By making it easier for people to find potential mates, handymen, rides, customers, or product reviews, they significantly lower the cost of goods and services and increase convenience. By eliminating market barriers for would-be service providers and vendors, they create economic opportunities and give people ways to fully utilize their capital without spending a lot on advertising. And by allowing users to rate providers (and vice versa), they provide real-time quality control.
In some respects, this is an entirely new phenomenon--and yet the regulatory issues raised by Internet market platforms like Google, Facebook, and Uber are not very different from those posed by more traditional companies. Critics variously contend the newcomers exercise monopoly powers, take undue liberties with consumers' data, and take advantage of workers by making them independent contractors rather than employees. But to the extent any of this is true (and much of it isn't), the circumstances have little to do with the fact that the companies in question are Internet market platforms, so singling them out would be unjustified and unwise as a policy matter.
When it comes to competition, the truth is that for all their size, Internet marketplaces generally find it difficult to turn their large market shares into unfair market power. That's because they exist to bring two or more sides of a market together. Any attempt to increase prices or degrade quality on one side of the equation might drive away users on all sides of the market, thereby threatening market share. In fact, there is a reason big market platforms like Facebook usually have to let people use their services for free. It is that their ability to charge sellers (including advertisers) is heavily dependent on how many users they have, and both buyers and sellers usually have other routes of finding each other online if prices increase too much.
With regard to data and privacy, Internet market platforms are just like any other company that gathers and analyzes customer and market information to reduce costs, increase sales, and improve customer service--and they are better practiced than most at keeping that kind of data safe and secure. In any event, agencies like the Federal Trade Commission already have significant powers to police the marketplace and take action when companies fall short of their obligations.
Existing laws also give regulators power to protect workers on Internet market platforms from obvious problems such as nonpayment, dangerous work conditions, discrimination, or abusive practices. To be sure, those laws largely reflect the workplace as it existed from the 1930s to the 1960s rather than the one that has been emerging over the last decade. The assumption has been that individual workers are generally employees while independent contractors are usually businesses that can take care of themselves. We need to modernize labor laws so companies and other organizations can help individual contractors purchase insurance, file their taxes, and set aside savings without destroying the flexibility of new work arrangements.
Let's face it, many of the calls for regulation are coming from bricks-and-mortar incumbents who simply don't like the competition from these upstarts. Indeed, Internet marketplaces have generated the most opposition where they compete with heavily regulated or taxed industries. In some cases, the new entrants do operate under more favorable rules. This is usually because government has used regulation to restrict entry or raises prices, or both. For example, taxi regulations often reflect the interests of cab owners who want to restrict the number of new drivers. The result has often been higher prices and worse service, especially late at night or in minority neighborhoods.
Similarly, hotels have often been used as conduits for levying high taxes on out-of-town visitors who do not vote in local elections. The right and proper solution for such dysfunction is to disrupt it with new and better ways of doing business, as Internet market platforms are doing in sector after sector. The last thing policymakers should do is stand in the way or impose regulatory burdens that would make the new players operate more like the old ones.