The shared economy’s growth spurt

Governments must find a balance between regulation and fostering entrepreneurship. But is a ‘shared economy’ something more as well?

Lucy Nicholson/Reuters/File
A driver with the ride-sharing service Lyft waits for a customer on a street in Santa Monica, Calif., in October 2013. Lyft allows customers to book rides from a network of screened drivers, who pull up in cars with fluffy pink mustaches attached to the fenders. Payment is in the form of a donation, made via the Lyft smartphone app.

The stock market may soar or swoon in 2014, but one part of the economy seems almost certain to blossom: the so-called shared economy.

Why go through the trouble and expense of renting a car or booking a hotel room when your smart phone can quickly connect you with someone nearby who’ll rent you a room or a car faster and cheaper?

Companies with names like RelayRides, Lyft, and Airbnb are becoming efficient brokers, matching people who need a service with those who can provide it. Bag Borrow or Steal, for example, rents designer handbags and accessories that may cost thousands of dollars for a fraction of that to people who only need them for a few hours, say for a formal occasion.

The shared economy is looking more like a tsunami. Room-renting firm Airbnb went from 4 million customers to 10 million in one year. Lyft, a ride-sharing company, grew faster: 20-fold in one year. Conventional businesses are paying attention: General Motors has invested $3 million in the San Francisco-based online rental company RelayRides.

But many traditional businesses are crying foul, pointing out that the new companies tilt the playing field. A taxi company or hotel must abide by a plethora of well-intended laws meant to protect both buyers and sellers. As the shared economy has grown, stories have popped up of homes rented over the Internet being vandalized or rented cars wrecked.

If a couple rents rooms in their house frequently to paying guests, could it suddenly turn a quiet residential neighborhood into a commercial area? And what about the tax revenues cities and states miss out on when someone avoids renting a hotel room or rental car?

States and cities now face a delicate task: Don’t squash enterprising entrepreneurs who have spotted new ways to use the Internet to create businesses (and jobs). But at the same time governments must provide some assurance that buyers and sellers participating in the shared economy will play fair with each other.

Last September California became the first state to attempt to regulate the shared economy. Seattle’s City Council is drafting ways to regulate Internet-based ride-sharing companies, including limiting the number of hours each vehicle could be rented each week and requiring strong safety inspections and high levels of insurance.

A car sitting in a garage, a vacant guest room, or an empty vacation home could be considered an underused capital asset. Owners who are willing to try to turn them into moneymakers by renting them out via the Internet should be able to do so – with reasonable restrictions.

In one sense, the shared economy is simply supply and demand continuing its perpetual adjustment to new technologies and fresh opportunities. But some people see a deeper message centered on “shared”: Would people really need so much “stuff” if each of us were willing to share what we have with others? they ask.

Do people “own” things just to possess them or because they are needed, useful, even pleasurable?

If people shared more, would everyone’s standard of living go up? And could there be an added benefit: people getting to know each other better in the sharing process?

A true sharing economy could potentially mean much more than just a better way to buy and sell.

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