Democrats Vs. The Sharing Economy

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Laurens ten Cate Americans for Tax Reform
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Many Democrats have come out against the sharing economy, mostly because of the fact that the new generation of flexible independent contractors don’t tend to unionize. The Teamsters union, with 1.2 million members, has come out against the sharing economy. “These companies are simply recycling old ideas and taking us backward to a time when workers had no rights on the job,” the group said.

Sen. Bernie Sanders (I-Vt.) has said “I am not a great fan of Uber—you can quote me on that.” Sanders started backing Hillary after promises of increased input of progressives in the Democrat platform this year. But perhaps this extra input wasn’t even necessary, as Clinton is also hostile to the sharing economy. Saying: “I will crack down on bosses that exploit employees by misclassifying them as contractors or even steal their wages.” 

This link between big Democrats and union bosses show a party platform stuck in the 1930s. The sharing economy will be completely destroyed if the Democrats get their way. The party that prides itself as being pro-worker and for the less-well-off seems to completely ignore all the evidence that shows that the sharing economy is especially beneficial for the poorer parts of our society.

Research by Arun Sundararajan and Samuel Fraiberger from New York University and Harvard University respectively from October 2015 lays bare this Democrat hypocrisy. They find that: “Peer-to-peer rental marketplaces have a disproportionately positive effect on lower-income consumers across almost every measure.” They also say that the sharing economy is: “a force that democratizes access to a higher standard of living.”

Next to that, Jared Meyer – fellow at the Manhattan institute for policy research – finds that the peer-to-peer economy has a big positive effect in terms of availability of services in low-income neighborhoods in New York. “NYC’s medallion cap has long prompted concern that taxi service is concentrated in affluent core Manhattan neighborhoods and at city airports—to the detriment of lower-income, minority residents who tend to reside in outer-borough neighborhoods where street hails are scarce.”

Not only does the sharing economy have a disproportionate effect on lower to middle income Americans, but it also solves some long standing economic issues. Recently top economists at George Mason University together with the Mercatus Center released a paper on how the Sharing Economy through “Reputational Feedback Mechanisms” solves the Lemons Problem.

The Lemons Problem is an age old economics issue where, due to information asymmetry, quality uncertainty exists which reduces market efficiency. Regulators have used this problem as reasoning for extremely invasive regulation in the past to ‘protect consumers from market inefficiency’. The George Mason University economists argue that the rating system present in most peer-to-peer economy platforms gives consumers and independent contractors up-to-date, high quality information about who they will be serviced by or who they will be servicing.

This ‘crowd-sourcing’ of what used to be a regulators job is one of the most empowering things the sharing economy has accomplished with great success. Nowadays an Uber customer can say no to a low rated driver and instead wait a bit longer for a good rated one. This empowers the consumer and incentivizes the drivers to give great customer service.

The Democrats want to regulate away these amazing developments that have been made possible by the sharing economy in what is antithetical to what they say is their party platform. They are once again showing their true colors in continued support to their big union campaign contributors.

Voters will have the chance to say no to this behavior in the upcoming elections. And interestingly enough, Pew Research Center showed in their 2016 report on the sharing economy that 66% of the people tend to view drivers as independent contractors. More troubling even for the Democrats is the fact that a big part of their base supports the sharing economy in contrast to their party ties. The same report notes “To be sure, Republican and/or conservative ride-hailing users tend to have a more anti-regulatory attitude than Democratic and/or liberal users, but the clear preference for a light regulatory approach among partisans in all camps is striking.”

Will the Democrats listen to their base or their big union boss donors? We will see what happens in an election that might just be decided by this new voting bloc.

Laurens ten Cate is a federal affairs associate at Americans for Tax Reform.