Apps to Regulate Apps

  • By
  • Tim Wu,
  • New America Foundation
December 19, 2012 |
Click here to read this full article.

NOBODY ever said that big cities make for easy living. The apps of the moment, Uber and Airbnb, try to mitigate matters by letting you book a car ride or rent someone’s apartment using your smartphone or computer. They are beloved by those contemplating scarce taxis or $500 hotel rooms. But they’re considerably less popular among city regulators, whose reactions recall Ned Ludd’s response to the automated loom.

Last month, Uber was effectively outlawed by Vancouver, British Columbia (by setting a minimum fare so high it discouraged users), and there are proposals to ban it in New York and other cities. Airbnb is already illegal in cities like San Francisco and New York, where unpredictable enforcement can result in enormous fines for its users.

To be fair, the cities think they’re protecting consumers, and the apps, particularly Airbnb, do raise some real concerns. You might be less of an Airbnb fan if your neighbor ran a hostel for the world’s misbehaving youth. As for Uber, its rates aren’t governed by city agencies, and it raised them in the aftermath of Hurricane Sandy in New York City — which critics labeled price gouging.

Yet many of the complaints are anecdotal, and too many have the odor of industry protectionism. Banning Airbnb helps hotels more than homeowners; banning Uber helps taxi companies more than passengers. Boston, in one egregious example, tried to ban Uber simply because it used GPS to measure fares, instead of an old-fashioned meter. (The ban was later reversed.)

Regulators can do their job and protect consumers against harm without being so heavy-handed. The current approach recalls Prohibition: total bans that are widely violated, with semi-random enforcement and huge fines for unlucky individuals (one Airbnb host in New York recently faced more than $40,000 in potential penalties, before the case was dismissed). It’s a clumsy approach that turns ordinary citizens into scofflaws.

This isn’t to say that the apps should have some kind of special legal immunity. It’s just that there are much smarter and more effective ways to protect consumers against potential harms. The trick is using the same techniques of real-time information access that the apps employ.

Here’s how it might work for Airbnb. Cities could require the company to provide co-op boards and landlords, at their request, with an app that listed any advertised rentals at their addresses. That way, instead of one uniform rule for the city, landlords and boards could decide for themselves how they wanted to handle Airbnb rentals. They could take a laissez-faire approach, or ban tenants from advertising on Airbnb entirely — in which case the app would help them detect and fine any violators. Others might choose to include Airbnb guidelines in rental contracts, take a part of the proceeds or limit usage to certain levels. Over all, getting better information about how Airbnb is actually being used would yield better solutions for all.

Another info-access app could help cities regulate Uber’s rates, if they really were afraid of price gouging. Regulators could simply require Uber to disclose the prices it charged and where its cars were going. If cities wanted to ban rate hikes during emergencies, they could watch to see that the law was obeyed.

This kind of precise, data-driven regulation could protect consumers while also protecting their right to pay for a valuable service. No one can deny that these apps are responding to real demands and helping cities become easier to live in and visit. There are also basic rights at stake. Using Uber to hire a car is basically an exercise in freedom to contract. Taking away the right to rent out your room diminishes the value of your property and drives up costs for visitors.

Change isn’t always pretty, but a healthy city is one where old systems — even the hallowed taxi medallion — stand to be challenged by the winds of creative destruction. Uber and Airbnb are just the first examples of a wave of services trying to match willing buyers and sellers in unexpected ways. That’s why it is so important that regulators get this right, lest they discourage those who are trying to follow their lead. The challenge for regulators is to simultaneously allow change while protecting us from the worst effects of it. It is, in short, a time to think carefully, rather than banning first and asking questions later.

Related Programs