RUSS ROBERTS

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The Disrupters

This article first appeared in the September/October issue of Politico Magazine.

I’m hardly the first person to extol the virtues of the sharing economy—the latest iteration of which comes in the form of smartphone apps like Airbnb or Uber that connect people who want somewhere to stay or a ride with people willing to provide it. Tech that allows me to book an apartment halfway around the world or order a cab on my phone in mere minutes is pretty cool. But what many miss is how crucial an abstract concept—trust—is to making these businesses work. The sharing economy is changing our travel habits, fragmenting taxi and hotel services into hundreds of thousands of independent providers. It could also utterly transform the way our political institutions work.

Swing Ride

Airbnb makes it imaginable that I would stay in the house of a stranger who does not have a brand name like Hilton that it’s eager to preserve. Why would I be crazy enough to trust some random person’s word on the Internet? Why would that person ever trust me? And how could we possibly find each other? That’s the magic of the Airbnb software. In a minute or two, I can find a room in a city I’m visiting. It’s cheap. It’s easy. As for trust, Airbnb has solved that problem: Other people have stayed there and rated the owner and the place.

Uber does the same thing with taxis. On a rainy night in New York, it’s hard to find a cab. More customers are on the streets, but not more taxis. But Uber’s surge pricing increases the fare when taxis are scarce, which means you can find a ride in almost no time. Why would I get into a car with a stranger? As the Uber driver approaches, I can see his rating is 4.9 out of 5. If it dips below 4.6, Uber drops him from the system. It’s as easy as hitchhiking, without worrying about who might pick me up.

Not surprisingly, the taxicab business and the hotel industry don’t like Uber or Airbnb. They want these upstarts to face the same regulations—and inspectors, commissions and the like—that they do.

All businesses need a way to ensure quality for their customers. Government regulation is one way, but it’s expensive and can be corrupt. Crowdsourcing trust is cheaper and perhaps even more reliable. Instead of increasing regulation of Airbnb, or banning it altogether, we should modernize other ways we buy and sell things.

Which brings us to another world-class disrupter, the car company Tesla Motors. Elon Musk, Tesla’s co-founder, has this crazy idea to sell his high-end electric cars directly to customers instead of through dealerships. But in some states, politically connected auto dealers have supported legislation to keep me from buying directly from the manufacturer. Those laws don’t resonate with the public: Most people feel they have a right to buy a car without the middleman. And is there any buying experience less pleasant than purchasing a new car from an auto dealer? In a world where I can find out from others a lot about what the experience is like, it’s going to get harder and harder for government to keep consenting adults from making their own transactions.

Auto dealers argue that it’s just a matter of fairness—Tesla needs to play by the same rules as everyone else. But those rules are so 20th century. In this century, users, not government inspectors, police quality, and that makes regulation a lot less necessary. That could disrupt more than the taxi, hotel and car markets. Disrupting government would be the biggest disruption of them all.

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