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As upstarts like Uber and Airbnb challenge stalwarts in the taxi and hotel industries, cities are struggling to encourage innovation while still ensuring fairness and public safety. Supporters of the so-called sharing economy don’t want regulations to squash popular new alternatives to the status quo. But some residents and existing businesses say the newcomers need to play by the rules. We look at cities’ efforts to balance competing interests.
- Arun Sundararajan Professor of Information, Operations and Management Sciences, NYU Leonard N. Stern School of Business
- Brooks Rainwater Director of City Solutions and Applied Research, National League of Cities
MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Later in the broadcast, Food Wednesday. Do you pay attention to where your fish comes from? The increasing importance of fish farms. But first, maybe you're a fan of Uber or Lift, the businesses that offer rides you can book on your Smartphone or maybe you've made a little extra money by renting out space in your home for a few days through Airbnb, another digitally driven service.
MR. KOJO NNAMDIBut if you're a taxi driver or if you live next door to an Airbnb renter, you probably don't love the new sharing economy that's turning your neighbors into micro entrepreneurs. As these businesses grow, cities are struggling to balance the high demand for sharing economy services with the need to protect public safety and private property.
MR. KOJO NNAMDIIn our region, D.C., Maryland and Virginia are all working on new rules for ride-sharing services and looking at what other cities and states are doing. Joining me to look at the growth of the sharing economy and the challenge of crafting rules that are fair to all is Brooks Rainwater. He joins us in studio. Brooks Rainwater is director of City Solutions and Applied Research at the National League of Cities. Brooks, thank you for joining us.
MR. BROOKS RAINWATERGood afternoon.
NNAMDIAnd joining us from Argos Studios in New York City is Arun Sundararajan, professor of information, operations and management sciences at NYU Stern School of Business. Arun, thank you for joining us.
MR. ARUN SUNDARARAJANThank you for having me.
NNAMDIYou, too, can join the conversation by calling 800-433-8850. How would you feel about your next-door neighbor renting out his or her house or apartment through Airbnb. Do you think transportation companies like Uber and Lift can regulate themselves? Give us a call, 800-433-8850. Arun, let's start with some definitions. Ride sharing services like Uber and Lift say they're not transportation businesses and Airbnb says it's not a hotel company, but their competitors beg to differ.
NNAMDIWhere do upstart sharing companies like these fit into our understanding of the taxi and hotel industries?
SUNDARARAJANWell, Kojo, I think the best way to think about them is as marketplaces or platforms who are connecting providers of accommodation or provider of transportation with people who want them. So Airbnb isn't a hotel or a hotel company, per se, but it has on it hundreds of thousands of people who have accommodation available short term.
SUNDARARAJANSimilarly, Uber is not a taxi company, but it's sort of like a -- it's a platform that connects people who have cars and who want to offer other people taxi-like service to customers. So they're marketplaces rather than hotels or transportation companies.
NNAMDIBrooks, Uber, which uses Smartphone apps to hook up drivers and riders, is popular in this area, but the taxi industry is crying foul saying Uber should play by the same insurance, the same safety rules that apply to cab drivers. In D.C., the taxi cab commission wants strict limits while two council members are proposing less tough rules. Talk about the competition between taxis and ride sharing services.
RAINWATERKojo, this is something that's coming up across the country and we're seeing many cities deal with this in different ways. Some cities are outlawing Uber and Lift altogether. We saw this happen in Miami and New Orleans, whereas then you're seeing in a city like St. Paul, Minnesota that even though they have strict regulations in place, they're finding that Uber and Lift can operate there freely very well.
RAINWATERAnd as you mentioned here in D.C., we're having the commission on the taxi cab side really trying to strengthen the regulations and say that Uber and Lift have to meet the same guidelines as taxis. Whereas on the city council side, they're really trying to create a space for innovation, which is something that we're seeing, in particular, with city leaders that want to invite innovation into their cities.
RAINWATERThey want to make sure that these car services that people are really asking for are available.
NNAMDIArun, same question to you, the competition between taxis and ride sharing services.
SUNDARARAJANYeah. I think the term ride sharing can be a little misleading here because, you know, it conjures up an image of, like, a bunch of people in a community sort of sharing a car. You know, these are, you know, well, what's happening with Uber and Lift is that they're blurring the lines between what used to be personal and what used to be commercial.
SUNDARARAJANSo if you think about it, I mean, someone could always pick their friend up from the airport and drive them somewhere. They could always sort of drive their family around. So we're not, you know, we don't completely prevent people from giving other people rides. It's just that we had a clear line between someone who did it for personal reasons and someone who did it full time commercially.
SUNDARARAJANNow you have a range of Lift drivers. Some of them drive for five hours a week, some of them drive for 10 hours a week, some of them drive full time and that's what's causing cities and states to have to rethink, I mean, should these people who are providing this sort of new service be subject to the same kinds of regulations and the same regulatory framework as, you know, which was developed 20 years ago, 30 years ago as people who used to sort of provide taxi services the old way.
NNAMDIIn case you're just joining us, we're talking about regulating the sharing economy, rules for Uber and Airbnb with Arun Sundararajan, professor of information, operations and management sciences at NYU Stern School of Business, and Brooks Rainwater, director of city solutions and applied research with National League of Cities. Inviting your calls at 800-433-8850. Is it fair to have one set of rules for traditional taxis and another for Uber?
NNAMDIWhat do you think? Send us email to email@example.com. Brooks, in cities with expensive taxi cab medallion systems, is it understandable that drivers feel like the rules are stacked against them?
RAINWATERWell, it's understandable that drivers might feel that way. At the same time, it's really kind of taking note and taking advantage of the fact that, you know, cultural changes are happening, that the sharing economy as itself is really a game-changer and a reflection of those cultural shifts taking place. As we're looking at the world increasingly urbanize, as people are coming back to cities, you know, we're drawing in people that want to have these options.
RAINWATERThey want to be able to use ride sharing services. And while we have had regulatory structures in place that protect the life, safety and welfare of people, these are something that we need to continue to take a look at. As Arun said, I mean, oftentimes they haven't been changed for 20 to 30 years before apps were even developed. People didn't have Smartphones when these regulations were originally put in place.
RAINWATERSo as these new platforms come online, local officials want to react and they want to make sure that they're able to kind of bring this competition into their cities. And in the end, competition is going to lead to better services on both sides.
SUNDARARAJANYeah, I agree.
NNAMDIGo ahead, Arun.
SUNDARARAJANAnd I -- yeah, I agree with Brook. I mean, I think in the particular case of taxi services or what we call ride sharing, what Uber and Lift and Sidecar are really doing are calling into question the existing regulations because, you know, if you have reputation systems on the platforms that, you know, do some sort of screening and if you have an entity like Uber or Lift in between, that is actually sort of its -- it's in their best interest to make sure that the cars are clean, that the cars are inspected, the drivers are, you know, well trained.
SUNDARARAJANSo once you have these other sort of market forces that are doing some of the things that we needed the government for, it's a point at which you sort of have to look at the existing regulations and say which ones of them are actually sort of serving the best interest of society and which ones can we sort of actually delegate to the market, to the platforms, to the drivers themselves.
SUNDARARAJANAnd, you know, I don't think that anyone is suggesting that we sort of throw out regulations completely. There's certainly a role for city government here and for state government here. It's just that we need to sort of rethink what was developed for a model that is no longer sort of the cutting edge of innovation in this space.
NNAMDIIt just occurs to me, what if a taxi driver says, well, why don't we operate under the same condition as Uber because if the marketplace will force them to keep their cabs clean, to keep their vehicles clean and safe, why wouldn't the same argument apply to us?
SUNDARARAJANYeah. That's a great point because I think when we're rewriting the rules, we should sort of think long term towards an eventuality where I think apart from cities like New York and maybe D.C., maybe Los Angeles, a vast majority of taxi-like service in a few years will be provided almost exclusively through platforms like Uber and Lift and Sidecar.
SUNDARARAJANAnd so the people who have expertise driving in these cities, the taxi drivers, we need to think of a part for them to be able to shift their business away from the traditional model and into these platforms. And this is part of the reason why, you know, I think we need to think very carefully about how much we restrict these ride sharing platforms because eventually what they are going to represent is not just the way in which people get urban transportation, but they're also going to represent the avenue for the existing taxi drivers to sort of transition to a new form of livelihood.
NNAMDIAirbnb is a company that connects people who want to rent our short term space in their home if travelers' looking for a place to stay. It's easy to see why residents with extra space would like to make some extra money and why travelers enjoy homey accommodations. But it's also clear why some neighbors may not like a stream of strangers parading in and out next door.
NNAMDIBrooks, how are cities dealing with the advent of Airbnb?
RAINWATERI mean, once again, cities are really looking at this from multiple angles and we're seeing different regulations come up in different cities and the current regulatory environment is also reacting in tune. New York, we're seeing quite a few issues that have arisen where, you know, anything under 29 days is viewed as someone operating a hotel. So that kind of leads to issues where people are not really able to rent out their space.
RAINWATERThe state attorney general has been trying to have conversations with Airbnb to find out what's happening. And so it's a disincentive at times for people to think about using Airbnb within the city when they do have this excess space that they could rent out. And what's also interesting with the example there is the equity issue, that the average hotel room in New York is $350 so by allowing people to, say, rent a spare room or rent, you know, space on their couch for 20 to $50 a night are able to bring more people into the city.
RAINWATERAnd on the same, you know, a different way to look at it, the city of Portland has joined together with Airbnb to create what they're calling the Sharing City. And in order to do this, they're working through the existing regulatory environment making sure that there's carbon dioxide and fire detectors within the homes that are being rented out.
RAINWATERAlso, making sure that the tax situation is figured out because this is a key one for local governments that if these companies are going to operate within their cities, the taxing system needs to reflect what is happening. And so I think this is going to be continuing to change and what I find fascinating about both car sharing as well as, you know, a company like Airbnb is local governments are actually reacting quite quickly.
RAINWATERA lot of this has been happening in the regulatory environment over the last two or three years and cities are really looking at the existing laws they have, forming commissions, making sure they bring the business community on board and they're having that conversation about how this should move forward and it's exciting to see.
NNAMDIArun, the sharing economy, I was about say -- go ahead.
SUNDARARAJANGo ahead, Kojo.
NNAMDIThe sharing economy is based in the idea of putting existing resources to work rather than investing in new ones. To what extent, Arun, is this a generational issue? Young adults seem to tend to embrace the sharing economy more than their parents do.
SUNDARARAJANI think it's absolutely true. I think it is a generational issue. I think that people who are younger are less used to the existing ways of getting transportation or of finding accommodation and so their much more likely to sort of try new things because they're not used to a particular model. Also, going back to the points that Brook raised, you know, I received news this morning that the New York State attorney general has, in fact, settled with Airbnb.
SUNDARARAJANAnd, you know, so they've, you know, come to an agreement on, like, you know, the subpoena that was issued. And I think that this is good news because it shifts the conversation back to the issues that Brook raised that, you know, these platforms can be good for a city.
SUNDARARAJANYou know, if there is a particular city that rewrites its sort of accommodation and transportation regulations to be welcoming of sharing economy activity, this city is more likely to see sort of like, you know, a greater level of tourism. It's more likely to see a greater level of micro apprenticeship. And so cities that are sort of more embracing early of these sharing economy platforms with the right kind of government oversight of course, are likely to sort of see more rapid economic growth than cities that are trying to sort of preserve the status quo for the vested interests. And as...
NNAMDIWe're going to take a short break...
SUNDARARAJANSure. Just one final point about...
SUNDARARAJAN...coming back to the general issue, I think that, you know, the demographics -- the younger demographics are moving to cities sort of in larger numbers than we've seen historically. And the fact that they are particularly embracing of sharing economy activity means that cities actually sort of need to sit up and take notice and think about this not as the taxis versus ride sharing or hotels versus Airbnb issue. But think of this as sort of laying the foundations for economic growth for their local economy.
NNAMDIWe're going to talk about that in more specific terms when we come back. If you've called, stay on the line. We will get to your call. If you'd like to call, the number's 800-433-8850. Is it fair to have one set of rules for traditional taxis and another for Uber? You can also send email to firstname.lastname@example.org. I'm Kojo Nnamdi.
NNAMDIRegulating the sharing economy, rules for Uber and Airbnb, that's what we're talking about now. Later in the broadcast we'll be talking about whether or not you pay attention to where your fish comes from, about the increasing importance of fish farms. But right now we're talking to Brooks Rainwater, director of City Solutions and Applied Research with the National League of Cities and Arun Sundarajaran -- oops, Sundarara -- why did I know I'd get this wrong at some point, Arun? Arun Sundararajan, who is a professor of information, operations and management sciences at the NYU Stern School of Business.
NNAMDITaking your calls at 800-433-8850. Arun, the challenge for cities is to figure out whether or how to regulate sharing economy businesses to protect public safety and property without squashing the innovation people are happy to see. For something like Airbnb you have said the answer may be neighborhood level or apartment building level rules instead of citywide laws and self regulation.
SUNDARARAJANYes. I think that, you know, as a society we sort of regulate our behavior using a wide variety of collectives. You know, you've got city rules, you've got state rules, you've got federal rules. But beyond that we also have neighborhood associations. We have co-op boards in apartments. And when I think about some of the issues that come up when people start renting their apartments out on Airbnb, for example some buildings may welcome the fact that their tenants can earn additional money, other buildings may not like the changes to the sort of environment that are caused by having to risk coming in and out.
SUNDARARAJANBut to me rather than that being a city-level or a state-level issue, perhaps it's something that the buildings themselves or the neighborhoods themselves can decide. And we may evolve towards a point where some apartment buildings in New York or D.C. are Airbnb friendly. And people who want to sort of live in that kind of environment, gravitate towards them while others may advertise themselves as Airbnb free.
SUNDARARAJANAnd people who want that kind of living experience may gravitate towards them. So I think what we're going to end up with is a wide variety of different kinds of mixed used real estate. And, you know, perhaps rather than the cities imposing stringent regulations on what you can and can't do with the space that you own or the space that you rent, this is something that we should delegate to the neighborhood group or to building groups who are actually affected the most by these choices, who actually bear the consequences of any externalities.
NNAMDI800-433-8850. Where's the balance between unfettered peer-to-peer commerce and protecting the public safety and property rights? What do you think, 800-433-8850? Brooks, you talk to people in cities around the country that are trying to strike this balance between regulation and a thriving sharing economy. How do Minneapolis and St. Paul, the Twin Cities essentially, exemplify the challenges and the range of approaches?
RAINWATERWell, they really do exemplify the challenges. Our president at the National League of Cities Mayor Coleman is the mayor of St. Paul. And the City of St. Paul actually has a pretty stringent regulation on taxis. And within that regulation what they're doing is saying that a specific type of taxi is the kind of taxi that is the car. They make sure that it has a taxi meter.
RAINWATERAnd by looking at it from that perspective, they see Uber and Lift as something different. And so therefore it doesn't fall within their taxicab regulations. And so they've been able to be, you know, used within the city and they've been welcomed within the city. Within the City of Minneapolis, the regulation is actually much broader. And so by it not being as specific as the City of St. Paul, it's actually encompassing Uber and Lift and Sidecar.
RAINWATERAnd so as a result you have, you know, it being legal in one city and not in the other and it's creating some issues, you might say, between going between the cities. And so they've developed a regional council that's actually looking into this issue right now. And city council members on both sides are really trying to figure out how Minneapolis in particular can regulate Lift and other companies so it will work there. But it's really interesting from the perspective of it almost being a microcosm of what's happening throughout the country because here cities that are right next to one another that are looking at it in a completely different way.
NNAMDIBecause I remember when we were there to cover the Republican national convention, I guess it was in 2000 and 8 that we -- the convention was in St. Paul but we stayed in Minneapolis and went back and forth every single day. So I'm sure that's what a lot of people are dealing with. Let's go to the phones. Here is Abi in Washington, D.C. Abi, you're on the air. Go ahead, please.
ABIThank you, Kojo, for giving me a chance. In Washington, there was a hearing held (unintelligible) I forgot the name I guess, she was having a hearing -- Mary Cheh.
NNAMDIOn the council?
ABIYes, council Mary Cheh.
NNAMDIMary Cheh, Ward 3 council member, yes.
ABIYes. In that hearing, I mean, Uber and Lift car all was represented very well, but on the regular taxi part, I haven't seen any representation because, Kojo, the question here in Washington is diverted always. If you remember, when we have (word?) to meter, they present the cab drivers, they hate the meter. Not like that. This time also they are presenting that the cab drivers are opposing the new modern system. No. In fact, Kojo, you are a witness. We vote a new credit card charging system, which is 1,000, $2,000 on our expense and then we paint new paint, we have new cars.
ABIWe are doing what we have been asked to do. But at the same time, we never have a guarantee with our business. We can be fired any time. We can be taken out of business anytime. There's no guarantees. And then the competition between regular taxi drivers and Uber is unfair. All they can do with no insurance and they don't have to obey regulation...
NNAMDIWell, you know, we've discussed that -- Abi, we've discussed that -- Abi...
ABI...you know, how many and this is stressing the cab drivers to make that sure he's doing the right thing. But the Uber site, they are free of any charge. They can do whatever they want (unintelligible) ...
NNAMDIThat may all be true, but I'd like you to listen to me for one minute, Abi. That may all be true, but you heard Arun make the point earlier, and Brooks also made the point earlier, that if you look down the road three to five years, this is how most people will be looking to for transportation. So what do you think about that?
ABIWe wanted to have that, but we want the same standard, Kojo.
NNAMDISo if you would -- you would argue that you should be operating under the same lack of regulation as Uber is at this point.
SUNDARARAJANWell, you know, I think perhaps -- you know, I think that these are valid points, you know, honestly because the -- one of the things that we haven't brought up and that cities should be thinking about carefully is sort of leveling the playing field and thinking about transition plans.
SUNDARARAJANYou know, if existing people who have sort of spent a million dollars or half a million dollars on a taxi medallion and are subject to a particular sort of set of regulations, and they have to compete with people who haven't sort of borne that cost, we really need to be thinking about what's a good sort of path forward so that, you know, people who have the expertise and like -- you know, I know that -- I take New York City cabs every day. And I know that they know the routes better than sort of pretty much anybody else. And there's sort of this -- there's a lot of expertise there.
SUNDARARAJANNow, you know, what a city government can do is sort of alleviate the transition a little, right, sort of make it easier, sort of not keep sort of taxi drivers locked into like, you know, the existing system because they have sort of borne that cost to have sort of subsidized their transition. That might be in -- like, one of the ways in which perhaps the people who are driving taxis may feel that this new competition is less fair. This is sort of like, you know, it's less unfair.
SUNDARARAJANYeah, I would agree and add that -- I mean, we want to support and help taxi cab drivers too because they are small business owners within cities throughout the country. And as Abi said, I mean, the whole medallion system has been put in place and it's quite costly in some cities. So I think what we really need to figure out is what is kind of the best practice within the regulatory environment.
NNAMDIYou're doing research on best practices...
NNAMDI…looking at how cities are coping with the pressure to regulate but also encouraging sharing economy businesses. What are you hearing from cities?
RAINWATERWe're starting to have those conversations more and more. We're actually in the midst of starting some research with the University of Pennsylvania that will look at the best practices within the sharing economy, starting with ride sharing first and then moving into, you know, businesses like Airbnb as well. And the way we're doing this is by reaching out through survey mechanisms to our members directly. And I'll say we have 19,000 cities that are members.
RAINWATERAnd so what we're really hoping to do is have the conversation there and then also our conferences, convene the mayors and city council members, find out what's going on throughout the country and really make sure that, you know, city leaders have the knowledge that they need to make the right choice going forward.
NNAMDIAlmost out of time but, Arun, looking at the future, what role do you think the sharing economy will ultimately play in the national economy as a whole?
SUNDARARAJANI think that it's going to lead to economic growth. I think it's going to be at least a single digit percentage of our economy in the years to come. I see a lot of good coming out of it because, as you said, like, you know, we're using assets more efficiently. We're putting sort of untapped capital and labor to work, which generally increases productivity, which means economic growth. These are potential engines for innovation and entrepreneurship. The person who starts off as a micro entrepreneur on Airbnb or on Etsy or on Lift may then sort of find that they have a taste for entrepreneurship and may go on to start a bigger business.
SUNDARARAJANSo overall, all of the fundamentals are good. And like, you know, I think that -- so this is sort of the future. And so cities that look to sort of embrace it and make it part of their ecosystem are going to see greater levels of local economic growth. And cities that sort of try and preserve the status, go and block it, perhaps will not see as rapid economic growth. So I think it's something -- it's a choice that cities and states need to make. But I think embracing it is the path to economic growth.
NNAMDIArun Sundararajan is a professor of information, operations and management sciences at NYU Stern School of Business. Thank you for joining us.
NNAMDIBrooks Rainwater is director of city solutions and applied research at the National League of Cities. Brooks, thank you for joining us.
NNAMDIGoing to take a short break. When we come back, are you paying attention to where your fish comes from? We'll be discussing the increasing importance of aquaculture. I'm Kojo Nnamdi.
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