Elizabeth Renstrom for TIME
By John O. McGinnis
August 10, 2018
IDEAS
John O. McGinnis is a professor of law at Northwestern University.

Progressives are singling out technology companies for new regulations. For instance, in New York, the City Council has just voted to cap the number of ridesharing vehicles for services like Uber and Lyft, and may require that drivers earn a minimum amount. Last month, California imposed costly and complex regulations on the voluntary exchange of data with such services as Facebook and Google. But progressives also argue that inequality is the defining issue of our time, and these regulations hamper these companies’ contributions to reduce such inequality.

Goods and services available at no cost boost equality, because most people can enjoy them. Facebook and Google provide search, maps, and connections that benefit billions of people. Once a consumer pays for an internet connection, they get such services at what an economist would call a marginal cost of zero. And these free services are valuable, as shown by the ever increasing amount of time people spend using them.

To be sure, in return for these benefits, we give up personal data that provide profits to companies like Facebook and Google because they can then sell targeted advertisements. But taking account of the data’s value underscores the equalizing force of the services provided by the tech giants. The wealthier a user is, the more valuable his or her data. Thus, many people of modest means are getting a substantially greater net benefit than the wealthy.

Ridesharing services are not free, but they nevertheless democratize the amenities of transportation, providing a better life to those who are not part of the one percent. The very rich have traditionally enjoyed chauffeurs who are available to give them a quality ride anywhere at moment’s notice. Ridesharing services provide a good approximation of a chauffeur at the touch of an app, even in the rain or in an unfamiliar town. More generally, a defining characteristic of being very wealthy has been having servants at beck and call. The sharing and gig economies create information infrastructures to make providers seamlessly available when the middle class needs them most.

Those providing these innovations gain benefits as well. For instance, ridesharing drivers get advantages that medallion taxis drivers don’t. Since some have few fixed costs, using the app they can make stop and start decisions as they please, which allows them to more easily take care of family or pursue other activities. Economists have estimated that this amenity is worth as much as 40 percent in addition to their dollar earnings.

Airbnb similarly promotes equality because it allows people of modest means to monetize their single greatest asset: their home. In contrast, rich people’s wealth is already monetized, as it is often predominantly in securities. But before Airbnb, it was hard for most people to find a market to rent a spare room or their entire home when they were on vacation.

But new progressive regulation will reduce these benefits. For instance, proposals to treat ridesharing participants as employees would reduce the flexibility that permits the supply of rideshares to expand at a moment’s notice to meet demand. Requiring Uber and Lyft drivers to earn a minimum amount is likely to raise prices, shrinking the service’s benefits to both passengers and drivers. Similarly, restrictions on Airbnb make it much more difficult for people to earn income from their most valuable asset.

Meanwhile, If other jurisdictions follow California’s recent legislation and impose complex and costly regulations on the voluntary exchange of data for services, it will reduce the incentives of companies like Google and Facebook to provide further free goods to the world. Thirty years ago, accessing all the world’s information for free with the click of a mouse was the stuff of science fiction. We cannot predict the innovative free services of tomorrow — but they too are likely dependent on the stream of income that tech companies get from aggregating our data.

Similarly, as the gig and sharing economies expand from ridesharing and room sharing to rent a chef or handyman, they more broadly distribute the personal services that once were the sole province of the rich. But targeting this economy with new regulations reduces further gains for equality.

To be sure, the information technology component of services should not immunize companies from general laws. If Airbnb hosts are discriminating against guests on the basis of race, they should be fined. If Uber is misleading its drivers into renting cars at bad prices, that practice should be prohibited. Facebook and Google, like other companies, should be forced to disclose to consumers exactly the terms to which they are agreeing. But targeting these companies with special regulation helps their competitors and harms not only efficiency, but equality.

But the progressive yen to regulate the information economy ignores an essential truth: information technology helps equalize consumption. We cannot eat the same apple or live in the same house, but we can all benefit from the same information, be it the information on the internet or the network of drivers and short term rental properties that the sharing economy provides. Innovation in information delivery will continue to have important leveling effects if regulation gets out of the way.

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