No Perfect System

As I wrote earlier, Airbnb did to the hotel industry (on a smaller but not insignificant scale) what Uber has done to the taxi industry. In both cases (hotels and taxis respectively), there were genuine issues with the existing system:

1)      Hotels and taxis were regulated industries which made entry of new players difficult;

2)     Artificial scarcity was maintained in supply to keep prices high;

3)     Taxis would often refuse to go to certain locations, even though that was illegal in most countries. (In others, they would not go by the meter).

Supporters of Uber and Airbnb usually cite these and other reasons to say that the existing industry got what it deserved. But of course, the old system had good reasons why it was regulated, and those checks have been lost in the alternative that has come up, writes Tim Harford in Fifty Things that made the Modern Economy:

“Many countries have rules to protect workers, like guaranteed hours or working conditions or a minimum wage… (and people who work on Uber now have to work) without those protections of a formal job.”

Also lost in the new system are regulations that protect customers:

“Hotels can’t legally refuse you a room if you’re, say, a same-sex couple… (but Airbnb allows for) people to act on their personal prejudices, consciously or otherwise.”

Ok, that’s stating the obvious: it’s impossible to design a perfect system.

But wait, there’s more. Different people have scruples about different things, as Nick Bilton points out in American Kingpin, his book on the underground website Silk Roads that was the Amazon equivalent for drugs, guns, assassins and pretty much everything illegal. As the site originally created for drug sales via the Internet expanded into other illegal areas, here’s how users of the site responded:

“The mellow people who bought and sold weed on the site didn’t want to be associated with the seedy people who bought and sold cocaine. Some of the hard drug dealers didn’t want to be in the company of the right-wing crazies who hawked guns. And some of the gun guys didn’t want to be in the same shopping cart as the scrummy heroin dealers. Round and round it went.”

Or as Bilton paraphrases it, only half tongue-in-cheek:

“Even though all these people were dealing in illicit activities, they each had a moral sense that their particular outlawed product was more just than another.”

Granted, (all) lawmakers are not like drug dealers or arms dealers, but one can see why another reason why framing good regulations is so hard: no two people can agree on what is unacceptable bad v/s bad but tolerable for the greater good…