At the Georgetown Public Policy Review, we focus on tomorrow’s policy issues. In the 2016 Spring Edition, Post-Millennial, we discussed Millennials as entrepreneurs, workers, caregivers, and revolutionaries. Our next project focuses on the transforming global economy. Firms like Uber, Tesla, and Amazon, and their international counterparts, are disrupting the way we work, commute, produce, and consume, with profound socio-economic consequences. How are they disrupting our lives? Are these changes good for us? What can we, as policy makers, do to make Disruption work?
The Gig Economy
Owning a car, hailing a taxi, or staying in a hotel may all become antiquated notions. Increased competition is driving prices in these sectors down, benefiting consumers. The preferred method of conducting business, through a smartphone app, has also increased consumer convenience. Uber’s ride-sharing service has upended the taxi industry by allowing nearly anyone with a car to become a driver. Through this, Uber has also created a new employment model: a per-job system founded on irregular wages and a contingent workforce. This is the Gig Economy. What started with rides grew to food delivery (Postmates), odd-jobs (Favor), and property rentals (Airbnb). These changes represent major shifts in formerly stagnant industries.
Autonomous Cars and Drones
Meanwhile, new firms are upending other parts of the transportation sector, with self-driving cars and trucks, the Hyperloop concept, and commercial drones. Tesla currently leads the market in semi-autonomous cars, and the first self-driving trucks may hit the road in 2020, automating the arteries of the American economy. With more autonomous cars, the roads will be safer than ever before. The Hyperloop, currently in early testing, may take us across the country faster than plane travel, increasing mobility and reducing intercity commutes. With automated drone deliveries in the pipeline, Amazon plans to compete with FedEx and UPS in local package delivery. As both Presidential candidates promise massive investments in infrastructure, these technologies may play prominent roles.
Manufacturing and Entrepreneurship
While the declining industrial sector is used as a political talking point, 3D printers are enabling startups to take production into their own hands. Business owners, now able to manufacture goods at a fraction of the cost, may limit out-sourcing of jobs. Entrepreneurship as a career choice also received a boost through the invention of crowdsourcing networks like Kickstarter. Rather than courting wealthy investors, inventors can pitch their ideas directly to consumers. These two innovations have lowered the largest barriers to entry for some new businesses while allowing consumers more choices.
These changes will have profound consequences on our lives and policies. Though these changes grant us convenience, safety and greater consumer choices, we need to take a look at their side-effects. Disruptors, in pushing convenience and efficiency, create new challenges such as job insecurity, inequality, privacy violations, ethical dilemmas, and a maze of policy and regulatory conundrums.
There are 3.5 million truck drivers in the United States, with truck driving the most common job in 28 states. A mechanized shipping industry could put these jobs at risk, although experts disagree on when this will happen. On a smaller scale, drone delivery may also threaten many FedEx, UPS, and DHL drivers’ jobs (800,000). Employment within the booming ride-sharing industry is also at risk: Uber’s plan to automate rides will threaten the livelihoods of both taxi drivers (234,000) and their own drivers (160,000). The firm is already testing automated rides in Pittsburgh.
The resurgence of American manufacturing will not create enough jobs to recoup the losses outlined above. It is also very unlikely that production growth in Silicon Valley will revive Rust Belt towns ravaged by closing factories. As entry-level jobs begin to require more advanced skills, those left behind by globalization will keep living in socio-economic limbo.
The Gig economy is accelerating the trend towards precarious employment. While delivery and ride-sharing jobs have a low barrier of entry, they are rarely as secure as full-time work. Disrupters rely on contingent workers, meaning that they don’t provide sick leave or health insurance to their employees. Lawsuits about this are cropping up in nearly every state, resulting in large settlements, as gig-based firms refuse to change the employment model that brought them success. With few of these companies making a profit, financial stability depends on irregular pay and few benefits.
Early research has shown that home-renting businesses like Airbnb may contribute to higher rents in cities worldwide. In San Francisco, property values exploded with the growth of new Silicon Valley companies. While Airbnb’s ties to rent increases is tenuous, the success of Silicon Valley’s tech industry and similar start-ups created a new upper class of tech workers, worsening urban inequality. As they move to the Bay Area, higher prices push previous residents out of their homes and small businesses out of their properties. This rapid gentrification has led to protests, such as those against the infamous “Google Buses.”
Not every consequence of Disruption is purely economic. For example, some neighborhoods in tourist cities have seen Airbnb properties replace most residents. The lack of regulatory oversight on Airbnb usually levied on hotels gives the firm free reign to expand into residential areas. Barcelona’s local government is cracking down on such rentals, claiming that they empty neighborhoods and strip them of the city’s culture. This is not a new problem: many scenic towns are filled with empty summer homes. Airbnb has, however, accelerated the trend, according to the affected neighborhoods’ residents.
Where does policy come in?
Policy makers must solve these problems: current policies aren’t working. In fact, the aforementioned changes render some regulations hopelessly out of date, from privacy protections to transportation law.
For example, while local governments allow tests for self-driving cars, there is no national blueprint for the legal complexities of driverless cars on the road. Who is liable for traffic accidents? How should we program cars to act in situations in which loss of life is inevitable?
Although the Federal Aviation Administration allows limited use of commercial drones, it has no answer to worries about living under internet-connected and camera-equipped drones. Consumer drones have already introduced safety and ethical dilemmas to tightly packed urban areas. There are also technical barriers to implementing self-driving cars, drones, and flexible entrepreneurship—mainly the high cost of internet access, the backbone of innovation in the United States.
There are essentially no safeguards in place for the disrupted. There’s no “safety net” for those affected. Without intervention, the pace of innovation will improve our lives, but may also put us at risk by upending our concepts of employment and property ownership. Policymakers need to determine which changes they should foster, curb, or stop. We must outline the pros and cons of disruption to help those impacted by the changes and to ensure equitable economic growth.
How do we help?
How do we respond to Disruption? What policies would allow new industries to flourish without hurting middle class and low-income workers? This is where you come in. For the 2017 Spring Edition, we want papers that discuss the causes and effects of disruption and policy solutions that address its short and long term effects. This article provides only a sample of the disruptions currently facing the American economy, but we welcome papers on other disrupting forces both in the US and abroad. Some examples for topics include, environmental disruption, educational barriers in acquiring entry-level skills, or racism from Airbnb landlords or other diversity issues at start-ups. Send your papers to email@example.com by January 2nd, 2017.