Maryland’s battle against Uber, Airbnb and Turo is battle against innovation
Originally published in the Baltimore Business Journal
What do Uber, Airbnb, and Turo have in common?
The three are pioneers in the so-called “sharing economy,” producing technology to help some people share their homes and cars in return for payment and other people to use those cars and homes for cheap, convenient housing and transportation. This revolutionary technology has improved people’s lives and grown the economy, yet the state of Maryland wants to obstruct it with regulations.
Over the years, Uber and Airbnb have fought multi-front battles to stay in Maryland. State legislators this year passed Senate Bill 743, making Maryland one of the first states to regulate peer-to-peer car sharing.
Founded in 2009, Turo is a car sharing smart phone app that connects people who need a car to people who have cars they are willing to rent out for short-term use. Customers use the app to pick a specific car, which comes with insurance, and then arrange a spot to pick it up.There are nearly 60,000 registered Turo users in Maryland and five million around the world. The average Turo customer pays just $45 a day to rent a car.
Turo, like Uber and Airbnb, is an example of free-market innovation that is efficient in part because it operates in an unregulated market: there are no barriers to entry, there are mutual exchanges of information, and the price of car rentals is set by the owners based on supply and demand.
Car sharing is a win-win for both consumers and suppliers. Turo rentals are around 35 percent cheaper than from traditional rentals as there are no leasing offices or maintenance costs. Car owners can earn an average of $500 a month from participating in Turo.
Around the country, traditional rental companies such as Enterprise Rent-A-Car are now waging war against Turo and the people who use it. They spent over $1.4 million in 2017 on lobbying for bills to restrict the operation of car-sharing startups or to impose regulations and taxes on their services.
From a business standpoint, this is understandable. After all, the explosion of rental services demonstrate that some customers were unhappy with the traditional rental services. Modernization in the industry was long overdue — people are still forced to wait in long lines at the counters and fill out forms after forms in order to rent some mediocre cars.
This is why Maryland legislators are mistaken in believing that regulating away the competition is a solution to the fast-changing reality.
If politicians elect to shield traditional rental companies from competition, the rental companies will continue to offer poor service at inflated prices. Historically, rental companies have enjoyed a cozy relationship with the government, including receiving several tax benefits.
In Maryland, the rental companies save more in sales tax exemptions than consumers pay in rental car taxes.
Such corporate welfare and political protectionism has a long history in Maryland, and it’s now expanding to the sharing economy.
In 2017, Uber questioned the fairness of Maryland’s regulation for screening its drivers and claimed that the same disqualified drivers would have been able to work in Virginia or Washington, D.C. Currently, the Baltimore City Council is considering a bill that would propose regulations on Airbnb to protect the hotel industry.
Among other things, Senate Bill 743 mandates a sales tax of up to 11.5 percent on car sharing services. It also stipulates that p2p car sharing companies operating at airports be subjected to airport fees. These new regulations add to other regulations and policies that make Maryland an unattractive state to start a business. With Maryland’s corporate tax rates at 8.25 percent, compared to Virginia at just 6 percent, there is simply no room to further penalize companies that are trying to enter Maryland.
Despite Maryland’s attempt to become a tech-friendly state by providing subsidies to Amazon and biotech companies, Senate Bill 743 is a clear indication that Maryland legislators simply do not understand what it takes to push modernization.
Instead of imposing onerous regulations that will choke innovation, kill competition, and limit consumer choice, the state should consider loosening the laws to end the monopolistic practices that the traditional rental companies have enjoyed for years. This would encourage the rental companies to invest in clever solutions to win over the customers in the new digital age.
Regardless of traditional companies’ use of political and bureaucratic muscle to fight off competitors, markets will always choose a better option. Until Maryland accepts this, the state will always be one step behind others that are embracing change and welcoming innovation.
Carol Park is a Senior Policy Analyst at the Maryland Public Policy Institute.