No room for free enterprise

Why ordinary entrepreneurs, giving out rooms or spare cars on rent, may face a rocky path fighting American regulators.

By David E Gumpert

Can the world’s leading proponent of private enterprise, the United States, handle the latest version of independent business being coughed up by the sharing economy? Using the power of the Internet, the so-called sharing economy allows individuals to rent out rooms in their homes or apartments on a per-night basis, and to offer their cars as taxi services.

Around the world, these most private enterprises are taking hold in a big way, giving ordinary individuals the opportunity to turn an under utilized bedroom or car into an income producer. Already, Airbnb, the room-rental service, and Uber, the car rental service, are each being valued at an astounding $10 billion by private investors.

But while the trend is catching on in much of the world—with just a few notable exceptions, like Amsterdam, which is challenging Airbnb—the US appears to be having more difficulty than any other country. Established regulated businesses like hotels and taxi services are pressurizing regulators to go after ordinary-people-turned-entrepreneurs. In a number of cities, the battle bet-ween private and regulated enterprise is on, with the outcome far from certain.

New York City is challenging the legality of the rooming services, the largest of which is Airbnb. The city is seeking detailed information on people who are renting out their rooms, in an effort to find violators of a recent city law that prohibits the renting of rooms for less than 30 days at a time.

Another big city, Miami, has banned the taxi services, led by Uber. Battles on both fronts are shaping up in other cities.
If another similar battle that has gone on over the previous eight years is any indication, these new private rooming and auto services are in for a long and tough legal grind in North America.

That other similar battle has been over the private distribution of food, outside the public network of licensed supermarkets and box stores that control most food sales.

Small American farms around the US have been fighting an ever-more-intense battle with the state and federal regulators over their right to distribute food privately from farms, directly to consumers, and outside the purview of regulators.

The battle started over the sale of raw milk, but has extended to selling other foods, like meat, eggs, and fermented products. Regulators have filed legal actions to halt these sales, alleging violation not only of dairy laws, but retail and food handling laws in general. They want farmers to install expensive facilities, like new buildings with bathrooms, apart from farmhouses, to qualify for licenses to meet the requirements for serving the general public.

Just as taxis and hotels have pushed for regulation of the private transport and rooming businesses, so has it been in the food arena. Large corporate food producers want small farms to meet the same regulations the corporations must meet. A number of Ame-rican cases have wended their way through the courts, with mixed results.

For example, in Minnesota, prosecutors twice charged farmer Alvin Schlangen with criminal misdemeanors for selling a variety of foods directly to members of a private food club he organized. In a 2012 jury trial, he was acquitted of all charges. But in a second trial last year, in a different locale, he was convicted of violating retail and dairy laws, though the judge let him go with just a small fine.

In the state of Wisconsin, state prosecutors last year put farmer Vernon Hershberger on trial for similar criminal charges as Schlangen. A jury acquitted him of all the licensing charges—indeed, a few of the dozen jurors were so impressed with his farming practices that after the trial they became members of the food club he had organized.

In another case, the state of Maine filed a suit against a farmer, Dan Brown, who runs a two-cow farm, for failure to have a food seller’s license or a dairy permit. One of his arguments was that he lives in a town that passed an ordinance in 2011 that allows small farms to sell food directly to consumers, without having to obey state licensing regulations.

Last year, a state judge ruled against Brown, saying he needed to have the licenses. But earlier this year, the Maine Supreme Court agreed to review the case. In a hearing in May, six justices closely questioned lawyers on both sides of the case, suggesting possible disagreements among the justices about the case. A ruling is due in a few months.

As the food cases suggest, there could be a fairly rocky road ahead for the auto and room rental enterprises. The precedent set in the US could go a long way toward determining what happens in other countries. After all, if the world center of free enterprise can’t tolerate this new form of free enterprise, other countries may take a closer look than they have been inclined to do thus far.

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