The Grey Economy:

This week air&b, the home rental service, was in the news on several fronts. First because  Chesky and Gebbia, founders of this fast growing Goliath  landed on Forbes list of billionaires, each worth $1.9 billion. Second because of a mia culpa by senior management that  competition with the established hospitality industry was fair and reasonable, and third, and by far the most controversial, that the site was neutral in the thorny matter of tax evasion. (As required by law it reports rental revenue to the IRS, and soon to be the CRA)

According to published data air&b now has over a million listings in 340,000 cities in 190 countries of the world. The average length of stay is 4.5 nights and a low estimate of rental charges at $125/night would place homeowner revenue in hundreds of billions of dollars.

The company operates in what is known as the grey economy. Grey in the sense that it does conform to the norm and therefore is neither black nor white. A more accurate description would be a system that allows participants to work at their own speed, while maximizing convenience,  and minimizing costs for their customers. As an aside it might also minimize taxes for both parties.

People who work in the Grey Economy are deemed to be independent contractors (self-employed) and represent the fastest growing part of the economy in many industrialized countries including North America. Because so much of this activity goes unreported, it can skew government  unemployment  and income figures so they appear far worse than they really are.

We hear about this economy every day with new entrants such as Uber ( taxi service) and Handy Cleaners growing at warp speed. But it is the one we do not hear about that maybe growing the fastest, namely the business of child care or extended  family care. As more women stay in the workforce after child-bearing, these vital services for families with two working parents maybe becoming the largest employer of all.

The Grey Economy gives rise to a dichotomy between believers and non believers an, us and them,  situation, similar to the governors and the governed. In this discussion  there are no right answers other than a utopian situation where everyone is equal and pays their own way.

Quite obviously a growing economy where new participants pay no taxes is not a ‘good thing’. Likewise over regulation will stifle innovation and lead to  inefficient uses of capital, and thus lower everyone’s standard of living.

I suggest what is needed is accommodation, a much used, and little understood practice, that has gone missing in the world of ‘me now’

Rather than hide their faces in the sand, and fear monger, traditional services should try to become more competitive and heaven forbid, lower prices, with better service. (put the customer first)

Purveyors of the grey economy might also benefit from a less dogmatic approach to the regulators and taxing authorities. Surely this is a case of the proverbial half a loaf being superior to no loaf at all.

As for the regulators it will require a leap of faith to wave goodbye to a train that has already left the station

Chances are that, as in the case of the three different forms of taxi service in greater London, the various forms of service can coexist without the heavy hand of government. An why not day care and other social services?

It surely would be a great shame if innovation made  possible by the digital age is stifled for no good reason other than fear of the future.

 

 

 

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