Government Officials to Pick Lodging Industry Winners and Losers?

A recent report from Lansing-based MIRS News indicated that state tourism officials are closely monitoring the travel accommodations website Airbnb. The site brings together travelers looking for a place to stay and property owners willing to rent a room, apartment or house for a few days. These peer-to-peer exchanges are often compared to Uber’s ride-sharing service.

Lodging industry lobbyists and some government economic development officials are publicly referring to Airbnb as a “threat.” This suggests that citizens should be on guard against Lansing lawmakers passing bipartisan protectionist laws that regulate new and rising services out of business.

In the MIRS report, an industry lobbyist and several local economic development officials were quoted saying that Airbnb’s lodging providers have unfair advantages when it comes to taxes, fees and other matters. One official called private home owners free riders. They also shared speculations about potential security shortcomings at Airbnb lodgings.

The report follows an event earlier this year sponsored by the state agency in charge of marketing subsidies for the lodging industry, which also referred to Airbnb in unflattering terms.

These examples of economic development officials siding with lodging industry incumbents are curious: More choices and potentially lower prices are what drive the very thing their agencies claim to be about, which is to encourage more out-of-state visitors to spend money in Michigan.

Taken together, it starts to look like a classic example of “agency capture.” That’s what happens when government officials charged with regulating an industry — or in this case, with helping to grow it — place what’s best for the largest players in that industry ahead of what best serves the people and state as a whole.

Here are several examples from the MIRS article of the complaints that industry officials and their allies raise about Airbnb:

“We can safely say they’re not all paying those taxes.” This was in reference to government mandates that impose a host of fees and taxes for the privilege of operating a hotel or motel.

Just because free people choose to peacefully interact in a manner that doesn’t fall under archaic tax regimes doesn’t make their transactions unfair. Real economic growth necessarily results in a degree of “creative destruction,” as more expensive and less satisfying ways of meeting human needs give way to less expensive and more satisfying ones. Saving the buggy whip makers would have been a poor reason to prohibit early automobiles.

“Owners of private homes are kind of getting a free ride on the backs of the lodging facilities that are abiding by the public act.”

The “public act” seems to refer a law that empowers local bureaucracies to levy a promotion “assessment” or property tax on traditional lodging owners. Without this additional burden on conventional lodging facilities, there would be no free ride for the peer-to-peer providers — or for any kind of provider.

“What assurance do you have that at 2, 3 o’clock in the morning, that that deadbolt’s not going to start turning from the outside of the room?” This was from the state lodging industry’s top lobbyist.

Airbnb does not force anyone to take undue risks. The website — which says it has 2 million rental opportunities in 190 countries and has served 60 million guests — uses the kind of user feedback tools that are common in the growing area of peer-to-peer exchange sites that were popularized by outfits such as eBay, Amazon and the like, starting in the 1990s.

Millions of people are familiar with and comfortable using these reputation-dependent institutions because they quickly root out bad actors. See Airbnb’s “trust” page here.

Business history is littered with examples of politically well-connected industries engaging in “a conspiracy against the public, or in some contrivance to raise prices,” as the wise Adam Smith put it back in 1776.

We can only hope that Michigan’s politicians understand that the has-been locations in this world are the ones where politicians let themselves be used by industry players to protect them from the future.