Tuesday, June 24, 2014

The $haring eCONomy

The sharing economy can be considered as both a response, and a possible solution, to rising inequality. The distribution of ownership of assets may be unequal. But the distribution of access can be made more equal. It also allows for new employment opportunities in the form of the micro-entrepreneur. Your Uber driver. Your Airbnb host. Your TaskRabbit handyman. All products of a new economic paradigm.

There is emerging evidence of its positive economic impact. In a global study, Airbnb found that one-half of hosts were of low to moderate income and that hosting enabled them to earn sufficient money to stay in their own homes. In San Francisco, Airbnb guests stayed for approximately 2 days more than hotel guests and spent 25 per cent more on their trip, much of it in areas not typically frequented by tourists. Uber drivers talk about putting themselves through higher education or saving to start a business of their own. In the future, a city full of such drivers might eliminate the need for cars entirely. Abandoned car lots could be turned into much-needed affordable housing or open space in over-populated cities.

In addition, and perhaps more importantly, the sharing economy builds social capital. In an era of growing individualism, these companies are bringing people closer together again, driven by values such as collaboration, trust, empowerment and community.* Companies like Airbnb and Uber have created a platform based on these values. Feedback on performance creates transparency and accountability.** Ties are formed between previously unknown individuals. Consumers are confident enough to enter into financial transactions with people that they may never even meet.

In doing so, traditional marketplaces and ways of thinking are disrupted. This is music to the ears of the "Millennial" generation - those that think power is concentrated in the hands of the few, that existing companies cannot be trusted, who look for job opportunities that may pay less but are rooted in social justice. 

But let's be clear that what we are seeing is the growth of a new type of "big business", based on renting, not sharing. In a recent round of fundraising, Uber secured $1.2 billion of new capital, valuing it at around $17 billion. Power is shifting to those that can harness new marketplaces. This includes existing players. In 2013, Avis Budget, one of the largest car rental firms, bought Zipcar, a car-sharing company. In addition, one-half of Airbnb hosts are not of low to moderate income. These are not the people who have been negatively affected by rising inequality.

Meanwhile, the emergence of the micro-entrepreneur reflects the concurrent increase in young people ill-equipped to join the mainstream workforce. If you are a high-school drop out, your chance of being employed is at its lowest level since records began (in 1970). The likelihood that you are out of the workforce altogether is at its highest level for over a decade.  So the migration to sharing-economy employment makes sense. But employees of such firms do not have access to the standard benefit structure offered by mainstream employers, such as healthcare, pensions and human capital investment. This is designed to improve the well-being and productivity of the workforce, producing private and social gains. In that respect at least, sharing is not caring.

* For a thoughtful discussion of the origins of sharing norms, see Deaton (2013) on hunter-gatherer societies. At that time, individuals had no way of storing leftovers from a hunt. Instead, they shared their spoils with their neighbours, in the hope that next month, their neighbours would reciprocate. "Our current deep-seated concerns with fairness, as well as our outrage when our norms of fairness are violated, are quite possibly rooted in the absence of storage options for prehistoric hunters" (pp76).

** Accountability is a big thing. Uber provides credits almost instantly if something goes wrong with your journey. Airbnb promises to cover any damage caused by unruly guests and guarantees alternative accommodation if you turn up to a castle and it turns out to be a caravan.

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