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Blogs review: The sharing economy hype

As sharing economy companies become valued in the billions, grand claims are being made for the future of these new providers. But the question remains open as to whether the success of these companies, which often relies on lower standard of regulatory oversight and taxes, are a net plus for the economy as a whole.

By: Date: June 11, 2014 Topic: Innovation & Competition Policy

What’s at stake: As sharing economy companies become valued in the billions, grand claims are being made for the future of these new providers. But the question remains open as to whether the success of these companies, which often relies on lower standard of regulatory oversight and taxes, are a net plus for the economy as a whole.

Rents, regulations and the sharing economy

Dean Baker writes that the “sharing economy” – typified by companies like Airbnb or Uber, both of which now have market capitalizations in the billions – is the latest fashion craze among business writers. Although these companies facilitate the use of underutilized resources, the reality is that this new business model is largely based on evading regulations and breaking the law.

Dean Baker writes that insofar as Airbnb is allowing people to evade taxes and regulations, the company is not a net plus to the economy and society – it is simply facilitating a bunch of rip-offs. Others in the economy will lose by bearing an additional tax burden. If these services are still viable when operating on a level playing field they will be providing real value to the economy. As it stands, they are hugely rewarding a small number of people for finding a creative way to cheat the system.

Ashok Rao writes that it’s fair to argue that perhaps the new era sharing services harm the old guard unfairly as they are beholden to a higher standard of regulatory oversight. But Baker’s column then should have been militating against the many useless regulations that bring about a need for this sort of service in the first place. It is unfair to suggest that these services are not as safe as the traditional ones. Consumers would not be using the wildly popular sites apps such as Uber and Airbnb is they were repeatedly unsafe.

Mark Thoma agrees with Dean Baker about the level playing field, but suggests that it may serve as a catalyst for changing regulations that “were originally designed to serve narrow interests and/or have outlived their usefulness”?

Cullen Roche writes that the growth of these businesses is just a sign of demand for better services because many of the businesses that currently provide those services aren’t providing what people expect. And so what we’ve seen is growth in competition because the competitors are simply providing a superior product that delivers the consumer a better overall experience. Enrique Dans writes that the paradox in all this is that the traditional players in these sectors have undervalued the competition. Hotels think that Airbnb is a cheap alternative for backpackers, imagining that the accommodations on offer are pigsties. Taxi drivers are fearful of Uber, believing that it only attracts drivers with criminal records and worn-out old bangers. The paradox of the sharing economy is that in many cases, the service on offer is better than that it is substituting. What’s more, the businesses suffering the disruption have no idea what’s going on.

New work opportunities in a depressed economy

Ashok Rao writes that it’s really bad economics to assume that these services don’t increase taxes. Even if no direct taxes are paid (and despite what the article would suggest, this is plain false) it gives a lot more spending power to those likely to spend it, which, through the multiplier, is a key driver of local taxes in the urban areas where these services thrive. The real value comes not just from convenience to the customer, but giving poorer people an easy way to supplement their income.

Fahrad Manjoo writes that rather than simply automate workers out of their jobs, technology might create new labor opportunities for people who haven’t acquired formal credentials or skills in an economy where low- and medium-skilled workers face a bleak outlook. Like the ride-sharing service Uber, Instacart – a company that allows customers to order their staples online and having them show up at their door a short while later – creates work by connecting affluent customers who have more money than time with part-time workers who have the opposite problem — lots of time, not enough money. But unlike ride-sharing or apartment rental services, Instacart isn’t intruding upon a regulated industry, and its service poses little risk to its customers’ health or property, so it faces few of the complications that have dogged other sharing companies.

Susie Cagle writes that the sharing economy’s success is inextricably tied to the economic recession. Across the U.S., high costs of living are driving more of the employed toward “side hustles,” i.e. unprotected freelance work, the kind fostered by the sharing economy.

From c2c to b2b

Ben Schiller writes that so far, the sharing economy has mostly been about consumers, but the opportunity for businesses is at least as large. While individuals can share their houses, cars, tools and parking spaces, companies also have valuable assets that might be useful to someone and could generate some extra cash. One company might not need a van for a week, so a manager tells the rest of the community. Another might have received an extra order, so rents the van. One side gets rental income, the other takes care of business without heavy investment.

The Guardian writes that what has the potential to be truly transformative is less the technology than the culture that it both facilitates and on which it relies. Passengers and drivers are encouraged to rate one another, a system of peer review that puts mutual trust at the heart of the system in a way that reduces the importance of a rule-based culture while – by fostering relationships between individuals – enhancing social capital.

 


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