Can the shared economy contribute to inclusive growth?

Perhaps the most pervasive of the new economic and business models in recent years is the shared or sharing economy. It offers a revolutionary new concept: access over ownership. What is important is not what you own, but what you have access to it.

On the face if it, this presents a democratisation of the economy: we are less concerned with who owns production than who has access to what is produced. But does this truly present a new way for inclusive economic growth? Can the benefits of a shared economy be shared by all?

The shared economy is an umbrella term describing the shared consumption of goods and services through online platforms. It is also known as shareconomy, collaborative consumption or peer economy.

Harvard Professor Lawrence Lessig has been credited as the first person to coin the term ‘sharing economy’ in 2008 when describing transactions for lending and borrowing rather than purchase and ownership. In his 2009 book, Remix, he described the increasing role of the ‘hybrid economy’ – a mix of the sharing and commercial economy. He defined this as ‘either a commercial entity that aims to leverage value from a sharing economy’ or ‘a sharing economy that builds upon a commercial entity to better supports its sharing aims.’

Lisa Gansky, author of The Mesh: Why the Future of Business is Sharing, describes the shared economy in terms of access over ownership:

‘Technology like the web, social networks, mobile devices and peer-to-peer platforms like those for crowdfunding, allow us to locate each other as well as things we need in our lives. Most of the collaborative businesses we have seen thus far arise because people and things such as cars, homes, factories, offices, food and intellectual property, are easily networked and now, via technology, are able to be made visible and therefore available. This technology allows us to access rather than own goods, services and talent.’

The shared economy is booming. Consider this from PricewaterhouseCoopers: Airbnb averages 425,000 guests per night, totalling more than 155 million guest stays annually. This is nearly 22 per cent more than Hilton Worldwide, which served 127 million guests in 2014. Uber operates in more than 250 cities worldwide and as of February 2015 was valued at US$41.2 billion. Across five key sharing sectors—travel, car sharing, finance, staffing, and music and video streaming—there is the potential to increase global revenues from roughly US$15 billion today to around US$335 billion by 2025.

While it’s clear the shared economy represents a major disruption to the way business is done, these changes are also the subject of important critiques. Not only are these businesses avoiding tax and regulation, they are contributing to an undermining of workers’ rights, especially among the most marginal and vulnerable. Indeed, some have questioned the appropriateness of referring to this as a ‘shared’ economy, when it is mostly about reducing transaction and search costs. Witness the creation of TaskRabbit in which people bid to perform other people’s odd jobs. The benefits of a shared economy, it seems, are not shared by all.

On the regulatory front, The Economist is correct in claiming new forms of regulation are required to respond to the nature of shared economy disruptors: ‘People who rent out rooms should pay tax, of course, but they should not be regulated like a Ritz-Carlton hotel. The lighter rules that typically govern bed-and-breakfasts are more than adequate.’ I agree with Steven Strauss who argues there is a need for a ‘housecleaning’ of laws, policies and regulations to keep up to date with innovative change and ensure customers, society and workers are properly protected.

Not everyone is concerned with the impact of the shared economy on employment. PricewaterhouseCoopers argue the problems regarding the exploitation of workers will be ‘ironed out’.

It is true that these models are ‘changing the nature of how we work’. Indeed, a defining characteristic of many shared economy business models is that companies consider workers independent contractors, not employees. This is an important legal distinction that transfers many responsibilities and risks from the company to the worker and the consumer.

Maureen Conway from the Aspen Institute’s Economic Opportunities Program identifies the consequences of the shared economy on employment: more and more people are working harder for less and less.

She concludes: ‘What we need is a sharing economy in which working people share in the wealth that their labour creates. Unfortunately, this version of a sharing economy does not promise that’.

Inclusive growth, says the OECD, creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society. It applies a multi-dimensional approach to growth, which goes beyond income and considers health, housing and a range of wellbeing indicators. The World Bank says inclusive growth allows people to contribute to and benefit from economic growth. The pace and pattern of growth is a major factor in this.

There is no doubt the shared economy can drive growth. However, to-date, this growth appears to be benefiting a select few. It could be argued that Uber has reduced the cost of transport for all, but are all the social costs being considered?

I am not anti-Uber. I am questioning the extent to which Uber will contribute to inclusive growth. I am optimistic the shared economy can contribute to inclusive growth. The boundaries this innovation is pushing will lead to even more creative responses to the complex economic and social conditions we face.

One comment

  1. Hi Simon, you made some interesting points about the value of the sharing economy and how far it will go. Fundamentally, the sharing economy is about reducing waste, switching on underutilised assets and then sharing the wealth around. It’ll be interesting to see how Uber plays out and how much its drivers will truly stand to benefit in the long run. We’re now starting to see how drivers are struggling to deal with the hidden costs of driving. At http://www.nabable.com.au, we’re looking at turning unused assets (furniture) into cashflow. Furniture’s great for sharing because quality items last a long time and hold value well (or potentially even appreciate). Earning an income stream on it is really the icing on the cake!

    Thanks for sharing the insights Simon!

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