Issue Overview: The sharing economy
TOP: Uber taxi app in Madrid, Spain. Photo by Pablo Blasquez MIDDLE: RFS 1099 Report, Bureau of Labor Statistics. BOTTOM: RFS 1099 Report, U.S. Census Bureau
“The sharing economy” is a term that is meant to warm hearts. Think of it as a claim that while grubbier businesspeople sell, buy and rent, the ones in the sharing economy work together, build trust and make things easier for everyone. Or so they say.
Sharing-economy companies like Uber, Airbnb and Homejoy claim they give everyday people the chance to find extra work, or to make money from things that would otherwise go unused — such as an extra family car or an empty room in their house. They say they make products and services available to customers both cheaply and easily, and free of the burdens of ownership. Thanks to them, the companies say, customers and anyone with goods or services to sell can now easily find each other. This is called a peer-to-peer transaction.
Fans of the sharing economy say it brings social benefits, like community building and less economic inequality. On the other hand, skeptics say it is more likely to lower wages, raise housing costs, undermine health and safety rules and expose women to harassment and assault. A 2015 Harvard Business Review headline had this to say: “The Sharing Economy Isn’t About Sharing at All.”
The Situation
Investors have poured money into sharing-economy companies despite little evidence of progress toward profits. In 2014, investments totaled $4.1 billion, while in 2015 they rose to $17.9 billion. Uber, a company that connects people who need a ride with people who have a car, raised $1 billion in July 2015 based on the idea that the company was worth $50 billion — a market value equal to that of Target, the giant U.S. retail chain. By December, that valuation was up to $62.5 billion. In June 2016, Airbnb, which helps people rent out their homes to short-term visitors, began a new round of fundraising at a valuation of $30 billion.The sharing-economy companies have faced legal challenges. These have ranged from a New York lawsuit that accuses Uber of trying to take over the ride-hailing industry to a San Francisco law aimed at preventing illegals rentals, which Airbnb is challenging in court. Uber has settled suits over the legality of its drivers, who do not have cab licenses, in both Massachusetts and California. In New York, it has agreed to work with a union to form a driver's guild, or a formal association for all the drivers. In France, Uber has faced everything from violent protests to fines imposed on its executives by a judge. In a different kind of setback, Uber sold its China operations in July to rival Didi Chuxing. The sale was seen as a way to end an expensive price war with the Chinese ride-hailing company, which has been trying to lure Chinese riders by charging less than Uber.
Mayors of major cities from New York to Seoul have joined together to produce a common set of rules and regulations. Their hope is that clear and uniform laws will give them greater leverage in confrontations with the big sharing-economy companies.
Meanwhile, new companies have started up in a range of smaller niches. For instance, dogs can now share homes too via DogVacay, which has 25,000 pet sitters on its platform.
The Background
The notion that sharing constitutes a distinct economy has been emerging at least since publication of a 1978 academic paper about car sharing called “Community Structure and Collaborative Consumption.” So what is new about today's situation? The answer is smartphones.Today’s sharing economy got its start in 2008, when Apple introduced its App Store. Suddenly, in just minutes it was easy to summon someone who wanted to work. TaskRabbit, also founded that year, became one of the earliest sharing-economy companies, connecting people looking for work with others looking to avoid chores. The task might be something unpleasant like cleaning dead fish out of a tank, or simply something someone did not have the time or expertise to handle.
Smartphones make it easier than ever for companies to manage a workforce using sophisticated mapping, logistics and communications software. They also make it easier for companies to monitor the performance of workers through rating systems.
Expansion in the sharing economy has also been aided by other new technological developments, like cloud computing, which allows vast amounts of data to be stored online. Growth has also been stimulated by economic circumstances as well. Notably, more people are looking for work these days than was the case before the 2009 financial crisis.
The Argument
Critics say the sharing economy creates employee-serfs who go without benefits like health insurance and job security. They also claim it aggravates economic inequality. In big cities, for example, apartments used for sharing become unavailable to long-term renters, worsening housing shortages and driving up rents. Competitors like hotel and taxi operators argue that large companies use their wealth to subsidize costs, giving them an unfair advantage.On the flip side, sharing-economy companies make it easier for poorly paid workers to supplement their incomes. Sharing also offers an escape from regimented office life and fixed working hours. On a larger scale, the sharing economy allows time and resources to be put to better use: Why build a new hotel when people have rooms at home to spare?
As sharing-economy companies adjust to rules, they become more like other businesses. For example, Houston now makes Uber drivers pass a background check and provide access for the disabled. However, deals like Uber's merger of its China operations with Didi raise the question of whether one feature of the economy of the future might be a range of sharing monopolies. A few powerful companies might end up dominating their fields, making the notion of "sharing" that much less convincing. ]]>