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The RSA's Jonathan Schifferes on the question of profitability in the sharing economy

Sharing is popular again. It’s been 25 years since Harry Enfield mocked 1980s greed and individualism as his Loadsamoney character – a cockney plasterer. Now, a quick and exciting route to riches is promised by the sharing economy. Airbnb, its posterchild, is presently valued at $10bn (£6bn)  and Silicon Valley is buzzing again. Does sharing represent a scalable opportunity for a socially productive economy? Here Jonathan Schifferes, a senior researcher at the RSA, in addition to grounding the sharing economy in some context also considers who profits from sharing.  

Since 2008, our dominant economic and financial structures have come under increased scrutiny, from many directions. Many argue that existing systems have delivered material wealth at great environmental cost, contributing to (or even relying upon) growing inequality at many scales, and that as we get wealthier, wealth is increasingly an ineffective means of delivering well-being. As the public sector started talking about “doing more with less” a generation of social entrepreneurs said “let’s use what we have better”, and were spurred to develop their own peer-to-peer circuits for production, distribution and consumption. They were driven by objectives which ranged from getting rich themselves to meeting their neighbours to minimising overall consumption, and we now have a carnival of applications which connect individuals to one another to exchange in new ways.

The sharing economy is how we describe this system which widens access to goods, services, assets and talents, through arrangements of collaborative consumption, a term first applied in 1978 to car-sharing. The sharing economy is a bunch of new ways to connect things that aren’t being used with people who could use them. It often does this through internet-based applications, and therefore does this radically better than previous systems in achieving higher utilisation of the economy’s ‘idling capacity’. According to Professor Clay Shirky, “the world has over a trillion hours a year of free time to commit to shared projects”.

In 2011, the RSA hosted Rachel Botsman and Time magazine said collaborative consumption was one of ten ideas to change the world. Now sharing economy initiatives are squaring up to entrenched businesses, and regulators and tax collectors are becoming interested.

Rachel Botsman defines three types of collaborative consumption: product service systems (like Barclays bikeshare in London and Netflix, where you rent for short periods rather than owning), redistribution markets (like eBay, Freecycle, Gumtree, where you sell or give away unwanted stuff) and collaborative lifestyles (like Landshare, Streetbank, and Couchsurfing), where people swap skills, time and other assets.

Like efforts to build a circular economy the sharing economy often promises environmental efficiency. Reducing waste appeals to our moral sentiment (waste is a feature in two of the seven deadly sins) while sharing means we get access to more, and perhaps put individualistic materialism (the envy and jealousy associated with coveting thy neighbour’s goods) in the back seat. To paraphrase Neal Gorenflo, the idea is that instead of keeping up with the Joneses, we are inspired and enabled to collaborate with the Khans, rent our under-used assets to the Chengs and get tips from strangers on how to hack, fix and rejuvenate objects at a makerspace with shared tools. We meet new people (online and offline) and make a living in new ways, while using money less, hoping to reverse declining social capital.

Sharing can get really creative: through Waze (which Google just bought for $1bn), drivers share their live data on traffic to help others travel more efficiently. GoGenie shares information about disabled access. Carrotmob organises campaigns for people to vote with their money, giving businesses positive incentives to make sustainable investments. On TaskRabbit, people bid to perform chores and…tasks, while Instacart specialises in matching your shopping list with someone to do your shopping and deliver it to you.

 

Paris is Airnbnb's top city in Europe and its second largest community in the world, Source

 

Of course, sharing goes way back. We’ve always been sharing, bartering, lending, gifting, and swapping. Collaboration has been our primary competitive advantage as a species. Before we had money, we had a gift economy – “you owe me one” – rather than a barter economy. Within modern capitalism there have emerged a range of redistributive institutions such as co-operatives (800 million members globally) and credit unions. Good 360 has taken $7bn in corporate donations over the last 30 years and distributed them to charities. We often lose sight of the fact that efficient resource allocation is what the (old) economy is fundamentally driven to do, but often fails. The sharing economy might be best conceived as a system to address market failures in personal consumption; to share market information, lower transaction costs and lower barriers to entry, therefore expanding the market of buyers, sellers, donors and recipients.

In contemporary society, what some have dubbed the core economy – the unpaid care, support and nurturing we provide for one another – structures our lives as much as the monetary economy. Sharing mechanisms have long supported the core economy, through informal networks and more formal institutions: 28,000 people have collectively pooled their skills and support at 300 local Timebanks across the UK, on the basis that an hour of my time is worth an hour of yours, and there is potential for institutions and business to do the same – e.g. Hackney Shares.

We are at a moment of hyperbole, so there is a risk that new tech applications divert our attention from the breadth and heritage of sharing structures in society, and the risks of failure. Many sharing platforms struggle to reaching critical mass in activities which represent a natural monopoly based on a network effect, so efforts are now being made to build infrastructure to consolidate the sharing economy – comparison websites and sector-wide initiatives (…is this meta-sharing?). But the growing consensus is the sharing economy could be as transformative as the industrial revolution; and Natalie Foster says sharing “will be the defining economic story of the 21st century.”

The sharing economy is beginning to look like a panacea: an all-conquering system of innovations which can can drive economic growth and social outcomes. But of course it's more complicated than that.



Who actually profits?

As the sharing economy is booming, its millions of participants now face a choice. There are ways of swapping and collaborating for free, and there are also ways of commercialising idling capacity.

In reality, many of the most successful sharing economy platforms are simply commercial platforms with a personal touch. eBay works because buyers and sellers leave feedback for one another; enough to grease the wheels on $175bn of transactions in 2012. In an era of self-checkout supermarkets, it’s ironic that it is through internet applications we’ve reawakened to the fact that business can be personable and customised. Airbnb now call themselves a “community marketplace”. Etsy is an online shop for $1bn of products sold direct by artists and craft-workers who make them. Every sharing platform seems to have spawned a commercial sharing platform: eatwithalocal might be devoured by eatwith and Google Hangouts (video chats) looks set to expand to Google Helpouts where people buy and sell services via video link.

Should we commercialise sharing? In working with Benoit Passot investigating the logic of impact investments, I became convinced that we all place values on achieving financial returns and social outcomes, but those values vary. What we need are opportunities to discover what our values are. Technology makes it easier for us to join timebanks, and easier for us to make a living selling our skills. When money is involved, obviously, these values are made explicit. There are platforms which will enshrine free sharing as principle and policy, and there will, simultaneously, be ever more sophisticated commercial platforms – with a social dimension – making up an ever greater proportion of economic activity. In other words there is sharing, and there is the economy. We will vote with our feet and vote with our money.

Commercial sharing platforms can’t be fully inclusive if some potential participants are excluded by a lack of money, but commercialising traditionally non-monetary assets such as spare bedrooms could support someone to pursue other socially productive activities in a volunteering or caring capacity. We know sharing gives us a feeling of solidarity and identification, more than selling and buying, and can (re)build social capital in a way that traditional market transactions can’t.

Does this mean money contaminates exchange relationships? Not always. People form meaningful relationships with their bosses, and the people they manage. Shopkeepers befriend their customers, consultants get chummy with clients. In each case, physical interaction and proximity usually matter. Money-free sharing platforms are probably best realised at the local scale. There is stronger potential for ongoing reciprocity in dense urban areas. Money, as it has always has been, becomes a unit of trust which can reduce the friction of distance. Whether free or commercial, the promise of the sharing economy is about the alignment of self-interest and common good; at distance, the ability we have for realising common good together diminishes, and money is more helpful as a proxy for trust.

However, there is a fundamental challenge to achieving collective and inclusive “common good” if the sharing economy continues to grow: non-monetary activity doesn’t register as GDP.

The more we try to gain economic and environmental efficiency through generating activity outside of – or reclaiming activity from – the market, the more we stifle the monetary economy. While we already know GDP is an insufficient measure of progress – as Rachel Botsman says we need to measure the number of holes drilled not the number of drills sold – our primary system for realising life opportunities is built on it. One of the buzzwords of tech recently has been disruption. In this regard, the sharing economy is highly disruptive.

 



Drilling holes in the sharing economy, Source

As a society, we tax consumption, employment, income and profit. More money on the books and circulating in the economy – i.e. rising GDP – generates more tax revenue. Tax then gets spent on government services, further contributing to GDP. Government, therefore, has an implicit incentive to both formalise the informal economy, support recorded and taxable economic activity, and bring online commercial platforms, and their users, into the tax regime. Government in fact represents the ultimate level of sharing: we are practicing collaborative consumption through societal organisation of public services. As Caron Suchecki says, “paying tax is participating in a sharing economy, dodging it is not.”

 

Public services in 2020 need to look a lot different – in their structure, relationships, delivery and funding – and they have a long way to go. There is a lot to learn from the sharing economy in unleashing idling capacity. But collaborative consumption doesn’t work in every context: a recent report found that it is difficult to reconcile the need for personalised care and support packages with the economic advantages of collective purchasing power: “service providers and commissioners can’t impose collective approaches or assign people to groups that don’t matter to them”.

We therefore face competing quandaries. On the one hand, the more we rely on each other in non-monetary ways through systems of mutual aid and support, turbo-charged by new innovations, the more we withdraw from the circulating flow of money which ultimately funds public services: our democratically-controlled, societal support network. (The prevalence of the informal and undeclared peer-to-peer economy may already be undermining public institution-building in the developing world.)

On the other hand our GDP treadmill is increasingly frustrating: its failing to improve well-being in rich countries. The cost of our basic requirements – for example housing, food and childcare – are increasing faster than wages for most people. Many work all day to make enough money to pay someone else to work all day looking after children, elderly parents, or others needing care, and the primary destination for our tax money is to subsidise low wages and provide health, education and social care.

In conclusion, the expansion of economic activity in its current form is eroding our time, quality of life and environment. The sharing economy has some promise to challenge this by making better use of existing assets – through monetary and non-monetary sharing. But unless GDP is uncoupled from the funding and delivery of the public services, and environmental resrouces are valued properly, simultaneous efforts to personalise public services, stimulate economic growth and expand the non-monetary sharing economy risk undermining one another and stifling the realisation of our collective aspirations.

 

This post was originally published in two parts via the  RSA blog.

 

 

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