business

The unintended consequences of the sharing economy

The sharing economy is here to stay. Sites like Ebay, TripAdvisor, or Wikipedia – all of which rely on peer to peer interactions – are established, everyday services. A growing number of sectors have a peer to peer element, from travel and accommodation to lending and retail.

airbnbBy and large, this has been a positive development. Old power structures are circumvented as people provide things for each other. More and more people are able to make an income from their interests, their spare time, or their spare room. Friendships and a sense of community are nurtured, unwanted things find a new home, and there is much to like and support about the sharing economy.

But that doesn’t mean it’s an unalloyed good thing. The broad cultural shift is creating winners and losers. Sometimes things go wrong. In some places, the authorities are hurrying to catch up with business models that blur the boundaries between personal and commercial interests in some new and confusing ways.

When a website like Zopa sets up and makes peer-to-peer lending possible, it undermines a predatory banking industry and feels like a redistribution of financial power.

When sharing economy alternatives undermine traditional small businesses, that doesn’t feel like anything to celebrate. Imagine a family-run bed and breakfast that sees its visitor numbers drop as new AirBnB rooms come up nearby. And what if people have been evicted from their rented apartments because the owner realised they could make more money doing short-term lets?

Or take taxis in San Francisco. The ride-sharing app Uber launched there in 2012, and in the next two years the number of cab journeys dropped by 65%. That’s a lot of savings and convenience for users, but a crushing loss of income for taxi drivers.

Perhaps those taxi drivers should be on Uber, some might say, but that shows up another problem with sharing economy services. They can work quite well for people looking to earn a little on the side, but many people can come to depend on it, or end up offering their services more or less full time. While they may have some of the freedom of freelancers, the work is likely to be paid at a lower rate than the mainstream, with none of the certainty, no paid holidays, and a lot more liability if anything goes wrong.

We’ve seen this problem in Britain recently with courier services. Some of the cheapest keep their costs down by hiring freelance drivers or ‘lifestyle couriers’. (It’s debateable whether this can be classified as part of the sharing economy, but it’s certainly a person-to-person model.) These drivers are paid a little as 35p per delivery in some cases, making it very low-paid work for those that depend on the income. Since they only get paid for making the delivery and not for their time, drivers don’t want to come back the next day if you’re not in. Hence those recurring ‘courier left my parcel in the bin/hedge’ stories in the tabloids.

taxiThis is an outsourcing of risk that we might consider unethical elsewhere, so we ought to pause before applauding it when it appears under the guise of the sharing economy.

After all, while the drivers might not be making any money, other people are. Some of the more popular start-up companies have made fortunes for the entrepreneurs and investors behind them. Ebay is valued at over $70 billion, which is extraordinary for a company that does little more than facilitate peer to peer exhanges. There’s no harm in that in itself, but if sharing economy companies are replacing good steady jobs with vulnerable and poorly paid ones, then those CEOs don’t deserve our hero-worship.

There’s more. We could talk about the ‘cult of the amateur’ and the devaluing of expertise as people seek opinion and news from alternative sources. There are issues of taxation, as people run little businesses on the side and don’t declare it. Safeguarding or health and safety rules that would apply to traditional businesses are overlooked, which can easily be hailed as common sense until somebody gets hurt.

None of this makes the sharing economy a bad thing, or something to avoid. There are some very exciting developments and genuinely innovative ideas out there. They’re part of our consumer landscape now, and I use them too. We’re going to Ireland in the summer and booked a place to stay through Airbnb.

I suppose the thing to remember is that there is nothing absolutely positive about peer to peer business models. We can’t assume they are always better, any more than we can say with certainty that local is always better, that ‘eco’ products are sustainable, or that digital goods have a lower carbon footprint than physical ones. We have to be discerning, and keep asking questions.

3 comments

  1. Another good article, Jeremy. My concern – that you hint at, but don’t address directly – is that there is too often an assumption that markets or companies have an ethical dimension; that they can be good or bad in the abstract sense. While some companies may strive to present ethical credentials their ethics should never be considered when making rules and regulations. Companies exist to make profits and it is up to others i.e. governments representing the public, to regulate the actions of companies and other economic players to maximise the common good. If the effects of Uber succeeding are overall detrimental, that’s not Uber’s fault and, so long as they are acting within the law, they should not be demonised. The problem lies in the regulatory structure that hasn’t kept pace and cannot protect workers or useful public services adequately. But that’s sort of what you’re saying, I guess.

  2. You could write a similar article entitled the Unintended Consequences of Free Trade. Yet you will find a greater percentage of economists who agree that free trade is the correct policy than climate scientists who agree the earth is warming.

    Like free trade the benefits of the sharing economy are individually small but cumulatively large. The disadvantages are individually large but cumulatively much less.

    We should always focus first on consumption over production. Most of the worries here are about producers. Yet there are far more consumers than there are those who would lose out. At is heart this is a in’s vs out’s debate. Taxi drivers are able to charge consumers more because they have some now pointless archaic information (the Knowledge in London) or have regulatory hurdles that limit competition. Don’t feel sorry for them, they want to carry on ripping you off.

    The sharing economy promotes lots of little jobs over fewer big ones. If you are someone who can’t get any job a little job is better than none. Which is the alternative.

    Increaing supply of things is great. Amateur will succeed or fail but in doing so increase supply so we all gain. The internet has allowed the creation of many citizen journalists and expanded our sources of news. The increased competition has reduced the average income freelancers earn but the wider gain society is greater. No longer can supply of news be constrained by insisting journalists have a jouralism degree. Arguments against ‘the amateur’ would once have been supplied in favour of the closed shop. How quaint and wrong that would sound today. The literary elites would once have effectively prevent E L James reaching her audience but thanks to e-publishing she has brought joy to millions.

    The economy is constantly changing. We don’t know what the long term results will be. Regulation to try to push it in one direction will fail because regulators can never know enough to know the full consequences of their decisions.

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