The winners and losers of the sharing economy
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Uber cars, Craigslist, eBay, Airbnb; you know them, you may use them. What you may not know is that they go by other names in the economic world: the sharing economy, collaborative consumption and Ubernomics. They are all names of the booming business model transforming our ideas about business.
The concept is simple enough. Market your assets to peers in the informal cyber marketplace. Maria, a former wedding photographer, has a closet chock full of camera equipment, four small kids and a growing stack of bills. Jo’s got a smartphone, a garage bursting with grandma’s stuff and a free Saturday. Bill has extra time, a car sitting in the driveway most of the day, and a need for fast cash. These people can, with the help of apps and platform websites, find a niche in the sharing economy where their “assets” are valued by clientele seeking more convenient access to services and goods. Maria rents her equipment to local photographers. Jo auctions off Grandma’s antiques to specialty collectors on eBay and Craigslist. And Bill taxis people in his car on nights and weekends as a driver.
Using information from both Forbes and PWC, the estimated revenue flowing through the shared economy directly to everyday people will surpass $335 billion by 2025, with growth exceeding 25 percent per year. “At that rate, peer-to-peer sharing is moving from an income boost in a stagnant wage market into a disruptive economic force,” says Forbes’ Tomio Geron. Technology’s advancements have vastly improved everyone’s access, and eBay’s popular rating system grants individual marketers commercial credibility. Smartphone apps let sharers transact anywhere, see what’s being shared nearby and pay on the spot. For the first time, selling convenience is paying huge dividends — not just to businesses but to individuals.
Take the namesake company, Uber taxi, for example. The unconventional driving service is disrupting traditional transport in 230 major cities in more than 50 countries and is looking to raise money at a price that values the company at $50 billion. Uber provides an online platform supported by mobile apps to allow a taxi booking, linking the user to an independent contractor driver in his or her own vehicle, with the goal that the ride is never more than five minutes away. Prices reflect demand levels, and the ride is prepaid.
However, while public participation in and popularity of this new marketplace surges, anxious competitors and regulators try to reign in the movement with red tape and litigation. Many are questioning the long-term viability of Uber’s cash flow in the face of such staunch opposition. Restrictions on capitalism have never been a more relevant topic for the average American.
With all this talk of freeing up the market, we should consider what Hernando de Soto Polar, Peruvian economist, discovered 20 years ago. Reforms in the ’80s and ’90s led by de Soto and his Institute for Liberty and Democracy implemented some 400 initiatives, laws and regulations that transformed Peru’s economy. The reform granted legal titles to more than 1.2 million families and helped some 380,000 small firms, which previously operated in the black market, to enter the formal economy. This latter task was accomplished through the elimination of restrictive registration, licensing and permit laws, which made the creation of new businesses very time-consuming and costly. The result: greater accessibility to wealth in a poverty-stricken nation.
Could this economic revolution be the door through which we can address our own poverty problem? The beauty of the system is its universal appeal. Admittance to the entrepreneurial world is no longer only through the ivory tower or Silicon Valley. Anyone can get on this bandwagon, and the statistics are showing widespread success.
The marketplace is rapidly changing. If we are willing to embrace it, we may witness the real-time redefinition of equal economic opportunity in America. Yet, there are real consequences to individuals and a society when reasonable regulations are eliminated or ignored.
What, for example, happens to the independent cabbie in New York City who has just paid $800,000 for a medallion to operate? Will those who have benefitted from sales of Uber stock help the cabbie with his debt? What about insurance? Background checks? Maintenance of vehicles? Regulations surely do become cumbersome and overly bureaucratic, but that doesn’t necessarily mean they are irrelevant. The path to a better economy is clear: less meaningless regulation and more freedom to experiment.
John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development. Greta Crofts, Hoffmire’s colleague at Progress Through Business, did the research for this article.
