25 January 2016

The Sharing Economy will be socially transformative


One of the key economic developments of recent years has been the rapid growth in the “sharing economy” – the use of apps and similar technology to make hiring assets such as cars, houses or tools economically viable at very small scale. This is already disrupting traditional business models in sectors such as taxis and hotels, is expanding to cover areas such as tool rental, pet-sharing and housework and will expand further. In a report out today for the European Parliament we at Europe Economics estimate the realisable value of the increased asset utilisation created by the sharing economy at about €160bn.

Many sharing economy enthusiasts regard it as providing a peer-to-peer alternative to traditional capitalism. We do not. We believe that the peer-to-peer phase will be only transitional. Over the longer term specialist businesses will own many of the key assets in our society and users will hire them as and when they need them. For example, we envisage that in the fairly near future, almost no-one will individually own cars in cities.

However, that does not mean just a few people will own everything. Instead of owing our own cars we might, say, own shares in the car manufacturers who will also be the car-hiring companies – indeed a number of major car manufacturers already openly state this as their long-term plan.

The sharing economy is also part of the ongoing work revolution of recent decades, as a significant group of people move away from a model whereby they are contracted to one firm full-time for years at a time and instead work self-employed or on a series of short contracts. In the sharing economy these self-employed people are service providers, not employees.

Overturning traditional business models, overturning traditional models of asset ownership, vastly increasing the utilisation of key assets and being part of a transformation in the nature of work, the sharing economy is socially as well as economically significant. Regulators and legislators are already struggling with a number of key policy challenges.

For example, are sharing economy platforms by nature monopolies? Should they be regulated like gas, electricity and water networks? We don’t believe so. In our view the threat of being replaced rapidly by a new trendier app will provide enough competitive threat to discipline platforms. Do we need some “third category” of employment, between employed and self-employed to account for sharing economy employment issues? We do not believe so, but we do believe there is a case for having a default contract where sharing economy service providers are opted in to healthcare and pensions schemes.

One of the most interesting developments over the medium term may be the sharing economy’s reputational systems. These could lead to a new form of social exclusion, whereby those whose scores fall low enough become excluded from all platforms and have no way to re-establish their reputations. The state may have a role in providing communitarian platforms for people to rebuild their reputational scores.

With huge growth a transformative social potential, the sharing economy seems likely to be a big economic story for years to come. That must be good news for most, but we should also be aware that it may mean short-term losses for some in traditional sectors. A few big bankruptcies may beckon – but that’s capitalism working, not capitalism failing.

Andrew Lilico is a political and economic commentator.