Sun, Oct 05, 2014 - Page 9 News List

Disciplining the ‘sharing economy’

Online platforms that increasingly allow users to ‘share’ goods and services, such as accommodation and transport, while causing some problems due to lack of regulation, create a more inclusive economy

By Ayesha Khanna and Parag Khanna

Illustration: Lance Liu

The increasing ability of people to exchange goods, services and labor directly via online platforms is transforming how modern economies operate. However, to ensure that the rise of the “sharing economy” works efficiently and improves conditions for all parties, some regulation is needed.

People can now circumvent many traditional service businesses. They can share transport, using Uber, Lyft or RelayRides; provide accommodation through Airbnb; tender household chores via TaskRabbit, Fiverr or Amazon’s Mechanical Turk and arrange their grocery deliveries using Favor and Instacart.

Similarly, crowdfunding platforms, such as Kickstarter and Lending Club, allow startups to raise grants, loans or investment from the general population, rather than relying on a financial intermediary.

By cutting out the middleman, these online platforms empower individuals, reduce transaction costs and create a more inclusive economy, but their evolution is far from straightforward and many such services will require careful regulation if they are to flourish — as protests and court rulings in Europe against Uber demonstrate.

One reason why Uber and other sharing-economy pioneers are so disruptive is that they represent a highly efficient form of peer-to-peer capitalism. Buyers and sellers can agree directly on the price of every transaction and business reputations depend on transparent customer feedback, generating continuous pressure to improve performance.

The sharing economy also boosts entrepreneurship, as people see new ways to fill gaps in the market. What began as a simple way for households to boost incomes — by renting out one’s apartment or car — has become a formidable disruptive force. Forbes magazine estimates that the sharing economy’s revenues topped US$3.5 billion last year. During this year’s soccer World Cup in Brazil, a nation with a chronic shortage of hotel rooms, more than 100,000 people used home-sharing Web sites to find accommodation.

The opportunity to buy or sell has also become much more inclusive: Half of Airbnb hosts in the US have low to moderate incomes and 90 percent of hosts globally rent their primary residence.

Several cities have recognized the benefits to be gained from promoting a sharing economy. Seattle, for example, has deregulated its transportation and hospitality sectors, challenging the city’s taxi and hotel monopolies.

However, economic change of this magnitude inevitably has its opponents, some with legitimate concerns. Do peer-to-peer businesses undercut incumbents by not paying similar taxes? Are such businesses — flush with venture capital — running their operations at a loss in order to capture market share? And should these firms be allowed to access telecoms data to learn about customers’ habits and movements, thus giving them an unfair advantage?

Some firms have set their own operating standards. TaskRabbit, which subcontracts household jobs like assembling Ikea furniture, requires participants to pay a minimum wage and has launched an insurance scheme to protect its US workers. On the other hand, technology platforms that use “algorithmic scheduling” to automatically align workers’ shifts and hours with business cycles continue to disrupt family life and cause unnecessary stress. Policymakers need to stay ahead of these sharing-economy trends.

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