Dis­ci­plin­ing the shar­ing econ­omy

Financial Mirror (Cyprus) - - FRONT PAGE -

The in­creas­ing abil­ity of peo­ple to ex­change goods, ser­vices, and labour di­rectly, via on­line plat­forms, is trans­form­ing how mod­ern economies op­er­ate. But 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 Me­chan­i­cal Turk; and ar­range their gro­cery de­liv­er­ies us­ing Fa­vor and In­stacart. Sim­i­larly, crowd­fund­ing plat­forms, such as Kick­s­tarter and Lend­ing Club, al­low start-ups 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 i mprove 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 2013 rev­enues topped $3.5 bln. Dur­ing the 2014 soc­cer World Cup in Brazil, a coun­try 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 United States have low to mod­er­ate in­comes, and 90% of hosts glob­ally rent their pri­mary res­i­dence.

Sev­eral ci­ties have recog­nised 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.

But 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 align work­ers’ shifts and hours with business cy­cles au­to­mat­i­cally, con­tinue to dis­rupt fam­ily life and cause un­nec­es­sary stress. Pol­i­cy­mak­ers need to stay ahead of th­ese shar­ing-econ­omy trends.

As ser­vices and soft­ware con­verge, pub­lic of­fi­cials must en­hance their tech­ni­cal skills and work with the pri­vate sec­tor to en­sure mar­ket fair­ness and ef­fi­ciency. For ex­am­ple, they must pre­vent the ma­nip­u­la­tion of reviews and other prac­tices that mis­lead con­sumers try­ing to as­sess the qual­ity of a company’s ser­vice. Airbnb and the on­line travel agent Ex­pe­dia al­low reviews only by cus­tomers who have ac­tu­ally used their ser­vices; that could be­come a reg­u­la­tory norm through­out the shar­ing econ­omy.

Gov­ern­ments also have a broader role to play. As more peo­ple adopt “port­fo­lio ca­reers” – re­ly­ing on sev­eral sources of in­come, rather than a sin­gle job – it be­comes harder to col­lect and an­a­lyse labour-mar­ket data. Gov­ern­ments will need new ac­count­ing and re­port­ing stan­dards to cal­cu­late wages, fore­cast in­comes, and cat­e­gorise work­ers within the grow­ing ranks of the self-em­ployed. Such stan­dards, cou­pled with data-shar­ing guide­lines, will help de­ter­mine when, and how much, to tax shar­ing-econ­omy trans­ac­tions.

None of this will be easy. Though self-em­ploy­ment and part-time labour are hardly new, the shar­ing econ­omy is dif­fer­ent, be­cause it al­lows free­lancers to be­come “nanowork­ers,” shift­ing among em­ploy­ers not just monthly or even weekly, but sev­eral times a day. As US and Euro­pean un­em­ploy­ment rates re­main high and wages stag­nate, peo­ple in­creas­ingly rely on such di­verse in­come streams. To­day, almost 27 mln Americans sur­vive on part-time and pro­ject­based in­comes.

With nearly half of all ser­vices jobs in the OECD at risk of au­to­ma­tion, the shar­ing econ­omy can smooth the dis­rup­tion caused to dis­placed work­ers as they up­grade their skills. In­deed, shar­ing-econ­omy data can help gov­ern­ments iden­tify those work­ers at great­est risk and support their re­train­ing.

The shar­ing econ­omy re­flects the con­ver­gence of en­trepreneuri­al­ism and tech­no­log­i­cal con­nec­tiv­ity. Taxi driv­ers and ho­tel own­ers may feel threat­ened, but the shar­ing econ­omy has the po­ten­tial to in­crease and re­dis­tribute earn­ings in ci­ties that are al­ready strug­gling with poverty and in­equal­ity. Those who are dis­placed will have far bet­ter prospects in the more pros­per­ous and in­clu­sive en­vi­ron­ment that the shar­ing econ­omy prom­ises to cre­ate.

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