Does the sharing economy truly know how to share?

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum. Author: David Morales Olalla, MSc by Research in International Political Economy & Enrique Crespo, MSc in Public Policy and Administration, London School of Economics As we embark on the Fourth Industrial Revolution, experts from multiple areas of work agree the period is strongly based on use of the internet and its digital platforms, which have led to the implementation of more sustainable practices. In this context, a socioeconomic paradigm shift is taking place.

The “sharing economy” – which is expected to go from generating global revenues around $15 billion in 2015 to $335 billion by 2025 – is a model based on collaboration thanks to the capabilities enabled by internet-based software, which promote consumption without ownership and provide matchmaking platforms. This has changed the way that economic activity is managed, powered and more efficiently moved. “So instead of sellers and buyers, you have providers and users,” says EU adviser Jeremy Rifkin. “Instead of markets, you have networks. Instead of ownership, you have access. That is a transformation. Instead of consumerism, you have sustainability. That’s the transition.”

This extra spending has had a multiplier effect on the economy by creating jobs and enhancing entrepreneurship activity, but has also raised concerns about exacerbating socioeconomic exclusion of lower-income individuals.

Mobile devices, apps and social networking sites have become part of people’s daily routines. The activities performed cover a very wide range, from choosing a restaurant, to taking a cab, booking a holiday, engaging in romantic relationships, and even working and earning a living. Prominent sharing economy platforms include Airbnb and Uber: Airbnb is becoming the largest hotel firm in the world without even having to invest in construction, while Uber-like models are replacing traditional taxi services in cities across the globe.

Sharing economy activities focus mainly on short-term accommodation, transport, small tasks and rental of assets; which accordingly gave origin to other representative platforms such as Couchsurfing, Lyft, TaskRabbit, LiquidSpace and Rent the Runway. Nevertheless, they are not limited to this spectrum and hold a great possibility for expansion.

The sharing economy was born as a new game plan after the 2008 global financial crisis, to stimulate the economy by creating new models of business. At its heart lies a narrative that stresses the need for sharing and collaboration instead of a traditional capitalist market-driven model. By reducing barriers of ownership and costs, the sharing economy model has the potential to enable access to services and products for people and communities that have been usually excluded within the neoliberal paradigm. For example, evidence has shown that low-income populations have already benefited from lower costs for transport and hospitality. Similarly, Airbnb has documented the spending of its clients outside typical hotel districts, which has promoted tourism in neighbourhoods that have not traditionally benefited from this activity.

However, despite its semantically hyper-positive discourse on collaboration, more critics and concerns have risen on the sociological understanding on sharing, since the operative mechanism of these platforms has served to perpetuate economic exchanges with utilitarian value. Its transactions are usually market-mediated, using firms as intermediaries, and are not considered to be “sharing”, but rather to represent costumers paying to access specific goods and services. The concept of the “sharing economy” is coming to be perceived as an oxymoron and as a misnomer that should be better addressed as an “access economy”, in which the access can be restricted to lower-income users and underserved markets).

Experience has proven that successful platforms in the sharing economy tend towards monopoly or oligopoly for high volumes aimed towards the upper classes, to compensate for technology investment and the low marginal cost of additional transactions. There is also evidence of a “rentier capitalist” structure, where small groups of business own large percentages of resources and wealth in today’s economy.

Moreover, the platforms that compose the sharing economy were designed for an upper-middle class composed of more affluent, tech-savvy and well connected social spheres. Not only do low-income households rarely use sharing economy services, most of the time they are not even aware of their existence.

For these reasons, recent research considers that this model has drifted away from its utopian narrative of inclusivity and sustainability, and now works as a digital shopping mall that benefits the interests of capitalist ventures. Companies such as Uber have been accused of undermining the labour rights of workers by not offering traditional benefits and protection. Labourers of the sharing economy are expected to be compensated on average 25% less in hourly wage compared with those engaged in the traditional economic models.

At the same time, users and experts are worried about firms not undertaking proper diligence of their workers and not providing enough training and oversight. Airbnb has been accused of decreasing hotel revenues by 8-10%, and having a permanent negative impact on the cost of living. This is because short-term rentals give owners a financial incentive to keep their homes empty in anticipation of tourism revenues, and they consequently affect the availability of affordable long-term housing.

Furthermore, the rise of sharing economy has created fears of darknet concepts such as “datafication” and “algocracy”, since this collaborative system relies on algorithms that have functioned as “black boxes” of data appropriation. The incentive to share information has been proportional to the increase in the sharing economy, since reputational feedback mechanisms are based on ratings, reviews, profiles, social media and geolocation data that trade off privacy and control over information for access to service platforms. Also, the intensification of reliance on automatic algorithms and artificial intelligence can increase the prominence of data from overrepresented majority groups, and unintentionally exacerbate exclusion – for example, by apps not sending drivers to lower-income neighbourhoods.

These structural and systemic design flaws demand inclusive innovation management as a proactive imperative that serves as a cornerstone of the business model. Part of this restructuring must be to develop a culture of inclusion along the whole value chain, since research has shown that a more diverse workforce can help companies obtain a greater share of the market. This is thanks to a wider worldview, which comes from having workers from diverse backgrounds. For example, Lyft’s passengers are mostly women, which is partly due to the company’s efforts to hire a majority-female workforce. Another point to consider is that sharing economy businesses are more focused on wants than needs, and to foster inclusion there is a need for a more human-centred approach to their business models. This can be achieved by incentivising employees who pursue innovation, and attending to the needs of lower-income individuals, for instance through access to credit cards and traditional financial systems to enable them to participate in sharing economy services, flexible payment plans and online transfer systems.

Sharing economy firms need to partner with governments to create policies that help them increase their benefits and mitigate their negative impacts. These policies should address adjustments to tax frameworks, consumer-protection laws and filling gaps in public services. There is a need for more comprehensive regulatory frameworks focused on consumer protection, privacy risks, transparency and safety standards; particularly, for lower-income users with fewer resources for legal action. Thus, a more inclusive approach can be good for business, since it can nudge communities and governments to reduce the backlash on sharing economy initiatives by building trust instead of imposing regulatory threats.

There is a need for intervention from the state and civil society, since the market will not stretch the impact of the sharing economy on its own to reach the bottom 20% of income distribution. The success of the sharing economy will depend on the capacity of institutions to seize the development of technology, and on businesses to keep pace with the needs of society. The change of infrastructure required to welcome the Fourth Industrial Revolution involves abandoning the deregulatory myth of the economic right, which puts the market as the sole arbiter of the economy. The new infrastructure requires a social market economy as a partner, while public capital needs to aim to connect all levels of civil society with the market’s requirements and opportunities. Adding real value to business driven-models can help improve the quality of life in society while fostering technological innovation and supporting the development of the Fourth Industrial Revolution.