The Sharing Economy: A Genuine ‘Fair Share’?

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2008. A year of economic mayhem across the globe. A time of mass employment. A start to a great revolution.

In a time where the people became seemingly desperate to make ends meet, there was no doubt that something had to be done. By the final quarter, the crisis had the World ‘by the throat’ and the collapse of the Lehman Brothers in September was the first casualty. The situation only looked to be becoming bleaker. The colour was fading; the world was being repainted into a dingy black and white.

BUT a speck of light at the end of the end of the tunnel was visible to some. It was these people that reconstructed the world economically to the way in which we see it today. The sharing economy was coming to fruition. Companies such as Uber and Airbnb were about to see exponential growth on the global stage. The sharing economy truly characterises a ‘tale of rags to riches.’

What is the Sharing Economy?

The sharing economy is an umbrella term for many different types of businesses. It is a business model that resolves the information gap by using the internet. Matches are found between consumer demand and the spare capacity. In ‘normal language’ this means that people paying to share other people’s goods.

But how? Often people are unable to afford to buy a particular high-ticket good so they rent it for a short period of time. It’s quick, cheap and easy. For example, if someone needed to get to the shopping centre and didn’t have a car, a good option would be to ‘get an Uber’ of ‘get a Lyft.’ The simple question from the provider is: “If I share with you, will you pay me?” and from this question emerged one of the most revolutionary business models of the 21st Century.

What’s Mine is Yours, for a Cost?

This type of business model allows customers to rent expensive goods for short periods of time instead of buying them. It benefits households because they are able to make ‘quick money’ from their idle resources, but the sums show that they make are by no means small. Renting out just one apartment for a year on AirBnB is said to generate somewhere in the region of between £20,000 and £25,000 annually. That’s just below the average national salary!

Moreover, for the common consumer, it presents lower prices, increased choice, and greater convenience. Thus, the growth of such pioneers comes as no real surprise with the valuations for Lyft, Airbnb and Uber being at $7.5 billion, $30 billion and $69 billion respectively.

To Regulate or Not to Regulate? That is the Question!

Having ‘shaken up’ their competitive industries (Airbnb with the hotel industry and likewise with Uber and the taxi industry) it sparked huge debate in whether the companies should be regulated. The reason why such companies pose such a threat is due to the ‘under-the-radar’, illicit activities that they carry out. By compromising several factors, it allows them to operate with minimal costs of production but poses potential threats to the users.

The most recent row over the decision to not renew Uber’s London license was based primarily on this under regulation and how the company’s shady system of reporting to TfL rather than the police surrounding the issues it has to lengthen investigation processes. All would be resolved by government regulation…or would it?

A main criticism of the sharing economy model is the general lack of quality control, as it is households that provide the goods/services rather than a centralised business who care about their overall brand image. There is a big risk of the businesses the maximise their profits and cheat their customers. However, they cannot be touched because there are no official laws against what they are doing, just an angry man giving a condescending finger wag to them.

Despite this though, proponents of the idea and the companies themselves boldly proclaim of the excellence of the system. Their counter-argument to the above claims is that they do indeed care about their brand image, because the trust that this builds with the consumer is the basis for future business. If these companies did exploit their customers they would definitely not last beyond the first couple of customers, it would be a complete failure.

We see that they, therefore, have an incentive to be legitimate and work in good faith (at least in the short term that is). Every sensible business has an eye up for the future and by being exploitative it would only come back to haunt them (as with Uber in some respects). Logistically speaking, the introduction of the user rating system has eliminated this issue because users can review and comment their experience.

A Blast from the Past

In the USA in the 1930s a central issue that played out (other than the huge Great Depression that wiped out millions of people from their jobs…no big deal!) was that of the taxicab industry. The barriers to entry into the job were extremely low and it was an easy source of employment for many different people. The supply of labour rocketed upwards and the cost of fares fell through the floor. In order to correct this, the government decided to intervene (and scrap the laissez-faire thing they had in place for just a couple of hundred years). The issue gave rise to the infamous medallion system that exists still to this date which worked to control the pay for these workers and the quality of the service provided; in effect correcting the market.

Parallels can clearly be drawn with Uber. The decision to not renew their London license sparked a huge debate. It was trending on Twitter, active on Instagram and all over Facebook. Social Media went crazy over the decision. Those who weren’t part of the group of people sharing a post to sign a petition about Uber every roughly 20 minutes had claimed that the company had gained too much power and was working essentially as a monopoly. They had no real competition.

In New York City, the cab drivers have to obtain a medallion, costing around $1.32 million annually; and in London, the black cab drivers have to sit and pass a Knowledge of London test. Do you think that Mohammed driving your Toyota Prius Uber arriving in 5 minutes really has to go through all this? Of course not! There is no regulation and it begs the question…should there be regulation?

A Genuine ‘Faire Share’?

The ability of these companies to develop into global monopolies very quickly is a grave risk and if mismanaged it could trigger ‘another 2008.’ On balance, my firm beliefs lie in how sharing economy companies such as Uber, Airbnb and even eBay need some form of fluid regulation. This fluid nature would allow the business to be controlled by the government and stop them exercising a total monopoly but not hampering the levels of business approach; a kind of Keynesian balance. Decisions such as those made by Sadiq Khan surrounding the issue need to be reconsidered because the last thing you want is an angry monopoly and an angry population. Let’s face it, that’s a disaster waiting to happen.

So these companies will be sitting there thinking “I would have got away with it if it weren’t for you meddling kids” as Scooby Doo would have taught them. A lot of questions but no real answers. Is it a ticking time bomb, or a blessing in (very good) disguise?