With the emergence and growing success of companies such as Uber and Airbnb, hotels and taxi businesses are not garnering the demand they once did. The economy is changing in ways we have never encountered before, as what we once perceived to be the fundamental structures of the market shift.
Over the break, I have had the joy of exploring this concept of a shift toward a new economy, which Arun Sundararajan describes in his book The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism. Sundararajan effectively divides his book into two parts: Cause and Effect. In the “Cause” segment, he discusses the origins of crowd-based capitalism and how such an economic system came to be. In “Effect,” he follows with a run-down of the implications of shifting to crowd-based capitalism and what this entails for the future of our economy. Among some of the interesting topics Sundararajan talks about are the differences between market and gift economies, blockchain technologies, and peer-to-peer platforms.
What Is the Sharing Economy?
Sundararajan begins his book by introducing the “sharing economy” or “crowd-based capitalism” as an economic system with the following five characteristics:
- Largely market-based: Crowd-based capitalism creates markets that enable the exchange of goods and the emergence of new services, which leads to potentially higher levels of economic activity.
- High-impact capital: This describes how the sharing economy opens opportunities for underutilized assets (including skills, time, money, etc.) to be used at levels closer to their full capacity. For example, an Airbnb host in possession of an apartment that no one is currently living in may rent out that space, turning it into a source of income.
- Crowd-based “networks” rather than centralized institutions or hierarchies: Decentralization is the key here. The supply of capital and labor comes from decentralized crowds of individuals, and future exchange may be mediated by distributed crowd-based marketplaces rather than by centralized third parties.
- Blurring lines between the personal and the professional: Supply of labor and services often scales peer-to-peer activities like giving someone a ride or lending someone money––activities which used to be considered “personal.”
- Blurring lines between full-time employment and casual labor, independent and dependent employment, work and leisure: Traditionally full-time jobs are supplanted by contract work with a range of levels of time commitment and economic dependence.
Sundararajan exemplifies that the sharing economy is diverse not just in its industries, services, and business models, but on the market-to-gift spectrum as well. It creates a new economic model––a middle ground between capitalism and socialism. It is neither the exclusive domain of altruistic givers nor full-steam-ahead capitalists. The key ingredient in a sharing economy, Sundararajan explains, is trust. Platforms like eBay are “low-stakes” and asynchronous, while the sharing economy (i.e. Airbnb) is high-stakes and synchronous. Take Airbnb, for instance. Because the stakes are higher (since you are living in a stranger’s home), the element of trust is fundamental to its success. Accordingly, Sundararajan argues that the sharing economy holds more potential to profoundly impact people’s everyday lives.
Sundararajan also brings up the interesting consideration of whether all the new emerging technologies in a sharing economy will create a more connected society or whether they will increase isolation. As such, he describes four consequences of digital forces that are fundamental to the emergence and sustained evolution of crowd-based capitalism:
- Consumerization of the digital––digital products were developed for consumers and then adapted by business & government, not the other way around like in the past
- Digitization of the physical––for example, advanced technology like 3D printing making it possible to buy a design rather than buy the physical object
- Emergence of decentralized peer-to-peer platforms––in other words, data based in the “crowd” as a decentralized network, rather than a centralized index (i.e. blockchain technology)
- Digitization of trust––when experiences of others get digitized and made publicly available, our ability to trust strangers is enhanced
Impacts of Crowd-based Capitalism
With the shift toward crowd-based capitalism come effects that will likely have an impact on our current economy. Sundararajan emphasizes four in particular:
- An increase in the impact of capital (changes in the impact of capital)
- Changes in consumption driven by greater variety and different models of access
- A shift in the nature of economies of scale and network effects that characterized industrial economies (changes in economies of scale and network effects)
- Democratization of economic opportunity that promises inclusive growth (the promise of inclusive growth)
To touch upon the first point, Sundararajan demonstrates that tapping into excess capacity may increase economic productivity, hence altering capital impact. Imagine a host with a spare room that is not being used at full capacity: Airbnb enables the host to turn this space into a source of income. Alternatively, automobiles are “perhaps the most striking pool of underutilized capital in the United States.” Thus we see the emergence of Uber, Lyft, Getaround, BlaBlaCar and other transportation-focused companies begin to increase the impact of the global automobile stock.
(I’ll leave the remaining three points as they are, so you can more thoroughly grasp them when you read the book ;))
Abbreviated List of the Sharing Economy Businesses Mentioned in Book (by category)
- Accommodation: Couchsurfing, Airbnb, OneFineStay
- Funding: Kickstarter, Kiva, Funding Circle, AngelList
- Service Platforms: Trade School, TimesFree, TaskRabbit, Handy
- Transportation: Uber, Lyft, Getaround, Didi Kuaidi (China), BlaBlaCar (France), Ola (India)
Recommend or No?
Overall, yes. Reading The Sharing Economy got me thinking about the economy from a whole new perspective and provided insight into what the future of our economy might look like. I was first drawn to this book because I did not have a firm grasp of what the “sharing economy” was, and how it related to my personal life. This book is packed with information about the past, present, and future of our developing economy. The sheer number of facts in this book was a little overwhelming to take in at first, but through reading it I found that I was able to deepen my understanding of this crowd-based capitalism that is emerging in the form of businesses I interact with and apps I use regularly. Furthermore, I was able to broaden my knowledge of some of the lesser known companies that Sundararajan mentions throughout his book, such as Napster, OpenBazaar, OuiShare, and countless others. The concepts you read about are revolutionary and the analysis is extremely thorough with many accompanying examples. Sundararajan does an excellent job of highlighting and explaining the theories that are crucial to gaining a complete understanding of what a shift toward crowd-based capitalism encompasses. He maneuvers the reader through the masses of information with logically organized chapters and clear-cut headings within each chapter. Conclusively, I would encourage anyone with an interest in the economy, emerging startups or entrepreneurship to give The Sharing Economy a read!