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The winners and losers of the sharing economy

sharing economy sharing economy
Photo credit:

Niklas Wikström

In an exclusive excerpt from his critically-acclaimed new book, The Business of Sharing, Alex Stephany looks at the winners - and losers - of this important new economy.

The sharing economy losers …

What may be good for the economy as a whole still hurts many individuals working in that economy. Think of the small-time web designer who will find himself undercut by those in the developing world in a global services marketplace.

Think of the production line worker now assembling the cars that 20-somethings will buy in ever fewer numbers because they use ridesharing and car-sharing apps.

For the hapless in those roles and countless others whose voices are little heard in the triumphant chorus of the sharing economy, the long-term benefits of structural change are insultingly theoretical.

Some of these economic losers will happily embrace share platforms. Some will be forced unwillingly onto them. Many though will be casualties, too old or inflexible to reorientate their careers.

Yet life is not always rosy for those working on the share platforms either. It may be still less so in a shared future. We have seen how share platforms are turning ordinary people into entrepreneurs.

However, micro- entrepreneurship has entrepreneurship’s downsides too: hard work and uncertain rewards. Above all, not everyone is cut out for entrepreneurship. Marketplaces are unforgiving “sink or swim” places for those without the drive and talent to get on a virtuous cycle of finding work and earning positive reviews.

Meanwhile, every worker, however successful, earns by the grace of the platforms and their secret algorithms. When TaskRabbit changed its business model while I was writing this book, shoe-horning its Rabbits into a few narrow categories of work, the Rabbits had to live with it—or in Brittney Bedford’s case leave the platform.

When UberX slashes its prices by 25% without warning, it is the drivers who take a pay cut.

For marketplaces built on labor, it is the job of those running them to push that cost as low as possible. As Martin Bryant, Editor-in-Chief at The Next Web, put it to me, “Workers could get trodden on by a rampant desire for efficiency.”

Already on Fiverr, people offer services from $5 (out of which the platform takes 20%). Many who pick up the work are desperate and working for well beneath the minimum wage.

The future may look like The Zero Marginal Cost Society described by Jeremy Rifkin, where goods and services cost little or nothing once the infrastructure is in place. Good for the economy. Fantastic for consumers. Potentially ruinous for workers, who will, in time, unionize.

As contractors rather than employees, workers also lack employment benefits. Platforms do not provide health insurance or pensions: they do not need to when the supply of unskilled labor outstrips demand. Get sick? Tough. Grow old? Simply getting by on share platforms is a challenge: good luck putting away enough money for retirement. “The employment of the future is here,” quips Sam Biddell in Gawker, “and it’s terrific for everyone except the people doing the work.”

No one is forcing anyone to do any work, the platforms reply. That is true enough.

The problem is ahead of us, however, when a sufficient amount of the demand for labor has migrated to freelancer marketplaces and micro- entrepreneurship ceases to be a choice.

In countries with weak social safety nets, freelancing to the detriment of permanent employment will leave those at the bottom horrifically exposed.

“Micro-gigging leaves people incredibly vulnerable,” writes Sara Horowitz of the Freelancer’s Union, an advocacy group for the US’s 42 million freelancers. “As we rush forward into this hyper-efficient economy, we’re actually sliding back to certain aspects of the 19th century, where workers had few rights and no protections.”

In the coming decades, platform bosses will clash with regulators who will once again need to protect those who sink rather than swim.

… And its rich and powerful winners

Micro-entrepreneurship also comes with micro-upside compared to the entrepreneurship of the founders. While these startups will neglect the communities behind them at their peril, real wealth will remain in the hands of shareholders.

Since marketplaces tend towards “winner-takes- most” monopolies, this new set of companies could be more powerful than the incumbents.

Once the regulatory risk attached to Airbnb has subsided, it will IPO.

What if, under pressure from Wall Street, it and other platforms abuse their market power? Will dominant peer-to-peer marketplaces also abuse the data of their millions of users? By then, the venture capitalists will have exited.

Many investors that I spoke to aligned themselves with the moral vision of the sharing economy. But journalist Andrew Leonard is one of many who does not buy it. “Silicon Valley,” he writes in Salon, “could start by putting a stop to pretending that the sharing economy is about anything other than making a killing.”

The micro-entrepreneurs making the most money from share platforms are also the affluent ones with valuable assets worth “sweating,” assets that are often rented out by similarly affluent people.

It is why tech provocateur Milo Yiannopoulos slams the sharing economy as “a playground for the middle classes.”

Almost certainly, the sharing economy will raise the living standards of the working classes by letting them affordably access goods and services and earn supplementary income.

But when it comes to cold, hard net worth, the sharing economy will do little to bridge the wealth gap. It may even increase it, as the “buy-to-share” model pushes the capital cost of some assets even higher.

How much will that wealth gap matter? We will always want savings for luxuries and peace of mind. Yet money will matter a little less when we can lead a comfortable material life by accessing assets rather than owning them.

One day, net worth may even seem a slightly quaint notion, carrying, like a robber baron’s mansion, a whiff of absurdity.

A new wave of online companies will emerge to whom we may look for many of our fundamental needs: clothing, shelter, mobility, and financial services. Will these companies, the largest of which may yet to be founded, be any better as stewards of our communal welfare than 20th-century multinationals?

One route through this tangle of ideals and profit may be the B Corporation model, as adopted by Etsy and Couchsurfing. “B Corps” are for-profit businesses whose decision-making processes formally consider their impact on the environment and society.

B Corps issue a publically available annual benefit report and aim to have a “material positive impact” on wider society. It remains to be seen how the moral code of a B Corp may be stressed when one goes public for the first time, as will likely happen with Etsy in the next few years.

Most likely, we will see a moral tug of war, with the ideals of founders and communities pitched against unsentimental public markets.

If you want to read more, find The Business of Sharing here.