The Sharing Economy’s Undead Capital, and Its Discontents
Out in the LED-lit, LEED-certified halls of Silicon Valley, the past few years have heard a whisper growing into a roar: the sharing economy is coming, and it will be good. The “sharing economy” is best represented by enterprises such as Airbnb, Uber, and Lyft, internet-based companies that allow everyday people to monetize their own property. Airbnb allows people to rent out rooms or whole houses to strangers without having to go through an expensive rental company. Uber allows smartphone users to summon a variety of vehicles for hire directly without going through the oppressive and outdated taxi system. Lyft takes Uber one step further and allows regular drivers to offer rides for a fee; the Lyft app connects the driver with the passenger, who slips into the front seat and gives his lift a fist-bump.
Last week, R Street’s Daniel Rothschild described these services as bringing to life massive stores of previously “dead capital,” allowing a tremendous democratization of commercial life. He wrote, “If the key economic trend of the nineteenth and twentieth centuries was the growth of economies of scale—factories, big firms, multinationals—we are now seeing the opposite.” The sharing economy combined with the Etsy (an online craft marketplace) economy in his eyes to represent a tremendous turn towards filling the coffers of the common person, rather than the great industrialist. Ever more easily, people can rent out their car to pay for a dinner, a room to pay for a date, a house to pay for their own vacation. In Rothschild’s eyes, corrupt cities bought off by entrenched interests risk stomping out this tremendous innovation, sending the undead capital back into the ground for good and depriving countless people of a chance to make a bit of extra money.
Pascal-Emmanuel Gobry finds himself unsettled by the prospect of an Uberfied economy, however, and suggests that its benefits may not be quite as democratically distributed as usually assumed. He acknowledges that “the efficiency case for “Uberifying” services is obvious. You have lots of productive capital which is unused (your spare bedroom, your car, your idle hours) and which could be used and monetized. Collectively, this makes society richer.” But he then follow, “how does it make society richer? I’m concerned.”
In PEG’s analysis,
if you think of all these service platforms, they are marketplaces, and these marketplaces have a couple things in common:
- As marketplaces, these service platforms have network effects;
- As marketplaces, these service platforms have a downward pressure on prices.
The latter point needs a little bit of explanation. The bigger and more fricitonless a market is, the more efficient it is; the more efficient it is, the more competitive it is; the more competitive it is, the more downward pressure on prices is exerted.
In short, Lyft is a great way to make money taxing people around while relatively few people are doing it. Once it really catches on, however, more and more people will start to Lyft, and new entrants will flood the market, depressing what any individual driver can command. Even should the revenue remain substantial following widespread adoption, one can easily imagine norms shifting to Lyft being seen as a way for people to cover their car payments, and the car market shifting to price that in. For those not looking to Lyft, the cost of a car just went up without any gain in value.
PEG notes that even in a depressed price Lyft marketplace, Lyft itself would stand to be sitting very pretty. The “network effects” would be very valuable, so even as the drivers’ share of the pie whittled, Lyft would swell into a multi-billion dollar company (as it’s already well on its way to becoming). Thus,
It’s not hard to imagine a future where these platforms, lead to, on one hand:
- The shareholders of a few companies getting extremely wealthy (network effects make those business extremely valuable);
- Everybody else getting poorer and poorer over time.
In other words, an acceleration of the inequality trends we’re already seeing unfolding.
Far from being the democratic revolution in distributed capital, the sharing economy becomes one more pipe by which capital is sucked upwards and inwards into ever-fewer hands. Efficient, surely. Attractive, much harder to say.
Uber, Airbnb, and Lyft have flown their San Francisco nest, and are becoming familiar names in cities across the country. A few closing words are in order, however, regarding the lofty promises made in those LED-lit, LEED-certified halls. As Andrew Leonard wrote last month, the sharing economy was born out of an idea of restoring a gift economy, one that the early internet aspired to be, in which people share their time and resources out of fellow-feeling and common cause (commercialism and communism are a pairing only the very wealthy and very utopian can make, but the Valley is one of the few places that pulls it off.)
As Leonard recounted, however, gift economies are built on reciprocity, on interweaving networks of obligation and ties that bind. Gifts are not given to the ether, but to particular people, for particular reasons, with particular accompanying expectations. The sharing economy is a rental economy. Drivers and passengers may have a fine conversation, Airbnb’s boarders and landlords-for-a-day may even becomes Facebook friends. But Uberfying the economy will not rebuild community.
Community is built through repeated interactions, through shared enterprises, through debts incurred and repaid with a nod and an understanding. Most of all, community is built around a common cast of characters, not an ever-shifting client list. Uber may indeed change our economy. We’ll still have to rebuild our society the hard way, as ever.