The Sharing Economy: 21st Century Feudalism or New Economy
Convenience. Trust. Community. These three factors are encouraging the adoption of what economist dub the “sharing” or “gig” economy. The disruption caused by Web 3.0 companies to connect directly with consumers, cutting out the middle man. The sharing economy has opened a Pandora’s Box. Beyond the obvious economic benefits, the sharing economy has also brought with it questionable practices such as exploitative labour practices and monopolistic behaviour.
How the sharing economy works
The sharing economy is characterized largely by temporary arrangements and short-term leases. A manufacturing company for example can share equipment and facilities with other firms (even their competitors) to effectively utilize excess capacity, with employees contracted on a temporary basis. What this translates to is cost savings by lower capital expenditure and being less liable for employee benefits such as insurance and paid annual vacations. For example, take Uber, the largest taxi company in the world which doesn’t own any taxis, or Airbnb, the room booking company who doesn’t own rooms. Because of consumers’ willingness to “take the plunge” in trying new apps, the sharing economy has grown exponentially.
In the sharing economy mentality, a company doesn’t have to hire a permanent worker, which critics have been quick to point out that this practice effectively dilutes quality and trust. Firms have hit back by having an ecosystem of reviews and online reputation as a “check and balance” on quality control and assurance. It’s the sharing economy mentality where you don’t have to hire a permanent worker, but you can hire people quickly, and on a part-time basis. Proponents of the sharing economy point out the opportunity to help reduce consumerism, materialism and over consumption. For instance, renting out a spare car or an empty house, has created a shift in consumption habits of consumers putting less emphasis on the value of ownership. Not everyone requires a car every day so why not pool our resources together towards a community object while at the same time reducing over-consumption?
The sharing economy has brought immense contribution to the real economy by often making things more accessible for the everyday consumer. Indeed, companies participating in the sharing economy has forced many traditional firms to rethink their business model. Launched barely 7 years ago, Uber currently operates in more than 270 cities and 60 countries worldwide. As at January 2017, the company is being valued at $68B, more than Deutsche Bank’s market capitalization ($25B) and Delta Airlines ($38B) combined. Investors are increasingly intrigued by the potential of these sharing economy companies to radically disrupt how goods are consumed and paid for – be it monetizing underutilized assets or foregoing the purchase of these assets. But is there a cost involved?
The new feudalism: who really benefits?
According to a Credit Suisse report published in 2016, global inequality is growing. For all the benefits that the sharing economy bring, the sharing economy is essentially a zero sum model. On one hand lies the consumers who luxuriate in the sharing economy. At the other end of the spectrum, those who deliver these goods and services – the Uber Eats rider, or the contract worker whose next paycheck could be weeks or months from now.
Feudalism can be broadly defined as the system where an upper nobility (usually land owning) controlled the lower classes (known as serfs). Between the 5th and 15th century AD, it is estimated that between 85%-90% of the European population were peasants. Serfs were provided with a small shelter on a piece of land owned by a noble. In return for this ‘privilege’ and protection from their lord and master, serfs had to till the land, pay taxes and be prepared to take up arms should their lord call for it. In addition, most nations didn’t allow serfs to own land.
Is the sharing economy heralding a return to feudalism? The only tangible difference between 21st Century world and Capetian France is the digital form of the landscape. The nature of lords of the manor extracting payment from non-owners remain.
In the 21st century, we’d be living in slick modern heated apartments instead of wooden shacks. We’d have a job in the modern economy instead of farming the land for the lord. But ultimately, we wouldn’t actually own anything because private property ownership will be abolished for all but the land owning nobility in the 21st century. The longer we stay on this trajectory, the more entrenched we would be dependent on the ruling class for every basic necessity: food (Uber eats), shelter (AirBnB rental) etc, therefore staying in a vicious cycle.
A new hope
Investors and owners of companies such as Lyft and Airbnb are optimistic that society will eventually improve itself - competition will force firms to improve on worker, labour and user rights. Gig worker lobby groups have introduced legislation in certain jurisdictions and governments are starting to regulate industry disruptors. For some analysts, the advantages with being an asset-light operation is fast eroding (if everybody is special, no one is). For now, the feeling that the sharing economy is basically a rent extracting economy of the highest order is still being uncomfortably accepted. As with most things, only time will tell if the sharing economy is sustainable.
WRITTEN BY FELIX LIM FOR BESA
PLEASE DIRECT ANY INQUIRY TO AS.BESA@UNIBOCCONI.IT