Will the Sharing Economy Survive in a World of Owners?

Written by Pablo —  May 21, 2014

sharing_bike

Days ago we wrote about capitalism being threatened by the sharing economy. With lobbies increasing the pressure towards new competitors, now we debate the inverse topic. 

From August 30th to September 2nd 2004, thousands of Republican voters and activists descended on one of the most Democratic cities in the United States: New York City. During those four days, Madison Square Garden—a multi-purpose venue located in the center of Manhattan—was at its full capacity. Every single night, 20,000 people congregated there to listen and cheer on their political idols: Democrat-turned-Republican Senator Zell Miller; actor-turned-Governor Arnold Schwarzenegger; and Mayor-turned-hero Rudy Giuliani. Finally, on the last night, the biggest star of all, President of the United States, George W. Bush, took the stage and officially announced that he was running for re-election.

That was the Republican Convention of 2004. The selection of the venue was disingenuous: New York City had been the main stage of the September 11th terror attacks, and President Bush’s electoral strategist, Karl Rove, had decided that, even if the city and the State were going to go for the Democrats, the symbolism was too big to be missed. The so-called War on Terror that consumed headlines day after day with its endless cascade of massacres and attacks in Iraq and Afghanistan had started a few kilometers to the South of the Madison Square Garden three years before when close to 3,000 civilians had been massacred by less than a dozen suicide terrorists in the World Trade Center.

Yet, for all the ultra-nationalist speeches that galvanized the public, the event had an underlying message. Bush had planned a major swift in his policy, but he needed the win the election to undertake it. His plan was to privatize the American welfare state. A few days before the Convention started, the White House had posted online a document titled Fact Sheet: America’s Ownership Society: Expanding Opportunities, listing the measures the Administration had taken to expand the concept of private ownership. More importantly, the second section of the Republican Platform (the equivalent to the official electoral program of the party) was titled: Ushering In An Ownership Era. The idea was simple: in the future, citizens would own everything, including their homes, their health care plans, and their pensions.

So, on November 4, two days after his narrow victory in the election, Bush appeared before the press and said: I’ve earned capital in this election—and I’m going to spend it for what I told the people I’d spend it on, which is — you’ve heard the agenda: Social Security and tax reform, moving this economy forward, education, fighting and winning the war on terror.”  On February 2, 2005, when Bush delivered his State of the Union Address, he said the words “Social Security” (the American equivalent to the European “public pensions”) eighteen times in 53 minutes. His aim was clear: he wanted to privatize the United States pension system, the biggest redoubt of “collectivism” in the U.S. economy.

The March Towards Ownership Seemed Unstoppable.

Ten years later, however, the situation could not look more different from George Bush’s plan. Not only nobody is talking of privatizing U.S. Social Security, but Medicaid—the Government-owned healthcare system for low-income citizens—is being expanded.

But there is a bigger change: Americans, in 2014, do not want to be owners. Or, at the very least, they do not place ownership among their priorities. The idea of ownership has been replaced with the idea of use. As a consequence, the ownership society is being substituted with the sharing economy. Or. Better, with the rental economy.

Nowadays, in the very country that elected Bush and his ownership society, people employ their cars as cabs (UberX, Lyft, Sidecar), or as a rental cars (Relayrides, Getaround). They also rent their homes as hotels (Airbnb, HomeAway), restaurants (Eatwith, Feastly), or even kennels (DogVacay, Rover). Folks with higher means rent their boats out (Boatbound, Cruzin). Ultimately, you can rent everything out, from a hammer to a house (Zilok).

To some extent, it is like if the flimsy concept of intellectual property that has became prevalent in the Internet has now expanded to day-to-day activities.

Novel as it is, this trend is no fashion. Uber—the parent company of UberX—has been valued at $3.5 billion, (2.55 billion euro), and has Google and Goldman Sachs among its financial backers, whereas Airbnb has been valued at a whooping $10 billion (7.2 billion euro). As The New York Times has remarked, the home-sharing start-up initially dismissed as just another option for coach surfers is worth more than Hyatt, a company that owns more than 500 hundreds hotels all over the world. That valuation is probably an excess in a market that seems inflated by cheap money and the irresistible temptation of finding the next Facebook, but it is nonetheless true that Airbnb is used every day by 40,000 people in 192 countries. According to Rachel Bostman, expert in the sharing economy, only the peer-to-peer worldwide rental market already is worth $26 billion (18.7 billion euro).

airbnb in new york city

Nobody knows with certainty why the sharing economy (also called peer-to-peer economy) has blossomed. In the last five years, Americans and Europeans have seen their investments and savings disappearing in the housing, financial, and sovereign crises, but they are not reluctant to commit huge sums in anything. True, the U.S. home ownership rate is the lowest in 19 years, but this has more to do with the crisis that with societal changes. In fact, American youngsters are as adept at buying houses as the previous generations were. The love affair with the automobile, however, seems to be over, but, in turn, they are fixated with their smartphones.

More important is the stagnation and decline of wages in the last two decades, which has forced individuals to monetize assets that otherwise would have considered one’s exclusive property, such as the house or the car. An UberX driver, who uses their car part-time as a cab in Washington DC, can get around $64,000 a year if they “could help with the pace of driving nights, weekends”, according to The Washington Post.

In reality, the sharing economy is nothing but a logical development of the internet. All these services are simply extensions of eBay—only that, instead of selling a good, it is a service. The internet means the extinction of the intermediaries, the middle men. It makes easy connect the producer and the consumer. YouTube is already the biggest television in the world, and Uber is, in fact, the largest road transportation firm in the world, connecting drivers and travelers from Delhi to Brussels. One third of the world population has internet access, in one way or another. It was only a matter of time that the web would put directly in touch makers and buyers. The same can be said of crowdfunding, another way of connecting suppliers—in this case, of capital—and buyers, and the MOOCs, only that in this case it is professors and students.

The reaction of the old economy firms has been predictable. First, they lobbied. Then, they sued. Finally, they have resorted to open protests and attempts of mobilizing the public opinion in their favor. Their actions, at least in the United States, have been unsuccessful, partly because in some cases, those very ‘old economy’ companies had squeezed their markets to an extent that made impossible for them to defend their practices. New York, for instance, has the same number of licensed cabs now as fifty years ago. The arrival of Uber, Lyft, and Sidecar has been like a breeze of fresh air for consumers. Suggested reading: ‘A victory for Airbnb in New York City‘ | The New York Times.

lyft car in san francisco

Car-sharing company Lyft cars are invading the streets of San Francisco, CA

However, the new model is still too new to be considered stable. In the same way that Craigslist became a center of illegal activities—from drug sales to prostitution—, the new sharing economy firms risk falling prey of organized fraudsters. In April, New York state attorney general, Eric Schneiderman, has begun an investigation on Airbnb after discovering that about 30 percent of the nearly 20,000 New York City listings on that site were placed by people or businesses that advertised more than one listing. Those “multiple listings” mean that property owners are converting “thousands of apartments into illegal hotels”, according to The New York Times.

Those uncertainties are just part of the problem. Here is a bigger issue at stake: What are these companies from a legal standpoint? Are they just online firms that act as intermediaries and therefore hold no responsibility of what their associates do? Or are they also ‘real world’ companies? It is an intriguing point that ultimately affects to the whole internet of things. If software has physical consequences, who is accountable?

aibnb-ny-impact

That is what happened on New Year’s Eve in San Francisco, when a car affiliated with Uber hit and killed a 6-year old girl. According to the company, the driver was not working for Uber when the accident happened. However, the girls’ family contends that the driver was checking his Uber app. According to the plaintiffs, that makes Uber responsible. The case is in currently court. It could be a landmark case, because, so far, Uber has successfully argued in other car crashes that it had nothing to do with the accident. In the past, Craigslist has been exonerated when crimes were committed under its ‘Personal Contacts’ site, in the same manner that a newspaper would not be sentenced if, under an ad, there is a bait for someone to go to a place and, for instance, get illegal substances. Without trust, there is no peer-to-peer economy.

Brushing up the business model will not be easy for these companies. They confront entrenched interests and, more often than not, they enter uncharted waters. However, technology and economy are working in their favor. It is still too early to tell if Uber or Airbnb will be around in ten years, but it seems clear that the sharing economy has done nothing but starting. The ownership society that George W. Bush successfully tried to sell has died without even being born.

Photo Credits: Ed YourdonSpur

Pablo

Pablo

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El Mundo's hack in Washington / Corresponsal de El Mundo en Washington. Author of 'El Monstruo. Memorias de un Interrogador'