Digging Deeper: The Sharing Economy

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Feb 12, 2018
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Current Events, Budgeting, Article, Video Resource, Purchase Decisions

Does Collaborative Consumption make everyone better off?

This growing segment of our economy goes by many names: the sharing economy, collaborative consumption, the “gig” economy to name a few.  We are talking about a vast array of goods and services where the matching of supply and demand occurs via the internet, with the help of technology (smartphones) and some computer application.  [Editor's note: The "gig" economy has also changed the nature of work and the concept of a "steady paycheck" too!]

Now not every business classified as “sharing” is truly sharing.  Uber is not really sharing, but UberPool is.  Basically, “sharing” refers to anything making use of idle assets.  (For an explanation of the distinction and for a good source of all the related terms, the World Economic Forum explains it well. I also found a cute video  in case you need to explain the sharing economy to your grandmother.)  For our purposes, we will lump these things together anyway.

Most people, especially those who participate in this segment, can easily list the benefits.  You think of how convenient it is to call up a ride on your phone, how nice that these drivers can earn money basically on their own terms, and what a fantastic apartment you stayed in on your last trip to some expensive city!  The perceived benefits to both parties in these transactions are usually fairly obvious.  

We have considered how these businesses can be disruptive, but that happens in “regular” business as well as technology advances and tastes change.  Yes, Amazon has changed the retail world forever….those that adapt can stay in business.  Uber has given taxi drivers a kick in the butt.  But Netflix and other streaming services ended video rental stores (that had to change from VHS to CD along the way.)  Electronic documents and email and digital cameras/smartphones have eviscerated old line businesses like Xerox and Kodak.

I was reading an article on entitlement and the sharing economy. Ginia Bellafonte writes:

In so many ways the virtue capitalists who have built the sharing economy on the premise that they are making the world a more just and equitable place, as they generate billions of dollars for themselves, have simply delivered more of the status quo. A report, soon to be released from McGill University’s School of Urban Planning, shows just who is and who is not benefiting from the income streams produced by Airbnb.

While the issue of entitlement might deserve an article of its own, what piqued my interest was when the conversation in the article turned to negative externalities.

Let’s go a little deeper on this one—there are some negative externalities you may or may not have thought about before.  To be fair, not all externalities are negative.  

Ride sharing leads to increased congestion and pollution from all the extra cars on the road.  For example,  New York City now has 103,000 for-hire cars registered, up from 47,000 in 2013.  (Taxis are capped at 13,600.) The average speed in Midtown has dropped from 6.5 to 4.7 mph in just 5 years.  These cars also spend lots of time between calls sitting and idling.

Short-term home rental has quantifiable as well as qualitative externalities.  When someone lives in a home they rent out on airbnb (while they are away or an extra room), this is truly sharing.  But absentee landlords in the short-term (airbnb) rental market are responsible for a measurable increase in housing prices, according to a recent study.  This impacts the availability of affordable housing.

On a micro-level, what happens to the value of a property in a building that has units being rented on a short-term basis? Strangers in and out all the time and potential noise make for another negative externality: angry neighbors!

The clothing rental industry is where we find some positive externalities. It is obvious that renting an outfit for an event is more economical that buying something you would only where once (or twice if you are lucky.)  But an argument can be made to purchase an unlimited rental plan and largely stop buying clothes altogether.  On average, we regularly wear just 44% of the clothing we own, and nearly half of people admit they need to clean out their closet. Part of the problem may be that sizes fluctuate, styles change, and sales are hard to pass up — but closet clutter isn't free.

You can argue that there is a positive environmental externality here.  If more people  were to that take advantage of this service, clothing production could be cut back, saving resources, and keeping cheap clothing out of landfills.  The clothing is shipped in garment bags that you use to return the clothing after wearing it, so you don’t have the packaging issues you have with Amazon.  There are companies out there that target different market segments (yes, men too!), so the sky’s the limit!

Issues with this rapidly growing share of our economy are not limited to the US.  While doing research for this article, I found an interesting article about Australia and their view of the pros and cons of the sharing economy.  The sharing economy has reached China also.  In China, it’s all about bicycles!  Can you identify the positive externalities coming from the explosion of bike-share programs in China?

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What does it feel like to be part of the sharing or “gig” economy? Try the NGPF Interactive Activity, Can You Make It As An Uber Driver?

 

About the Author

Beth Tallman

Beth Tallman entered the working world armed with an M.B.A. in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducting student workshops, and developing finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.