The Crisis of Capitalism: Why the 'Sharing Economy' is the Future

According to the Brookings Institution, the sharing economy is:“The peer-to-peer based activity of obtaining, giving,or sharing access to goods and services.”

Today, we have the powerful computers and smartphones at our disposal through which we are always ‘connected’ and ‘engaged’ to the Internet. We travel in cities and inter-cities through Uber and Ola. We rent a car to take it for a long drive. We rent clothes and furniture online. The Sharing Economy has arrived and is here to stay. By one estimate, the sharing economy is estimated to grow to $335 billion by 2025.

“Creative destruction is the essential fact about capitalism.” Joseph Schumpeter opined in his book, “Capitalism, Socialism and Democracy” in 1942. He stated that there are some inevitable changes that would frequently attack the very roots of the current status quo systems and upends the existing socio-economic structures.

‘Sharing Economy’ is a new form of economic system in which the underutilized assets owned by private individuals such as Car, House are shared for rental or fee income, via the powerful medium of the Internet. Not only the assets but services are also offered online by those who have matching skill sets.

There are three fundamental entities in the sharing economy.

1. Consumers 2. On-demand technology platforms 3. Suppliers

Sharing economy lets people act both as the producers of resources and also, at the same time, consumers of resources and services. In a post-industrialization world, generally, the so-called corporations used to produce the goods and services and general populace used to be the consumers. Now, the paradigm is being changed and challenged. Sharing economy lets the later be the provider of resources through the powerful medium of the Internet.

The hidden tenet is that instead of owning an asset, leading to its underutilisation, why not get benefited by it. The benefit is that sharing economy lets personal assets like Car, House and hitherto untapped ‘personal skills’ get into the economy which might have gone underutilized for its shelf life. For example, according to a study by Brookings Institution, a Car goes underutilised for 95% of its lifetime.

When around 15 years back, the Social media like Facebook gave the Internet the consciousness. It led to the free flow of communication and ideas. Sharing economy piggybacks on this free-flow of ideation and communication to give access to and provide resources to the people.

We are in the age of ‘connecting’ economies. Sometimes, this Sharing economy is also used interchangeably with the gig economy. In the USA, one in every three working American works as a freelancer. Three out of four millennials would rather pay for a service or experience an event rather than own it. By disrupting the traditional economy, Sharing economy is slated to grow from $14 Billion in 2014 to $ 335 Billion by 2025.

The Sharing economy let common populace live life the king size. Be it vacationing in an exotic beach house via Airbnb or getting around the city in premier cars via Uber or Ola, ‘sharing economy’ is letting us access the comfortable living of rich, albeit for a rent or fee.

Industrial Revolution…

We are living in an era where exponential growth has taken place. For the most part of the human history, life expectancy never rose above 35 or below 25. Education was a matter of privilege rather than a right, people used to travel on horseback. For thousands of years, most humans never owned or used goods out of their communities. The industrial revolution changed everything. The first industrial revolution period i.e. from 1750 to 1840 happened in the most part of the world but it started in Europe. Ranging from Electricity to 12 years of formal school-based education to Tap water to clothes we wear, it changed all the aspects of human lives.

Before the Industrial Revolution, 80% of the world’s population was engaged in farming to keep itself and others from starving. The industrial revolution was all about using different forms of energy to automate production. It harnessed the power of steam through the steam engine. Coal, Iron, Railroads and Textiles took the world from the agrarian era to a manufacturing one.

The Second Industrial Revolution that took place between 1870 and 1914.

The invention of the Telegraph, Telephone ushered in the new era. It was a profound change in the way human beings communicated. It also led to the expansion of industries like Electricity, Petroleum and Steel. Henry Ford brought the concept of mass production.

Market capital to Social Capital.

Now, we are at the cusp of another new revolution. The 20th-century model was of corporations acquiring raw material and producing goods and services whereas 21st-century model strikes at these companies’ foundation and creates a digital platform obviating the former for access of goods and services.

Two Economic systems are being formed while we are living. One is market economy where people are sellers and buyers, owners and workers, producing goods and services for each other for a profit in the marketplace and possess property. As well as, people are also a part of sharing economy where they are sharing virtual goods entertainment, news, social blogs, editing Wikipedia page and what not. Truly, the economy is transforming itself from ownership to access, from markets to networks, from Consumerism to Sustainability.

There is a profound change in the concept of power. Earlier, power was hierarchical. It was seen as a top-down model. But for the Millennials, the concept of power has changed. For them, being powerful means being ‘connected and engaged’ in a network.

Today, anyone with the Internet connection can opine his or her ideas. Create content in the form of Blog Posts, YouTube Videos at near zero marginal costs. People can create their own free eBooks. Record their own songs, create their own video at virtually no cost. Not surprisingly, the music and television industry has shrunk.

Not long ago, for thousands of years in human history, Education was a privilege rather than a right. Today, we have millions of college students taking ‘Massive Open Online Courses’ taught by the best professors of the best universities like Coursera and edX. Newspapers and Magazine publishers are finding a hard time matching to the talent of the writer who expresses their opinions on their individual blog. The social media posts of people-the pictures, the tweets, the comments, the opinions and shares form the social capital of them.

Can ‘Sharing Economy’ solve the challenge of World Environment Crisis?

Today, we have billions of Cars, Trucks and Buses choking our traffic. It is one of the major cause of the global warming emissions. It is estimated that the sharing economy can eliminate 80% of the vehicles in the world in the next two generations. According to a study, the Millenials, their children and grandchildren are never going to use a car. And remaining vehicles would be electric and fuel-cell driven.

This Circular Economy where things are distributed in sharing over and over again and nothing goes to the landfill is a welcome sign. But there are challenges ahead. Gross Domestic Product is slowing all over the world everywhere. Around 40% of the human race is making $2 a day or less. Our ecosystem has developed over the millions of years based on the water cycle. The ‘Climate change’ we are experiencing is dramatically changing the water cycles. Can Sharing economy be the answer to the new economic vision for the world? Can this twentieth-century industrialization attitude of ‘more is more’ get replaced by the new vision of ‘less is more’. The questions remain unanswered!

The Regulatory Perspective is Changing!

Every regulator and sovereign governments view the disruptive forces with cautiousness. This ‘Sharing economy’ model is also not an exception. For example, in Australia, some cities had banned ride-sharing apps. Now, this situation is changing. Local governments, state and central governments are waking up to the enormity and potential of the ‘collaborative platform’ to change the society we live in. For example, Playplanet is a platform which lets you get immersed into a local experience by staying with a local host. It believes in catalyzing a social change through travel and witnessing local environment. These type of organisations which uphold ‘social harmony’ while having a business mindset is poised to change our society for good. In 2016, UK gave relief via tax allowance. China has a commission which is now looking into the growth opportunities in this sector.

Sweden has embarked upon a project called ‘Sharing Cities Sweden’ which aims to project Sweden as a country that embeds sharing economies in its cities. Its goal is to make interconnections between sharing economy and urban development, Information and Communication Technology and digital platform. It plans to incorporate Business, Civil Society, public sector and Academia in this endeavour.

It is very evident that the future of humanity is a mixture of urban and sub-urban where the human family would live peacefully while ‘sharing’ the limited resources our planet has. Less is More.

And as it is evident that to meet new challenges-communities, organizations, and local governments are increasingly turning to a basic human practice, that is sharing.

In India, there is a push for digitization from the government itself. Therefore, there are new startups being registered in hoards in India.

Service Diversification and change in the Business model

It’s already happening. The sharing economy giants are foraying into different sectors. For e.g Uber has launched Uber Eats. Ola has tied up with Foodpanda. It has also acquired cab aggregator TaxiForSure and Ridlr. These Ride-sharing companies are aggressively investing in food-order companies.

Picking on the model of likes of Uber, Car manufacturers like Daimler and BMW have also launched their carsharing business. Daimler has Car2Go and BMW has DriveNow. This shows the inherent shift in the minds of automakers with the changing times.

The way ahead…

In these sharing economy age, the last thing we need is these monopoly companies. The rules of the game need to be fair and honest. There are concerns regarding the platforms leaking the customers and mediator’s data. Governments need to make sure that giant monopoly Internet companies don’t use data for own commercial purpose. We need the new set of rules tailor-made for this new economy.

As the sharing economy creates non-standardized and personalized services, the ‘professional setting’ is compromised. For e.g.The ride-sharing drivers are not the employees of the company in any direct sense which does not let to the rigorous set of standards, leading to personal biases for e.g drivers behaving rudely etc. As more and more digital platforms cater to the different segment of the populace, the rule and regulations of government would take a back seat since those were made keeping in mind traditional companies. Therefore it may give rise to the possibility of racial discrimination and gender discrimination. There have been cases of consumer-facing mistreatment from either the mediator company or the agents itself.

Managing the unconventional workforce where the traditional employer-employee relationship has undergone massive change needs to be taken into account. The greater work mobility provides individuals with short-term, elastic employment. Strict background verification, training and proper on-boarding of these independent co-workers need to be carried out. Tax compliance in the business model of the sharing economy is hazy given its recent birth. There are a lot of loopholes regarding the ‘service tax’ and the tussle between suppliers and the platform would continue, if unresolved.

Thanks for reading!