Shaping up for the sharing economy

Shaping up for the sharing economy

Australia's economy is at a turning point, and the Abbott government is looking for an economic reform agenda. If it wants to truly set the economy up for the next few decades it will look seriously at how the so-called "sharing economy" is going to change the way we live, work, consume – and the laws that govern us.

Now, for many people the idea of a "sharing economy" sounds insufferably communal (shared accommodation, ride-sharing), while others valorise it as righteously communitarian (shared common resources, job sharing, free-cycling, collaborative consumption, open-source-this and wiki-that). Other parts look a touch scofflaw.

If the government wants to truly set the economy up for the next few decades it will look seriously at how the so-called "sharing economy' is going to change the way we live, work, consume ...

If the government wants to truly set the economy up for the next few decades it will look seriously at how the so-called "sharing economy' is going to change the way we live, work, consume ...Credit:Glenn Hunt

And it is true that taken individually, each element of the sharing economy can seem not much more than an app on a smartphone. So it's not obvious that a great surge of economic growth and a vast wave of liberalising microeconomic reform reside amongst that lot.

The sharing economy is really the platform economy. A platform is a firm that provides an internet-based marketplace to bring together distributed networks of individuals to exchange, purchase, swap, or indeed share under-utilised assets. A platform enables a peer-to-peer (P2P) household economy to emerge on top of a market economy.


The source of this next economic revolution consists in releasing the economic potential locked-up in underutilised household assets (cars, tools, bikes, rooms, surplus time or food).

For instance, Uber is not a taxi service: it is an information platform about who has a car not being used and some time to drive it.

Airbnb is not a hotel company: it is an information platform to match people with surplus rooms, or temporarily empty apartments with people looking for same. Freelancer is not an HR company: it is an information platform to match those with underutilised time and skills with those seeking tasks done.

Pozible is not a finance company; 99designs is not a design company; Etsy is not a craft shop; Couchsurfing is not a travel company; Tinder is not a brothel.

They are all platforms that are in the business of furnishing information to enable people who don't necessarily know each other to coordinate their distributed actions to make better use of all their physical and personal assets.

Like the market economy, the platform economy is about extending the range of human cooperation to a much larger circle of trust. And while the technical infrastructure of the sharing economy is the internet and smartphones, the real breakthrough has come from clever use of reputational mechanisms such as private ratings, connection to social media identification, and inbuilt escrow and payment services.

The sharing economy is growing very rapidly, from almost nothing a decade ago to around $US15 billion today, with expected growth to over $300 billion within another decade, according to a recent report by PwC, an accounting firm.

There are many good economic reasons to welcome this arrival. Recent work by Adam Thierer and others at the Mercatus Centre at George Mason University in the US has elaborated the ways the sharing economy creates value for both consumers and producers.

By connecting multiple buyers and sellers, markets themselves become more efficient, engendering greater specialisation. And by lowering the costs of search, negotiation, and monitoring performance, they expand the range of choice and the scope of trade.

Furthermore, as information platforms, the reputations of buyers and sellers become public and can move from one platform to another, making the consequences of bad behaviour all the more costly, and rewarding good behaviour. Interestingly, this means there is a lot less role for public regulation in these markets.

The sharing economy is also a fresh boost to entrepreneurship. By offering an end run around regulators who are captured by existing producers with entrenched business models that don't necessarily map to what customers actually want, it allows suppliers to create value for customers long underserved by those incumbents that hide poor or expensive service behind regulatory protections.

But there has been a great deal of pushback from those who already compete in these markets, selling taxi services, hotel rooms, and so forth. The solution is not to regulate the sharing economy, but to deregulate old markets and allow them to compete.

The US Federal Trade Commission earlier last week held a workshop in Washington DC on 'The Sharing Economy' to discuss the issues facing platforms, participants, and regulators that underscored the scale of the economic benefits that can potentially be realised through effective regulatory reform.

The Abbott government's economists, along with the ACCC, should ask themselves the same: how can we benefit from this coming revolution?

Jason Potts is an Adjunct Fellow at the Institute of Public Affairs, and Professor of Economics at RMIT University.

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