Sharing drops out of the sharing economy
"The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism," a new book from Arun Sundararajan, a professor at NYU’s Stern School of Business, is described by Quartz as “a sweeping survey of today’s economic model and the companies changing it.” Sundararajan laments the lack of actual sharing in today’s sharing economy, as the vast amount of services are performed in return for payment, however, he also suggests that US workers in digital marketplaces now earn slightly more than their non-digital counterparts. Nevertheless, the digital workers still face challenges due to outdated employment laws that classify them as independent contractors, which deny them most legal workers’ rights. He also points out the importance of reputation and feedback for sharing economy platforms to build the trust required for successful peer-to-peer transactions.

You’ve probably heard: This is the age of the sharing economy. Three in four Americans have now used some type of shared or on-demand online service like Uber or Airbnb, according to a May Pew report.

But what is the sharing economy? Only 27% of Americans say they’re familiar with the phrase, not to mention its rivals: the “gig economy,” the “digital economy,” “crowd-based capitalism.” What does it do? Does it help workers or hurt them? Transform industries like transportation and lodging for everyone, or create a new tier of services for the wealthy elite? Improve the economy, or exploit loopholes in important regulations?

Advertisement

Arun Sundararajan, a professor at New York University’s Stern School of Business, seeks to answer all these questions in a new book, The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism, a sweeping survey of today’s economic model and the companies changing it. Quartz caught up with Sundararajan to discuss his book, the greatest innovations to come out of Uber, and whether we’ll ever stop calling it ”the sharing economy.”

Quartz: Data from economists Lawrence Katz and Alan Krueger, among others, shows that the sharing economy is mostly Uber. Your interpretation of the sharing economy is obviously broader than that, so how do you think about it?

Sundararajan: At this point, a significant fraction of the people who work full time or make a living full time doing things that fall under the umbrella of the sharing economy are Uber drivers. But I think part of my goal in the book is to, paradoxically, try to get past the label of the sharing economy. Paradoxically because I call the book, The Sharing Economy.

There are many bad labels for “the sharing economy.”

Advertisement

The reason why I favor “crowd-based capitalism” is that it points to the breadth of the shift that has manifested itself through platforms like Uber and Lyft, but also through Airbnb soon becoming the world’s largest provider of short-term accommodations, millions of sellers on Etsy, and a wide variety of financing models that are crowd-based. I think if you put all of those together, you would get a small but significantly larger fraction of the economy than some recent sharing economy studies suggest.

Why do you think people struggle so much to define the sharing economy?

At the end of the day, we’re not talking about one simple change or one simple new economic model. We’re talking about a wide range, and I’m tying them together through this [idea of] tapping into a crowd-based network. But there’s more of the original idealistic conception of the sharing economy in some of the commercial platforms than there is in others. There’s more in Airbnb than there is in Onefinestay. There’s perhaps more in Lyft than there is in Uber.

Advertisement

Why do you think idealism is so tied into the sharing economy?

There was also a lot of idealism tied to the emergence of the internet. I was a graduate student around then, and there was the same tension of, “This is going to change the world, it’s going to democratize, institutions will dissolve.” It’s not clear to me that there’s any more idealism associated with the sharing economy than, say, with the dot-com bubble or the wave of early internet exchange.

You recently had a piece on Quartz that discussed how these companies, combined with consumer ratings, are creating a new form of trust in America. How important is that trust to the sharing economy?

I think it’s central to the existence of the sharing economy or crowd-based capitalism, at scale. We’ve had things like Craigslist, apartment shares, carpooling, so they’ve always existed on the fringes. But it took the emergence of this mainstream digital trust infrastructure to catapult it into the core of the economy.

Advertisement

Trust in the US has been falling over the last 40 years. This drop has been particularly acute among people who are in the age group of millennials. This is the generation that grew up digital. I think part of their embracing the sharing economy is a rejection of what used to facilitate trust, and an embracing of the trust mechanisms that are native to them.

Where do you think the sharing economy will be biggest?

China is by far the biggest market for the sharing economy. China is a big market in general, but I also think that China’s consumers are coming of age now. They don’t have the entrenched consumption behaviors that consumers in the US and western Europe have. China and India are going to be birthing hundreds of millions of new members of the middle class. Instead of saying, “I’ve arrived, I’m going to buy a car,” I can see them saying: “I’ve arrived, I’m going to start using Didi. I’m going to start using Uber.”

Advertisement

A lot of these companies—Uber is a good example—are hyperlocal in their operations, but global in their ambitions and scale. How do you see that playing out?

Some of the real innovation is in new ways of running a company that can build a local operation rapidly in hundreds or thousands of different cities around the world. Honestly, I think that’s Uber’s most significant innovation. They’ve got fabulous data scientists and all of that, the technology is great, but really, the ability to launch in hundreds of different cities and replicate rapidly—

They’re like a virus.

I can’t think of a better analogy than that. They’re pursuing a path to dominance that is actually much more reminiscent of 20th century industrial capitalism than of Google or Microsoft or Facebook.

Advertisement

Take eBay, where you’d need to marshall millions of sellers to compete. Whereas with Uber and Lyft, every market is pretty much isolated from every other market. What most people really care about is, ”I want a good service in my city.” And so the numbers you’re talking about—if you can get 10,000 drivers and 100,000 customers, you’re viable. That’s a far lower bar than millions of sellers.

One of the biggest questions about the sharing economy is whether its workers should be considered employees, independent contractors, or some third, yet-to-be-defined option. Where do you come down on that?

The debate about if Uber and Lyft drivers are employees or independent contractors is masking the deeper issue.

I take advantage of my position as a professor to say that’s not the right question. The debate about Uber drivers and Lyft drivers being employees or independent contractors is masking a deeper issue, which is that more and more of our workforce don’t fit into the box of employee. There’s a different relationship that is being built between the individual and the institution that will soon supersede the full-time employment model.

Advertisement

The relationship between the individual provider and the institution that enables it is fundamentally imbalanced. One is big and the other is small. We’ve corrected that imbalance in a wide variety of ways over the last few decades: through the labor unions of the 1950s and 1960s, there’s a whole bunch of labor law. And in parallel, we’ve also created a good funding model for the safety net associated with that relationship. Full-time employment looks good now because it’s a lot better than when it started and it has the social safety net built around it. That’s why independent contractors might want to be full-time employees.

Ok last question. What do you think is the worst term for “the sharing economy”?

[Laughs.] I don’t know. I didn’t like “rental economy.” It just sort of completely ignored all of the innovation and change. We had a rental economy a while ago; we’ve been renting things for a long time.

Do you think we’ll ever shake “sharing economy” as a phrase?

Advertisement

It’s hard to say. Back when “social media” came along, people didn’t like it because things weren’t really social. When Facebook called your friends “friends,” it was like, well these people aren’t really my friends. Now, social media sort of has its own independent meaning. So it’s possible that “sharing economy” will remain. You know, I’ve sort of got a vested interest here. I’m going to do everything I can to make sure the term sticks.

This conversation has been condensed and edited for clarity.