2014 April

The Sharing Economy a Prelude to Revolution?

Everyone is gaga over the “sharing economy” – ra, ra, ra!

What exactly is meant by the sharing economy remains a bit of a mystery to me, the list often includes: ZipCar, AirBnB, Uber taxi service, Carpooling services, TaskRabbit, ODesk for hiring remote workers, power tool lending sites, and it keeps on growing. Wikipedia defines it as “The Sharing Economy (sometimes also referred to as the share economy, shared economy, mesh, collaborative economy, collaborative consumption) is a socioeconomic system built around the sharing of human and physical assets.”

The use of the internet to decentralize systems is far more complex than I originally thought, but I would like to take issue with the belief all disruption is good and the sharing economy is beneficial to society. Take as an example four situations of use of AirBnB, the apartment rental site.

A person has an apartment and goes on vacation, they rent it out on AirBnB.
A person has an apartment with an extra room, they could have a roommate to save money. Instead, they rent out their extra room 10 nights a month, which covers what a long term roommate would pay.
A person has an apartment. They rent it out on AirBnB and go traveling with the extra cash they are making by renting out a rent-controlled apartment.
A landlord converts a long term rent-controlled rental unit into a short term hotel.

All four of these situations pose unique opportunities and threats – yet they are all grouped under the “Sharing Economy” banner. When I spoke with Robin Chase, founder of ZipCar, about these situations, she agreed that the latter two cases were problematic for society and should be blocked. She also admitted the first two are not as clean cut as we might think. This is a blog post, not a book – so my analysis will be limited. Let me introduce a scientific concept to this essay, Thermal Mass

Thermal mass is a concept in building design that describes how the mass of the building provides “inertia” against temperature fluctuations, sometimes known as the thermal flywheel effect.[1] For example, when outside temperatures are fluctuating throughout the day, a large thermal mass within the insulated portion of a house can serve to “flatten out” the daily temperature fluctuations, since the thermal mass will absorb thermal energy when the surroundings are higher in temperature than the mass, and give thermal energy back when the surroundings are cooler, without reaching thermal equilibrium. – Wikipedia

The sharing economy removes thermal mass from society. We take full-time tax cab drivers and get part timers to use Uber, we take extra bedrooms and rent them on AirBnB, we take cars and rent them out by the hour on ZipCar. In principle, this is inline with economic progress – improving efficiency and re-allocating resources. Cars use less gasoline per mile today, flights are 30% cheaper and homes are more energy efficient.

Optimizing the use of under-utilized assets is generally a good thing – who wants waste? But, the times you want thermal mass or even waste is when you go through a lean time. In ancient times, before Wal-Mart and Costco, you had to produce your own food – on a farm or parcel of land! In a bad harvest year, families died, towns withered and war broke out to calm the peasants. Today we store millions of tonnes of food and our easy access to nutrition ensures we have less risk of a quick descent into chaos and society wide hunger. This seems good: we are optimizing systems without compromising the actual service. A car that runs on 10 miles a gallon is objectively better than a car that runs on 5 miles a gallon – assuming all else is equal.

Yet, when it comes to human society, things are rarely so simple. In human communities, all else is rarely equal. A system with low thermal mass heats up very fast, but also cools very fast – try spending 24 hours in the desert. So, low thermal mass increases volatility. As we disassemble our institutions in the name of disruption and efficiency, we are removing some of the thermal mass that helps stabilize society. We are closing hotels to open AirBnB, we are producing less cars to use ZipCar, we are hiring consultants instead of employees. These actions all improve efficiency and profitability in the short term, but when winter comes we might regret our lack of fat. If a sudden influx of refugees arrive, extra hotel space is useful; if cars are needed to transport medical or military equipment (see WWI), ZipCar might pose an issue; employees pay more taxes in a more consistent manner than consultants, schools require money to operate. So, when an object or service is not measured in isolation from society, i.e. a car, but is rather intertwined with human society – its value changes in relationship to both its use and it’s availability for use.

Most of our cars sit in our driveway or parking spot 20-23 hours a day. That is hardly useful. But, the availability of the car to be used by you at anytime during those 20-23 hours has some value. How much value? I do not know, but it is worth thinking about.

Also, as we disassemble our traditional businesses such as hotel companies, taxi fleets and employees in the name of “sharing” – the challenge of governments to collect tax dollars increases. Collecting tax money from 1 million companies is a lot more work than collecting the same amount from 10 big companies. Of course, the former system is in theory more robust to economic shock – maybe. As governments collect less and less taxes due to an increasingly complex economy and decentralization or revenue generation, they are forced into austerity and budget cuts. Those budget cuts will likely undermine the social safety net (unemployment benefits, pensions, education, healthcare), reduce our ability to support industry during economic downturns and fund a high quality education system. As those systems disintegrate due to budget shortfalls, citizens are forced to rent out their couch on AirBnB to make ends meet, sacrifice education for work or become a part time Uber driver. The sharing economy might in fact be a tool to take apart civilization.

Let’s be honest, Warren Buffet is not renting out his couch on AirBnB. The users of the “sharing economy” are primarily low and middle income people. The working classes, with large mortgages and rents are being pushed towards working extra hours or renting out their assets to pay for their growing bills. But then, their rent increases because their neighbors are also renting out their place on AirBnB. The vicious cycle of forcing everyone to utilize every asset and every spare moment actually leads to an increase in cost of the very same assets and services we need to have a good life. The sharing economy might be an elaborate trick we are playing on ourselves. Just as the Red Queen in Alice in Wonderland kept running faster and faster, without ever making progress – we are moving away from a 40 hour work-week into a world where we host AirBnB guests, rent out our cars, and pick up the laundry for our neighbor and spend less time with our kids.

The French revolution is rather complicated and I am by no means an expert. However, it is worth noting that the French revolution did not break out solely because of a noble cause (democracy) championed by the oppressed underclass. The French revolution can be traced back to taxation. In the French situation, the government at the time attempted to levy additional taxes on the wealthy aristocratic class to pay for a series of wars (support of US independence actually) and chronic state underfunding. The wealthy princes and nobles refused to pony up the cash and the government basically went bankrupt. The government’s failure to collect taxes impeded its ability to ensure basic security and services and security to the french citizenry; the lack of tax money led to the collapse of trust by the French public in the King of France. The evaporated trust turned into the revolution and eventually, the king’s and many tax-evading noblemens’ heads being severed from their bodies.

Vive le “Sharing Economy”!

*******

Some articles of note on our beloved sharing economy:

Antifragility by Taleb

http://www.salon.com/2013/05/12/jaron_lanier_the_internet_destroyed_the_middle_class/

https://news.vice.com/articles/why-airbnb-will-probably-get-you-evicted-and-priced-out-of-the-city

http://www.sfgate.com/bayarea/article/S-F-cracks-down-on-Airbnb-rentals-5381237.php#photo-6130485

http://www.businessweek.com/videos/2013-06-26/are-carpooling-services-illegal

http://m.newyorker.com/talk/financial/2013/04/29/130429ta_talk_surowiecki

http://www.bizjournals.com/sanjose/news/2014/01/13/uber-car-attacked-by-paris-cab-drivers.html

http://www.theglobeandmail.com/life/travel/quebec-cracks-down-on-airbnb/article12162984/

Published on April 24, 2014

On Basic Income

This simple concept could change the world: Give everyone a revenue without constraints.

Under the model referred to as Basic Minimum Income, all citizens would receive a monthly cheque for a reasonable amount of money. The amount would cover basic needs – food, shelter – allowing you to survive, but not stay idle. Citizens would still need to conduct some form of work and those that earn enough would ultimately pay back this stipend through their income tax. This proposal is going to a referendum in Switzerland and gaining increased attention amongst both left and right wing policy wonks.

In Switzerland, they are proposing to dole out $33,000 to each citizen every year. In oil rich countries, such as Qatar, salaries are already paid out to citizens. The Dutch dole out over $1800 a month to welfare recipients. The concept of free money to citizens is well established, it is just masked as pension plans, welfare payments and unemployment benefits. Yet, a simpler version could bring a number of benefits. There is mounting evidence that the best way to empower people, communities and reboot our economy is to simply hand out cash.

Basic Minimum Income is not a new idea, it has been proposed by leaders at both ends of the political spectrum. Proponents of basic minimum income range from the neoliberal economist Milton Friedman to the socialist civil rights leader, Martin Luther King Jr., who stated clearly,

“I am now convinced that the simplest approach will prove to be the most effective — the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.” — Where Do We Go from Here: Chaos or Community

Money is power. By better distributing society’s wealth, while simultaneously simplifying its management, we will hand power back to the people. With the added power and freedom, citizens would be expected to more fully participate in public life, better care for their children and parents, and contribute to the improvement of their communities and country. Ultimately, democracy is about distributed egalitarian power and without adequate financial freedom a large portion of our population cannot participate in the governing of society.

The money for this program would likely come from a variety of sources. First, numerous existing programs such as unemployment benefits, welfare, pension plans and student grants would be cancelled. Secondly, we could cut administrative cost substantially since we will no longer need to manage these programs. Third, new sources of revenues could be identified, some likely candidates include natural resources, a sales tax on online business, the repatriation of money held in tax havens and larger taxes on bank profits. By combining a simplification of our complex social programs and our complex loophole prone tax code, we could find the money to pay for a Basic Minimum Income.

A monthly income of $2 200, basically minimum wage, currently puts you at the Canadian poverty line. By adding a monthly $1300 stipend to the lowest salaries, we would bump someone living on the edge of poverty to a much better position, where they can invest in their future and their children’s future. For someone already earning a middle-income, say $45 000, an additional $1500 would let them pay for extra activities for their children, invest in their home or start that company they were thinking of. I will explore the math for Montréal, Canada and Québec in a future blog post, but I am convinced that basic minimum incomes is the foundation of a new, more potent democracy for the 21st century.

Ultimately, a basic minimum income is about freedom. Freedom from some of the constraints of a wage labour existence and the empowerment of individuals to participate more actively in social life and in their communities. The link between labour and servitude is a struggle we have dealt with since the beginning of civilization. The Greek philosopher Demosthenes stated simply,

“Many are the servile acts which free men are compelled by poverty to perform…” (Against Eubulides, 57, 45).

The benefits for basic minimum income (also called guaranteed minimum income) are numerous, but here are three.

1. Simplify governement bureaucracy or take out the middle man

Right now, we offer a myriad of programs to financially help people integrate the job market, go to school, or retire. All of these programs, and more, could be cut. Instead, we simply give out cash.

In the American sitcom “Seinfeld”, George once made the joke that life would be much better if you started as an old person, with money, got younger and younger, while retaining you wealth and ended as an orgasm. A basic minimum income would help compensate for the aggregation of wealth in the top age bracket. It would also allow for students and young families to invest in their education and future, making all of society richer.

By handing out cash, we would take power away from government, bureaucrats, politicians and place that power in the hands of citizens. The point is not that all government workers are bad, but rather that people tend to have a better idea of what they need than someone else. Of course mistakes will be made with these monthly payments, but generally speaking, less errors will be made than what we are currently doing.

Studies are emerging that show foreign aid (1) is better spent with clean, simple cheques to families than complex investment programs designed by policy wonks. The more complex a program, the more prone it is to corruption and abuse. Both abroad and at home, our complex systems are abused by crooks, costing us all a lot of money. As crazy as it might sound, people generally have a good idea of what they could use money for and when put in their hands (especially women), they tend to invest, pay back debt and build a future for themselves. If it works in Africa, why not here.

2. Place a foundation under peoples’ feet

Poverty is not simply a financial figure, it is a mental state. People without reliable income or a secure job live in constant insecurity. They do not know if or when they can pay the rent, feed the kids or can ask for a raise or promotion for feat or losing their job. The constant stress and worry contribute to mental health problems which harm them, their families and ultimately cost society extra resources for their treatment and policing. The lack of stability also reduces low-wage workers or temporary workers’ ability to go to school and move up the social ladder.

A minimum basic income would stabilize these workers, allowing them to focus on their long term future, instead of their weekly bills.

3. Encourage consumption

Islamic finance claims that a fundamental part of a healthy economy is the constant circulation of money. Like blood in the body, you want money to be constantly circulating, any dead pools are just that – dead. By distributing cash to citizens, consumption of goods and services will increase. This will lead to more tax dollars for the government, more stores staying open and a general increase in economic activity – which benefits everyone.

Imagine for a moment the impact of giving $ 1 500 dollars a month to someone on minimum wage, which is about $ 2 200 dollars per month at 35 hours per week. That person, who is perhaps a parent, would instantly be able to buy new clothes for they children, purchase higher quality food or invest in their home. They would generate tremendous economic activity and this is of course true for people above minimum wage too.

Arguments against a basic minimum income

The most common response to this remarkably simple idea of giving money out is that people need to earn their money and free money will reduce incentive to work. While I agree that handing out free money may reduce some incentive to engage in work, it will probably reduce people’s need to do undesirable work – serve at McDonald’s, mop floors or make low quality products. If anything, giving people a good exit strategy from low quality work will force companies to innovate and offer higher quality, more creative and better work environments where humans actually want to work.

To head off on a small tangent, basic minimum income will probably push companies to automate repetitive non-value added tasks. Henry Ford once said,

“If you need a machine and don’t buy it, then you will ultimately find that you have paid for it and don’t have it.”

A similar expression is that if something can be automated, it should be. During my time as a coop student at McGill, one of my peers was offered a job at a mine site. The company later admitted that prior to offering him the job, they did a cost analysis comparing his salary to the cost of a machine that would do exactly his job. He was cheaper than the machine and unsurprisingly his summer job was as boring as you could imagine. He took samples and tested their acidity for 4 months. If we had a basic minimum income (and a higher minimum wage), they would have bought machine due to a lack of candidates willing to work for low salary and both the student and the company would have been better off. By offering a basic minimum income, employers will be forced to automate repetitive non-value added tasks in their workplace to encourage people to work for them. A push towards higher workplace efficiency will make the average job more intellectually challenging and fulfilling, ultimately making our economy more advanced and more competitive.

Another common response to basic minimum income is that people will waste the money on booze, cigarettes and luxury items. My response is to ask you, “What would you do with $ 1 500 extra per month?”. Most parents or grand-parents say they would spend it on their children, offering them more activities, and taking more vacation to spend with them, etc. The rest of us, without offspring, risk spending it on good and services, helping kick-start the tepid economy we currently have.

A last negative comment to rebuke is the idea that offering this money would cause inflation, rent-seeking or that we simply cannot print this money. First, most of the money I am proposing to hand out comes from existing programs. For the rest, we could print it with little risk. A recent article outlines how during the 2008 financial crisis the United States alone printed 3.6 trillion dollars! Some feared this would lead to inflation, but in fact inflation has not budged. The article in question proposes to print an extra 200 or so billion dollars to be used for foreign aid (5). It is an interesting idea and we could certainly print that money and more and give it to our our citizens at home – who might even donate some of it to foreign aid!

Conclusion

The concept of basic minimum income solves a number of problems – government bureaucracy, lack of democratic power, and a slow economy. It appeals to both left wing and right wing people and can act as a catalyst for a rebirth of the notion of government and shared societal responsibilities. Hopefully, once some forward thinking countries have adopted such a system (i.e. Switzerland or Scandinavian Countries) and we all see how well it works, we will do it here. This spring, there is a conference at McGill on Basic Minimum Income, I hope you will join me there.

P.S. After my stint as an Open Data activist in Montréal and Québec, I am considering putting my time towards Basic Minimum Income in Canada. Please let me know what you think of this idea and help promote it within your networks.

P.P.S. Be certain to check out Basic Income Canada Network as they seem to be leading the charge at the Federal level.

Bibliography

1. Study on handing out cash as foreign aid program
2. Government Guaranteed Basic Income
3. Moral Aspects of Basic Income – Marco Nappolini
4. Free Money for everyone
5. Print money for foreign aid
6. Switzerland referendum
7. Rethinking the Idea of a Basic Income for All
8. Québec Solidaire support basic minimum income in Québec
9. Funny take on automation

Published on April 7, 2014

État du Québec 2013 : Des Québécois(es) brillant(e)sÉtat du Québec 2013 : Des Québécois(es) brillant(e)s

Voici ma réponse à la question « D’après vous, à quoi la participation citoyenne peut-elle être utile? », publiée dans l’État du Québec 2013 — une livre essentielle pour toute personne concernée par l’évolution de notre société. Disponible en librairie ici.

Des Québécois(es) brillant(e)s

Les meilleures décisions sont celles prises par les personnes et les groupes concernés. Dès que l’on éloigne les décideurs des partis affectés, un clivage entre l’impact voulu et la réalité se façonne. En tant que citoyens ayant des familles, des amis et des emplois, nous constatons quotidiennement des problèmes dans nos quartiers et nos milieux de travail. Même si nous ne détenons pas nécessairement les réponses à portée de main, des citoyens mobilisés, éduqués et impliqués ont les moyens de s’informer et de proposer des pistes de solutions qui peuvent améliorer leur qualité de vie. « Monsieur et Madame tout le monde » est beaucoup plus intelligent qu’on ne le pense.

Chez Wal-Mart, les employés jouissent de pouvoirs remarquables. Malgré sa taille imposante, chaque employé, peu importe son rang ou son niveau d’éducation, peut consulter le coût et le profit de tout article en magasin – des informations normalement gardées secrètes. S’il le croît opportun, il peut également décider de mettre un article en vente sans l’autorisation d’un supérieur. Lors d’une belle fin de semaine, un employé peut donc réduire le prix des BBQ à son gré. Wal-Mart sait que ses employés connaissent mieux leur communauté que son siège social et octroie le pouvoir décisionnel en conséquence. Bien que nos gouvernements soient plus complexes qu’un magasin Wal-Mart, ils partagent deux ressemblances: leur taille ainsi que la diversité des individus impliqués dans leur succès. Wal-Mart démontre bien que les grandes organisations qui comptent des millions d’employés ainsi que des centaines de millions de clients sont plus efficaces lorsque le pouvoir est partagé avec les gens qui sont sur le terrain.

Des études scientifiques financées et gérées par un gouvernement central sont essentielles pour prendre des décisions locales éclairées. Or, l’information ainsi cueillie et traitée se doit d’être accessible à tous. Si chaque employé de Wal-Mart peut consulter les détails de tout produit en magasin, chaque citoyen québécois doit être en mesure de consulter les plus petits détails de ses institutions publiques. L’accès à plus d’informations met les citoyens sur un pied d’égalité avec les fonctionnaires et les élus, permettant ainsi aux Québécois de se rapprocher de l’idéal grec d’une ville qui se réunit pour décider ensemble.

Si le but de la démocratie est de réaliser la volonté du peuple, les pouvoirs décisionnels doivent être remis entre ses mains. Tel que Platon l’a expliqué, “le plus grand châtiment pour l’homme de bien, s’il refuse de gouverner les autres, c’est d’être gouverné par un plus méchant que soi”. C’est donc par l’implication citoyenne que nous réussirons à faire cheminer notre société et à bâtir une démocratie moderne qui fera rayonner le Québec à travers le monde.Voici ma réponse à la question « D’après vous, à quoi la participation citoyenne peut-elle être utile? », publiée dans l’État du Québec 2013 — une livre essentielle pour toute personne concernée par l’évolution de notre société. Disponible en librairie ici.

Des Québécois(es) brillant(e)s

Published on April 5, 2014