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.

1. A person has an apartment and goes on vacation, they rent it out on AirBnB.
2. 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.
3. 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.
4. 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”!

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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/