ESSA

ESSA

The rise of the sharing economy


Hugh Oliver

By

October 14th, 2013


Human wants are unlimited. Conversely, resources are limited. Oliver discusses how the concept of a ‘sharing economy’ is one means of reconciling these seemingly irreconcilable factors.


At the heart of economics lies the fundamental problem of scarcity. As Lionel Robbins reflected, economics is a science that studies ‘human behaviour as a relationship between ends and scarce means which have alternative uses.’ The recurring challenges faced by economists, consumers, businesses – in fact, everyone – is how to allocate finite resources amongst infinite needs and wants.

The problem of scarcity has been amplified by the rapid growth in consumption and the insatiable desire towards the possession of more and more material goods. As technology has evolved and enabled resources to be used more efficiently in order to raise living standards, paradoxically, resources are being used to satisfy wants at the expense of needs.

We are constantly bombarded with advertising and marketing campaigns designed to convince us that more is better. Many believe that the door to happiness can only be unlocked by the ownership of material possessions. There is a tendency for individuals to conceptualise themselves in terms of their wealth, occupation and ownership of luxury goods. Firms must respond to these demands of society – or else be driven from the market. Consequently, too many resources are allocated inefficiently towards this end.

How can we strike a balance between rapidly growing levels in consumption and corresponding multiplication of wants against the importance of allocating resources sustainably?

This dichotomy – namely, the conflicting tension between growing levels of consumption against the need to conserve resources – underlies the concept of the ‘sharing economy.’

In essence, a ‘sharing economy’ refers to an economic system that enables shared consumption of goods and services beyond singular ownership.[1] A sharing economy is underpinned by collaborative consumption whereby owners rent out goods (or services) that they are not using i.e. A loans his or her car to B when he or she is not using the car and B pays a rental fee for the use of the car. The idea that an individual can pay for the use of a product or other human resources without actually owning them is fundamental to the notion of collaborative consumption.

Underlying the notion of a sharing economy is the desire to ensure resources are utilised efficiently. Everyday goods and services lie idle. To illustrate, the average car in the USA is driven one hour per day.[2] The average person in a developed country has unused clothes lying dormant and unused in their wardrobe. In fact, all sorts of items remain unused for periods of time each day – whether it be books, DVDs, or iPod speakers (to name a few).

What if it is possible to connect all the people who own idle resources with people who are willing to consume them?

The end result?

Wastage is reduced and a more efficient system is produced. Rather than allocating resources to redundant ends i.e. producing cars that will be used occasionally by ‘owners,’ the sharing economy enables a single good (i.e. a car) to satisfy many users simultaneously – preserving resources for use towards other ends.

Importantly, the dynamics of the sharing economy are not actually new.[3] Rather, the sharing economy operates in a way that makes capitalism more efficient. In particular, the online marketplace in which the sharing economy generally functions has the ability to connect sellers with consumers on a scale that is unprecedented.[4] This drives down transaction costs (costs incurred in making an economic exchange) by making it easier for interested buyers and sellers to locate one another.

In addition, consumers are conferred access to a wider range of products than they could ever own on their own accord. Instead of being tied to owning one car, consumers can drive numerous different ones. ‘Airbnb’ features more than three hundred thousand listings from individuals making their apartments and homes available for short term rentals. ‘Snapgoods’ makes it possible for people to borrow consumer goods from other people in their neighbourhood or social network. Businesses such as the bike sharing service ‘BIXI’, the toy library ‘BabyPlays’, the solar power service ‘SolarCity’ and the clothing swap service ‘Clothing Exchange’ enable users to enjoy products or services without the expense, maintenance requirements and social isolation of individual ownership.[5]

Importantly, studies have demonstrated that the ties between consumption and ownership are fading, particularly amongst younger people. Websites such as Spotify and Netflix testify to this notion.  Increasingly, renting predominates over ownership. In turn, the sharing economy represents a means through which the consumer’s growing desire to consume – as distinct from a desire to own – can be balanced against the sustainable use of resources.

Ultimately, individuals are resorting more and more to models of consumption that emphasise usefulness over ownership, community over selfishness, and sustainability over novelty.[6] The sharing economy exemplifies these values whilst attempting to strike a delicate balance between the desire to consume against the sustainable use of resources.

 


[1] Surowiecki, J, ‘Uber Alles,’ (2013) The New Yorker

[2] Ibid.

[3] Jones, M, ‘How Capitalism and Regulation will Reshape the Sharing Economy,’ (2013) available at www.forbes.com

[4] Ibid.

[5] Park, K, ‘What mine is yours: the rise of collaborative consumption’ (2012) available at www.newventurist.com

[6] Ibid.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Owen Wakely

    Hi Hugh. Neat article about a trend that will transform how we live and consume and acquire products and services. I am sure you are aware of the recent buzz around Google’s investment in Uber and the rationale behind it. It gives further context to your article. Google’s largest ever venture investment ($258M) valued Uber at a staggering $3.5B. Sensing technology is moving ahead and a cracking pace and driverless cars are now a reality (1). Google has invested heavily in the technology behind these cars and now is investing in technology behind how we share these cars (2) (you probably saw Matthew Yglesias’ article on this in the Australian Fin Review). Why did Google make this investment and value Uber so richly? Imagine a world where we don’t own or desire to own cars. We simply hail cars on our smartphones or Google eye glasses, they arrive, driverless, and drive us to our destination safely. With no drivers, senses within the car prevent the car from exceeding speed limits, no need for a driver’s license, no need for individual car insurance, parking garages largely disappear and there are far fewer gas stations. That’s the world Google has in mind that will be with us before we know it. Our addiction to cars, the one adult one car lifestyle, is changing and changing fast. The automobile industry and its myriad impacts on our lives and our landscape are going to change in our lifetime. Like the Uber shareholders, and Google, the winners will be those with the vision to take us on that journey. Cheers Owen

    (1) Neil D, “Driverless Cars for the Road Ahead”, 2013, available at wsj.com
    (2) Yglesias M, “Google and Uber Could Transform America”, 2013, available at http://www.slate.com and http://www.afr.com

    • Hugh Oliver

      Very interesting response Owen!

      It will be fascinating to see how technology continues to transform our lives into the future.

  • Dave Sharpe

    Cool article on a very cutting edge topic Hugh. Might have to dust off that old Malvern Star in dad’s garage and see if i can get me a piece of the sharing economy. Great job Hugh. Dave

    • Hugh Oliver

      Thanks Dave! I’m sure you could find someone who would appreciate the sentimental value!

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