The rise of the sharing economy

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.