The dark side of the sharing economy

The sharing economy: depending on who you ask, it’s the engine of a post-capitalist economy, the poster child of the Fourth Industrial Revolution, or the end of consumer civilization as we know it. Truth be told, it’s a bit of each of these claims, yet something unique that’s even more.

As an advisor to sharing companies, policy makers, investors and entrepreneurs over the past several years, I’ve had a seat at the proverbial fifty-yard line: as “access over ownership” has become a new tagline, as governments initially ignored and then became unglued by the realities of regulatory reform, and as a bumper crop of related terms grew up alongside. Now it’s not only the sharing economy we need to worry about, but the gig economy and on-demand economy too. What next?

At its core, the sharing economy is about the sharing of idle assets, usually via tech platforms, in ways that produce economic, environmental, social and practical benefits. Or at least it is supposed to be. Sharing rather than owning helps people - and increasingly organizations as well - save money, earn income, lower carbon footprints, increase social capital, boost community, meet new people, build trust (including “stranger trust”), and even enhance choice and convenience. Indeed, few if any other business models can profess so many benefits at once. This is an incredibly powerful proposition for individuals, companies, and society at large.

And yet, we are far from a sharing economy ecosystem that truly works for the benefit of society today - or, candidly in many cases, that even considers it. We can get there, but it will take concerted effort by companies, governments, investors, media, and - not least - sharing economy participants themselves. Here are the main reasons why:

Sharewashing

Over the past few years, the term ‘sharing economy’ has expanded and morphed to an extraordinary degree. While there are still many platforms that deliver on the original promise of the sharing economy - better utilization of resources, both boosting efficiency and building social capital - there are others who unabashedly add the term ‘sharing’ without it having any bearing on business model. Calling a new platform ‘the Uber of X’ is an immediate tip-off, and the press has done a good job stoking these flames.

The sharing economy is not the gig economy

The sharing economy allows people to earn income in new ways, yes. But the gig economy goes far beyond this, affecting workers of all ages, expertise and industries, and equating the two distorts both unfairly.

The future of work is a big deal. A huge deal, in fact. But we would do much better to call those issues accurately, rather than lump them in with the sharing economy. For example, the growing list of lawsuits being filed around worker misclassification (are ridehailing drivers and delivery couriers independent contractors or employees?), questions about whether technology is formalizing or informalizing labor markets, and efforts to rethink social safety nets in light of the growth of independent workers revolve around the future of work and labor force shifts. They are neither manifest in, nor bound by, the sharing economy.

Assets still matter

“Access over ownership” has myriad benefits. But let’s not delude ourselves that it’s a panacea. Historically, many people held their wealth in what they owned: their homes and possessions. These assets also served as cushions in time of hardship. As we enter an era of ‘asset lite’ lifestyles and fewer physical possessions, this doesn’t negate the need for other forms of wealth in times of strife. If people are saving or investing the money saved by sharing rather than owning, great. But if we’re heading towards a world in which people have fewer assets and lower savings, we are actually decreasing our resilience as a society.

People and community first

As the sharing economy has grown, there has been a distinct shift towards ease and efficiency, often at the cost of relationships and community-building. Some have called this tension “transactions over transformation.”

Interestingly, when people are interviewed about why they first begin to participate in the sharing economy - sharing their car or joining a co-working space - the overwhelming majority point to economic benefits. However, when asked why they stay and/or become more involved in the sharing economy over time, that response shifts, and community benefits matter most: people enjoy meeting others and becoming part of something greater than themselves. The insight here is, while economics matter, any platform that fails to focus on community will have a (much) harder shot at success over time.

Inclusive, really?

It’s easy to claim that the sharing economy is more inclusive. Certainly if more people can access something - especially if they might not be able to afford to actually own it -- that’s inclusive, right? Often yes, but not necessarily.

We must remember that inclusion is not one thing: there’s geographic inclusion, ethnic and racial inclusion, financial inclusion, digital inclusion, age inclusion and many others. In addition, there are tech-enabled (and usually unintentional) barriers to inclusion, such as the hidden bias in algorithms deployed by platforms.

Personally, I have spent a great deal of time focusing on the potential of the sharing economy to help low-income people. There is no doubt that the sharing economy can help lower-income people save money, which increases their disposable income and provides a runway towards more savings and opportunity. But if participation in these platforms requires reliable internet access and a credit card, yet in many parts of the world many people lack these things, then is the sharing economy truly inclusive? Rather, we must look at it holistically, and recognize that investing in digital infrastructure and financial services -essential gating factors - is necessary for a sharing economy that can truly benefit everyone.

Company culture, leadership and ethos matter

Tech-enabled sharing economy companies are two things: technology and people. In order to harness the technology responsibly, we need proper leadership, corporate culture and ethics in place.

Nowhere have we seen these features tested more than at Uber this year. (Ironically, Uber does not consider itself part of the sharing economy - it has always claimed to be a technology and logistics platform, leaving resource utilization and community building aside - but the press and public seem to have missed this point.) Uber has had setback after setback, from sexual harassment scandals to losing its London license (on the basis that the company is not “fit to operate”), leaving drivers struggling with debt in many markets, and a public showdown to remove its founder and CEO.

I am reminded time and again of the parallels we see with the commercialization of microfinance some ten years ago. At this time, some microfinance institutions (MFIs) began pursuing growth at all costs, including extending loans without financial literacy and putting VC demands before the needs of clients. Their goal was an IPO. However, those who did so lost the trust of their clients over time, and pushed many of them into serious personal hardship, including bankruptcy and suicide.

Failing or forgetting to do one’s homework

Ownership mindsets are embedded deep within many societies, particularly in developed markets. Building two-sided markets requires intimate knowledge of both sides. Community building requires building relationships over time. All of these things take time, effort and research - in other words, homework.

As the sharing economy has grown, some entrepreneurs and investors have become increasingly lax about doing their homework. Particularly in China, where the government has declared the sharing economy a “national priority,” there has been a race to launch. This has not always been matched with appropriate due diligence.

A great recent example is dockless bikesharing, pioneered in China. In less than one year, start-ups have raised hundreds of millions of dollars and expanded to the U.S. and Latin America. However, they appear to have done this without paying enough attention to the significant challenges already faced in China, from theft to piles of unwanted bikes clogging city streets. This is not a case of “build it and they will come”; they may come, but gradually and in their own time. Meanwhile, investors and platforms alike should gird themselves for a long, bumpy road ahead.

Restoring the sharing economy to its full potential

The challenges faced by the sharing economy today are largely a result of its success, and as many would agree, it is here to stay. Needless to say, much can be improved. What steps should we take to ensure the sharing economy is a force for good and has a banner year in 2018?

Go back to basics: the sharing economy is undoubtedly complex, but we should not include things in it that simply aren’t sharing. Rein in overbroad use of terms.

Take responsibility: the sharing economy is tremendously powerful and offers many benefits, but it is not a panacea. It must be harnessed responsibly. Collectively we -- platforms, policy makers and users -- must do our homework. It’s time for industry-wide alliances to invest in new approaches to social safety nets. It’s time for policy makers to step up and do the hard work of meaningful, fair, appropriate policy reform. And it’s time for new partnerships between private, public and social sectors that help keep tech as a means to an end, rather than an end in itself.

Business model reform: the sharing economy has shown us that there are a lot of new, and previously un-fathomed, ways to build a business. Now is the time we must take this knowledge to the next level. From platform cooperatives to zebra companies (as an antidote to unicorns), the time is ripe to invest in models that are - by their very DNA - more equitable and resilient, and that provide upside to everyone that’s involved in their growth over time.

Think holistically: for the sharing economy to thrive - and to be truly inclusive - it must also be linked to digital inclusion, financial inclusion and cultural inclusion initiatives. Invest accordingly.

Hold the press and politicians accountable: the press has had a field day using incorrect terms and stoking the wrong kinds of debates. Politicians are concerned, not least because there are a lot of unknowns to answer and hard work to be done. But these excuses cannot be shields. Rather, it’s time to wake up, lean in, and get to work.

Fundamentally, the sharing economy is a phenomenal tool in our economic toolkit. It is also an increasingly important part of the overall economic pie. So let’s gear up for its best year ever, one that - finally! - calls it what it is, places people at the center, and reaches its full potential.