There’s a whole lot of buzz about the sharing economy. Many seem to think it is something new, with some calling for a ‘new economics’ to explain it while others deride the ‘gig economy’ as a higher level of exploitation, inequality, and poverty.
Neither is a good analysis.
The Economy Shifts To Services.
First things first: the sharing economy was facilitated by advances in technology alongside consumer preferences changing from goods to services and thus from ownership to lease. These are not separate processes, but mutually constituting changes where each increases the other.
The advances in technology that brought about the sharing economy are those that allow for cheaper, faster, and more accurate communication, verification of factual claims, decentralized corroborated trust/reputation etc. They overall lower transaction costs by making information both available and trustable. The terrifying idea of ‘getting into a car with a stranger’ is no longer a problem if that stranger’s reputation can be tracked, is publicly available, and is backed up by the experiences of many others doing the same thing (as with Uber, Lyft).
Services Thrive On Trust.
The availability of such information also means we don’t need to rely only on first-hand (or second-hand through family and friends) trusted experience, but can, as it were, rely on the experience of unknown others – third-hand trust. This changes our behavior because the cost of making a mistake is much lower: getting into the car of a shady Uber driver is on average much less of a risk than doing the same as a hitchhiker or even taking a regular taxi. This change of behavior in response to ‘outsourced’ trust means the technology can progress further.
Economics becomes the subjectivist social science it was always meant to be.
The sharing economy, as the term implies, also means we can ‘share’ (make available) productive resources in much more effective ways. In a sense, it undermines the materialist view of value creation by dissolving the difference between ‘personal’ property and private ownership of the means of production: your personal car can now be both your personal property and your source of income – and you, as the owner, decide when and how. It doesn’t change the economic categories, but releases the economic analysis from the material goods.
This is all well and proper, since the economy is about the creation and distribution of *value* and not of material things. As value is subjective, so is the distinction between consumer good and production good. Everything can be both, and what is what depends on how you use it.
In other words, the effect of the sharing economy on the study of economics may (and likely is) the liberation of economic analysis from materialist biases. Economics becomes the subjectivist social science it was always meant to be. So in terms of economic theory, the sharing economy can help make the study of economics what it should be and always should have been: the study of the creation and distribution of [subjective] value and the unplanned social orders that emerge in the prosperity-creating process.
Decentralization Of Capital Ownership.
But what about exploitation?
I find the argument that the ‘gig economy’ makes people accept lower wages highly fascinating. Suddenly it is a problem to these critics, mainly on the left, that ‘workers’ own their own capital.
When personal property becomes capital, a source of income, then the obvious implication is a decentralization of capital ownership.
I’m not saying companies like Uber are in any sense perfect. They could certainly go further, by e.g. implementing free pricing between drivers and riders. Why not allow drivers to set their required minimum to provide a ride? Why not allow riders to set their max to get a ride? (This may actually be the next step in the sharing economy – an open-marketization of fares and fees.) The common argument that drivers (which is usually the example used) don’t make a ‘living wage’ is also a bias that remains from the materialist and industrialist view of economy. It assumes that a job is all about the salary, and that what matters is the monetary outcome of it. But many of those who choose to drive for a ride-share company do so because it is a *flexible* type of work, which is itself a value.
Sure, it may not be as high-paying as ‘full-time’ employment, but any choice includes a trade-off of value: to many, flexible work hours make up for the lower pay; for others, it doesn’t – so they instead seek traditional employment. The solution to the low wages in the sharing economy is not regulation, but more competition – and proper market wages. In fact, the reason ride-sharing companies can pay low wages (which, judging from my discussions with many a driver, exceed those earned by taxi drivers!) is the regulations already in place: primarily the barriers to entry in ride-sharing and elsewhere that keep overall wages down by providing employers with artificial influence (power). The expected outcome of the low-transaction cost economy should be the ultimate gig economy, where all or most hierarchies (such as firms) dissolve into market relations – and where those who (choose to) work earn a market wage. What stands in the way for this development is not employers or even capital owners, but those artificial restrictions that produce their privilege.
It is a sad irony, really, that those restrictions – regulations – that are intended to protect workers from employers (in the industrial age) is what stands in the way for worker liberation in the new era.
Per Bylund is Assistant Professor of Entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. This article first appeared at mises.org on Aug 24, 2018