The Broken Promise of the #SharingEconomy

Book Review: What’s Yours Is Mine (2016) by Tom Slee

Why bother buying and owning a power drill? Over the course of years, the machine will actually be used only a couple of minutes. Why not share a power drill with your neighbors? With social networks, sharing has become easier than ever before, even if one happens not to know too many people in the neighborhood personally. Social networks will help to overcome anonymity and free us from the reliance on purely commercial services. Everybody will be better off.

This is the kind of story which is at the root of the so-called sharing economy’s success. The sharing economy – this is services like Uber and Airbnb, Zipcar and Lyft, Nextdoor, Taskrabbit and many others.

Market value results from the ability to circumvent regulation

The truth is: Sharing power drills is something which rarely happens. What does happen, instead, is that a new market for precarious, informal labor and unregulated services has started to develop under the roof of the sharing-idea. This, says the British-Canadian Journalist Tom Slee in his new book What’s Yours Is Mine, explains the tremendous success of the sharing economy in terms of listings on the stock exchange or raising venture capital (Note: Uber’s market valuation exceeds that of the world’s largest car rental companies, Airbnb’s is equal to those of the world’s largest hotel chains):

Sharing economy companies’ price advantage, the reason for so much investor interest in the sector, and the reason for the correspondingly massive market valuations of the leading players, is not just a product of the efficiencies of their technology, it’s also a product of their ability to circumvent or change regulations.” (Slee, 169)

Examples? Uber circumvents the payment of taxes for transportation services, drivers’ insurance costs and vehicle inspections. Airbnb circumvents regulation concerning housing for tourists. LendingClub, a company in the finance business, bypasses regulations for credit scoring which prohibit credit card discrimination on the basis of race, color and religion. And so on.

Intermediary Liability

The more general issue in question is intermediary liability. Just as Google, Facebook or YouTube do everything to avoid taking responsibility for content on their sites, Airbnb and Uber claim to be “just a website” connecting people. This is, in fact, not very convincing. Uber helps Uber-drivers to get credits to pay for their cars. There are strict rules for drivers; non-compliance with these rule and less than optimal rating by customers are fined with exclusion of a driver from the listing on Uber. This is far more than “just a website”. Similar with Airbnb: Airbnb has actively helped to install a grey market for housing. Although Airbnb presents itself as “just a website” connecting people who occasionally want to accommodate visitors or find a place to stay in a foreign city, the greatest part of transactions on Airbnb involves professional renting in the city center. Airbnb offers a perfect hiding place for professional renting. Even if the city government might have decided to restrict the number of flats used to accommodate tourists: Airbnb is the ideal instrument to circumvent any of these rules! It’s only consequential, that Airbnb again and again denies delivering information on renting places to the local authorities.

The more general issue in question is intermediary liability.

Take Berlin, where Airbnb sells more beds, rooms and apartments than in all other German cities taken together. From 11 000 apartments for tourists which were offered on Airbnb in May 2014, numbers have been risen to 17 500 apartments in 2015. This means, that one out of 108 apartments in the city goes to Airbnb. If one takes into consideration that most Airbnb-apartments are located in the city center (see here for an animated map), numbers are tremendously higher in those areas. (But, to be fair, rising rents in Berlin have many other reasons too – such as a more and more people moving into the city and low interest rates, making it attractive for many to seek investments in real estate.) Many of the offers on Airbnb represent illegal hotels – rented apartments, transformed into short-term rentals for tourists. Sure: “power users” (people offering several apartments at once) on Airbnb can be easily detected from the outside, as a recent data-journalism-project by students from Potsdam has demonstrated. But Airbnb really actively helps “Martin”, “Frank and Florian” or “Raja Jooseppi” to hide their real identity. As a customer, I can be quite sure that “Martin” and “Frank and Florian” are trustworthy because of their ratings and because I know that they have sent a copy of their passport to Airbnb. But local authorities can hardly deliver a legal notification to some “Martin” on Facebook!

“Sharing” – as well as the behavior of the sharing-companies themselves – thus leads to the circumvention of those rules which initially were designed to protect public interest. City governments aiming to restrict accommodation of tourists do so because affordable housing has become a problem. Rules of security (such as fire-alarms in hotels) protect consumers from harm resulting from ill-equipped service providers. Taxi-companies which are required to entertain a certain percentage of vehicles suited for the transportation of children and disabled persons because, as a public service, they are obliged to guarantee universal access.

No economic advantages

Even in purely economic terms, “sharing” doesn’t offer too many benefits. The deregulation of the taxi-business, which de facto has happened with Uber and other services, leads to anything else than classic economic theory would predict. Even though there are more cabs on the road, prices for transport rise – while earnings for driver decline. This at least is what has been observed as effects of past deregulation). Uber, on the hand, has reported annual income for Uber-drivers being $90,766 in New York City and $74,191 in San Francisco. What the report did not mention clearly, though, that this amount of money was only achieved by drivers working more than 40 hours per week; also costs for owning and entertaining a vehicle were not taken into consideration (including payments for gas, maintenance, car depreciation, insurance, tolls and parking). If one accounts for these costs, total earnings come down to about $45,000 in New York and $37,000 in San Francisco. As a later report revealed, in most cities Uber-drivers driver make only half as much as in New York, which might explain Uber drivers frequent complaints about low income at forums as or Reddit.

One wonders, though, if a similar story could be told for other actors of the sharing economy. Take Airbnb. With Airbnb, travelling has become more affordable and also more enjoyable for many, many people. Also, it offers many people the opportunity to accommodate guests in exchange for a small fee. Why should this be a bad thing, after all? There seems to be no recognizable impact on the hotel industry, if one can believe the company’s spokesman Chip Conley. According to Conley, two studies – one commissioned by Airbnb New York City and one performed independently in Texas by a Boston University professor – show that Airbnb’s impact on hotels is relatively negligible: For every $1 spent with Airbnb, Conley says only 5 cents of it is coming from what would have gone to hotels.

Need for counter-stories

But more important is the overall story. What Yours Is Mine shows why the sharing economy’s founding myth – the power drill going hand to hand –is unsustainable in the light of most observable facts. The counter-story he has to offer is less cheering, but probably better compatible with reality. It’s the story of a broken promise. Some have broken this promise by intention. In other circumstances, it is commercial success which ate away the very characteristics that gave “sharing” its early appeal. Broken it is, either way. Taking into consideration how successful the sharing economy has been so far in making us believe that “sharing” is a social business, it is very important that this other story is being told, too. Yes: “sharing” is, to a great part, a system to circumvent or to change regulations. It’s not always to our benefit.


For more on this topic, read Tom Slee’s interview with Per Strömback