Tag Archives: Viraj Parekh

The Sharing Economy – Worth it!

What exactly is a sharing economy? By definition on dictionary.com, it’s “a system in which people rent, borrow, or share commodities, services, and resources owned by individuals, usually with the aid of online technology, in an effort to save money, cut costs, and reduce waste.”

The sharing economy makes it possible to hail a private taxi with a single tap of my fingers, I can even book a residence for myself halfway around the world with but a few clicks; the sharing economy provides a quick and easy way to get what I want.

But even with the convenience it offers us, is it really worth it?

Let’s begin by looking at what the sharing economy has to offer us:

    • Service providers can make money off of their underused assets. Don’t travel much but have a car just sitting in your lot? Not a problem, the guy from Australia just came over for a visit and needs a car for a few days, and he’s willing to pay! 
    • Even the renters are able to save money! If I were to go vacation in Venice, needing to travel is a must. If I could just rent a car from a fellow there, not only would it be cheaper than buying a car for my short stay, but also cheaper than renting from a professional place.
    • We can save the environment! By utilising excess capacity, there is less demand resulting in a reduced resource requirement.
    • Heck, other than the above mentioned economic incentives, there is so much more to gain socially.  “If you rent a room from someone on a hosting site like Airbnb next time you travel, you have a chance to meet someone new and get recommendations from a local.”

The sharing economy is not a source of full-time employment. In fact, the vast majority of Uber drivers work less than 30 hours a week, with 66% saying they have no set hours. Further, the average Airbnb host rents out her property for 33 nights a year. The peer-to-peer transaction of the sharing economy has made it a great source for supplementary employment.

The sharing economy, regardless of how non-capitalistic it sounds, still follows the basic rules of economics. There must be a high enough demand for a product or service that is provided before it can become a self-sustaining sharing ecosystem.

Take Uber, for example, the service they provide already existed in the form of public transport and taxi’s, yet they have become so popular overnight. To the average person without economic insight, this might be preposterous, what makes them so much better that people prefer them over the taxi service?

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Well, it’s simple, taxi services are capped per city, meaning there are only so many taxies in each city at any time, this controlled supply can often not keep up with fluctuating demand, resulting in higher taxi prices. Uber, on the other hand, has no such limit making it so the prices they offer are much lower than what taxi’s do. The graph below economically describes the taxi situation. As the supply is constant while the demand shifts, there is an increase in the price of the service.journal 1

With such a simple way of saving money, why not? “Once you go Uber, you never go back.” I sure as hell didn’t once look back after switching over, and I’m pretty sure any wallet worrying fellow citizen will do the same!

In fact, when peer-to-peer platforms and markets are allowed to compete on equal footing with professional capitalist firms, it results in a less expensive life for us consumers.

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This graph may only be about taxi and Uber, but it gives us a perspective on how all sharing platforms gain their popularity – easy and price.

As consumers, the sharing economy seems more and more appealing with every point, but I want to know who else benefits?

  • Consumer’s benefit with a tonne of new job options and cheaper products and services. Renting becomes so much easier. 
  • Service provider’s benefit by earning money off of unused assets.
  • The general public benefits as there are new ways to make money in this economy and not just through jobs. Renting things out and saving on taxes being a few. Many do not have the capital needed to start a new business, but by renting out a few cars through the sharing economy, it’s the start of something big!
  • Small businesses benefit by procuring extra cash and saving money by renting off unused equipment and space.

In fact, business experts such as Eric Wagner cite cash flow problems to be the main reasons that 80 percent of small businesses fail. Survival for a small business is based on cash flow, and making use of unused assets to supplement cash flow makes the sharing economy extremely beneficial to them.

But even with all these wonderful sounding arguments, there must be something disadvantageous about it right? If it was flawless, everyone would partake in it! Let’s look at a few of its disadvantages:

  • Loss of tax revenue for the city or country. Platforms such as Uber and Airbnb sound wonderful on paper, but they are also largely based on avoiding regulations. Airbnb customers often do not pay their share of taxes, and other such services that lend out power tools, dresses and the like are also loosely regulated, resulting in millions of tax dollars going unpaid. In fact, several countries and cities have tried to fight sharing economy platforms such as Uber and Airbnb from coming into their lands.
  • Safety is another concern. Airbnb may allow someone to rent out a room in someone else’s house, but without proper regulation, how safe is it exactly? Hotels and professional companies are highly regulated and provide a safe environment, but in a sharing economy, everything is done by the people with no proper supervision. Peer-to-peer doesn’t sound so good now does it?
  • Nuisance. Now this applies mostly to services such as renting a place to stay. Neighbours have a right to not feel like they are living next to a hotel, in fact, that is why many cities have zoning restrictions!

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Airbnb provides people with a way to avoid taxes and regulations, and can even be said to not be a net plus to the society. The sharing economy would make others worse off by having to carry the additional burden of taxes or being forced to live next to a residence that seems like a hotel with a stream of noisy visitors.

The sharing economy can be unfair to people who work in it by taking away benefits such as leaves, health care and bonuses that full-time employees enjoy. The sharing economy and platforms that enable it greatly harm businesses that compete with them.

Taxi’s in countless cities become less and less attractive as Uber becomes prevalent. What will happen to those hundreds and thousands of taxi drivers and all those in the industry now? What about those small motels that made a living off of visitors that now go to others because of Airbnb?

In the city of LA alone, the number of taxi trips arranged in advance has dropped by 42% and a total number of trips have fallen by 30% since the start of Uber and other such platforms. What of all those taxi drivers that made their living like that? What if they have no other skills to make money, what type of situation would that leave them in? The graph below shows the steady fall in taxi use per day in New York City while the use of peer-to-peer platforms increases.

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HVS estimated that hotels lose approximately $450 million in direct revenues per year to Airbnb. Between September 2014 and August 2015, 480,000 hotel room nights were reserved while over 2.8 million room nights were booked on Airbnb. This disparity is expected to increase next year. Clearly, the ‘sharing’ site Airbnb has caused a diminish in the demand for traditional hotels and caused many to lose their livelihoods.

Even the government loses out on this. Private transactions cannot be tracked, often resulting in no taxes being paid. With the decreased revenue, not only the government suffers, but so do we as the citizens.

Furthermore, due to the nature of the sharing economy, there is very little to negligible government involvement. As I have mentioned before, the sharing economy is peer-to-peer. A transaction between two people not controlled or regulated by the government or an appropriate authority. This results in many cases of scams and frauds. With no protection, the buyer can often end up scammed with inferior merchandise with no way out. Even service providers can be scammed by providing hours of hard work after which the client is nowhere to be found.  

These points put everything in perspective, finally, we can see that the sharing economy is not all sunshine and rainbows. There are a great many costs and disadvantages involved that are hidden behind the veneer or helping each other and ‘caring’ for each other.

With all this, it begs the question: is the sharing economy really worth it?

I still think it is! Sure there might be safety risks, but such services are becoming more and more looked into, regulations may be easy to avoid but with a little bit of precaution and prior research, it is possible to avoid the pitfalls and dangers. A quick look at the comments and a search of the neighbourhood can solve this problem!

The government might be losing possible revenue, but this money goes towards creating countless new jobs, which in turn will stimulate the economy, creating a much larger benefit. Furthermore, although it may be difficult for competitors of the system, the sharing economy greatly benefits us consumers by saving us a great amount of money. The saved money can be spent elsewhere, a few tens of dollars saved on a hotel room can be spent at a nice restaurant instead. This way the sharing economy is not a hindrance to business, but a supplement instead.

Furthermore, we acknowledge that the sharing economy is not perfectly safe, but that’s what peer-to-peer is all about! There is a chance for a scam or fraud, but with today’s technology and the system around peer-to-peer platforms, there is often little to worry about. Most things exchanged are often for renting only always, any losses incurred are small.

With so much to offer and little to stand in the way, I think that the benefits of the sharing economy far outweigh the costs, making it a greatly valuable path for the future.

Efficiency increases in the sharing economy as jobs increase, excess costs decrease and everyone gets what they want while getting a chance to help others as well.

Maybe we can all come to ‘share’ in the sharing economy!

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