The emerging model of sharing economy, made feasible thanks to the advent of the Internet, is facing numerous challenges that might contribute to its demise. Or not.
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In simple terms, a sharing economy is a model of economy that allows individuals to rent assets owned by someone else. While communities have shared different assets for thousands of years, the recent blossom of sharing economy has been made possible thanks to the unprecedented access to the Internet.
From the perspective of economic sustainability, a sharing economy takes advantage of the underused assets, satisfying demand for costly services without creating unnecessary supply. In theory, the collaborative consumption optimizes the use of assets, and it can even bring people together in the process. The sharing sector brings neighbourly courtesies to a whole new level.
Experts agree that the success of companies like Airbnb or Uber hinges greatly on the reliability of the online review systems. For the system to work, users of those under-regulated platforms need to place trust in other users, both providers of services and their reviewers. Thus, the burden of accountability shifts from the company itself towards the network of users.
The role of the company focuses therefore in separating the wheat from the chaff, making sure that few bad users won’t undermine the credibility of the entire platform. But incidents are bound to happen. For instance, earlier this year, Leslie Lapayowker, an Airbnb guest, has filed a lawsuit against the company. She argues the company failed to properly screen a host who she said sexually assaulted her. The question is, to what extent can isolated cases overshadow the benefits of the company.
But the problem with trust has taken a different shape for companies, which own the shareable asset. Whereas Uber didn’t need to actually buy cars used by Uber drivers, there are various companies that started off by investing in bikes, umbrellas, phone chargers etc. Those companies continue valuing the idea of sharing but are essentially just rental companies.
This model has been especially on the rise in China, partly due to its soaring urbanization. It has also met with approval among the Chinese political establishment. “We will give our support to the development of a sharing economy and see that resources are used more efficiently and that more people take part and benefit,” said Premier Li Keqiang last year.
In the Chinese scenario, the users don’t risk a bad review that will ruin their ‘score’ within the network because the only check on customers is a small deposit. But since the value of the product is often higher than the loss of the deposit, the future of many start-ups depends on the honesty of their customers. Sadly, this has proven to be problematic. For instance, only a few weeks after launching, Sharing E Umbrella, operating in 11 cities across China, lost nearly all of its 300,000 umbrellas.
Another dubious aspect of the sharing economy is how it interacts with the rest of the market. Many criticise the unfair advantages of this largely unregulated sector, which manages to cut down the costs by avoiding the usual taxes or licensing fees. Charging lower prices, consequently, affects the stability of traditional service providers.
Unsurprisingly, many countries wage legal wars in the effort to defend their markets against the giants like Uber. Only last week, the British appeal court upheld the ruling against Uber, according to which Uber drivers are not self-employed. That means Uber employees have the right to minimum wage and paid time off. And that, in turn, translates to trouble for the company based on the flexibility of employment.
Questionable manoeuvres inherent to the successful functioning of sharing economy have brought it as many allies as enemies. Similarly, the implicit rules responsible for its dynamic growth pose both a challenge and an opportunity. What is important, though, is that at the end of the day, sharing economy is more than just a fad. And whether we like it or not, to find a compromise, authorities should step up and work with the sector, not against it.
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