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Home Opinion The 'collaborative economy' is growing, diverse, disruptive - and worthwhile
Innovation • Sharing Economy • Disruption

The 'collaborative economy' is growing, diverse, disruptive - and worthwhile

Helen Goulden and Kathleen Stokes - 30 October 2014

The ‘collaborative economy’ is unlocking new potential across a whole range of industries, helping individuals, community groups and small and large companies to radically alter how they interact. Policymakers need to make sense of these changes and refresh their approaches if they are to balance the interests of consumers, challengers and incumbents

Last week in Los Angeles, a row of yellow cabs sat patiently outside our hotel. As cabbies waited for a fare in the midday sun, we used our smartphone to order an Uber ride across town. Within three minutes, Miguel (our driver) rocked up with a ‘U’ sticker on the dashboard. Though the cabbies looked on disconsolately, our ride with Uber was twenty dollars cheaper and our experience was equally pleasant. While a cab could have driven us, we opted for Uber because it offered a good experience, was cheaper, and felt different.

While unremarkable, our choice reflects something bigger – the rise of the ‘collaborative economy’. Across the world, people are increasingly using Internet technologies to connect directly with distributed networks to access the things they need, whether it be for a lift or a loan. The collaborative economy is not a new ‘sector’ but the emergence of a set of traits which can be applied in practically any context – from a multinational corporate to a community group in Cornwall. Through this, we are seeing new ventures and innovations that make smarter use of the physical resources, skills and knowledge that reside in every household, community, business and local authority across the UK. 

For users, the offer is incredibly appealing: a broader inventory for goods and services on offer, increased competitiveness and a more transparent approach to ratings and reviews all lend themselves to greater choice and happiness. And demand is growing beyond the realm of ‘nice but niche.’ In the past twelve months, one quarter of the UK population used the internet to participate in the collaborative economy.

Rising demand unlocks many opportunities for users and innovators, but also challenges longstanding industries and organisations. In the last year, the collaborative economy has stimulated strikes, court cases, bans, and even physical attacks. The capacity to disrupt isn’t necessarily a bad thing. Instead, we need to understand the implications of such disruption, and ensure it leads towards clear economic, social and environmental benefit.

Making sense of the collaborative economy

One of the greatest challenges to understanding the collaborative economy is its diversity. ‘Broad church’ doesn’t even begin to cover it. Collaborative economy platforms are helping people to make use of all sorts of personal goods, as well as their time and skills. Some of these platforms allow people to sell these assets, while others enable non-financial transactions like gifting or exchanging. 

This potential has been seized upon by everyone from free marketeers to those wishing to advance a post-capitalist society. Along with superstar examples like Airbnb and Uber, big corporates like B&Q, Avis and Santander have found ways to make the collaborative economy work for them.

People also react differently to the collaborative economy. Depending on the context, these activities can be incredibly empowering but also unpredictable or precarious. Some people choose to offer their assets and time for a bit of extra cash or altruistic purposes, while others are piecing together a living through these platforms.

This raises the question of who loses out. Certain companies and industries may face increased competition and loss of business, but so too do individuals. Returning to the example of yellow cabs, individual cabbies are directly affected each time we choose to ride with Uber, Lyft or some similar scheme, despite earning a living doing the same thing.

Real-life insight often outpaces research, hackers outpace IT security, racing car teams outpace the rules of Formula 1. If we want to encourage – or accept that there will be – radical innovation in the collaborative economy, governments, regulators and incumbent industries can expect to be outpaced in the short term.

Still, claims of unfair advantage and the removal of important regulations and safety measures are important to review. Challenging established ways of working and institutions can lead to great improvements, but it can also undo progress made over previous generations.

Balancing the interests of consumers, challengers and incumbents  

As the collaborative economy grows and becomes increasingly diverse, governments are awakening to its potential and its disruptive capacity. Policymakers and regulators worldwide now face the challenge of simultaneously encouraging radical innovation, making sure companies compete fairly and acting in the best interests of participants. What can they do to get the balance right?

Governments do more than set policy; they are also active participants in supporting and managing the collaborative economy. Looking at the most successful and high profile collaborative platforms, battles have already been waged around regulation, taxation, zoning and licencing. While contexts may differ, these cases are incredibly important. As live issues affecting real people, government reactions to different issues are setting the path for the future collaborative economy.

Encouragingly, more governments are identifying and testing out different ways to proactively engage with the collaborative economy. Some have reviewed and updated different policies to acknowledge the collaborative economy. For instance, updates to short term rental regulations in cities like Amsterdam have helped legitimise platforms like Airbnb. Others have gone further, either contracting or partnering with collaborative organisations to deliver services, or even embracing the traits holistically by becoming ‘sharing’ or ‘shareable’ cities. More broadly, governments can also respond by devising new policies, creating exemptions or parallel policies to expand existing laws, and introducing self-regulatory mechanisms.

Local governments have a particular opportunity to shape the collaborative economy into a beneficial and equitable force. Some jurisdictions are ahead of the game and are already using the collaborative economy as an organising principle for becoming sustainable, inclusive and economically vibrant. In the UK, Croydon Council has partnered with Zipcar to turn its car fleet into a carsharing club, reducing the council’s employee car use by more than half and car travel costs by 42 per cent in 2013. Not only practical, these types of initiatives represent a more significant shift for governments – becoming enablers and shapers of innovation, instead of simply responding to innovation.

Whether you are a policymaker or a collaborative economy entrepreneur, we all need to ask more of this phenomenon. Understanding the economic, social and environmental effects of this diverse and growing trend is particularly important. Just as organisations in the collaborative economy need to clarify their aims and impact, policymakers must think carefully about the future collaborative economy they are enabling – or hindering – through action and reforms.

Helen Goulden is executive director of Nesta’s Innovation Lab and Kathleen Stokes is senior researcher on social innovation at Nesta

This is a contribution to Policy Network's work on Progressive Capitalism.

Tags: Helen Goulden , Kathleen Stokes , collaborative economy , industry , communities , companies , policy , consumers , Uber , skills , knowledge , business , services , Internet , innovation , Air BnB , Lyft , Amsterdam , Croydon Council , Zipcar , carsharing , entrepreneur

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The Policy Network Observatory promotes critical debate and reflection on progressive politics. It is centre-left orientated but determinedly challenges social democracy. It is pro-European but restlessly questions EU institutions and practices.

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