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Home Opinion The new 'New Deal'? Sharing responsibility in the sharing economy
Uber Economy • Innovation • Economy

The new 'New Deal'? Sharing responsibility in the sharing economy

Arun Sundararajan - 30 October 2014

New peer-to-peer ‘sharing’ platforms have the potential to boost living standards across the many countries which they span. But as the boundaries between the personal and commercial blur, these radical innovations can also undermine hard-fought consumer and employee protections. Governments and the market need to share responsibility for developing a new social safety net. Peer-to-peer platforms in particular have both a moral and a business imperative to protect the providers and consumers of their services

Over the last decade, new digitally enabled peer-to-peer, ‘collaborative’ and ‘sharing’ platforms have facilitated a wide variety of direct economic interaction between individuals. Today, Airbnb uses over half a million hosts to accommodate over 300,000 people a night in 190 countries, while the hundreds of thousands of independent Uber, Lyft and Sidecar drivers dominate point-to-point urban transportation in many world cities. Paris-based BlaBlaCar and Munich-based Carpooling facilitate city-to-city ridesharing, together building a global transportation network based purely on ‘invisible infrastructure’. Maker marketplace Etsy’s million-plus sellers create a decentralized and open industrial production and distribution system. Equity crowdfunding platforms like AngelList and KissKissBankBank empower the masses with investment opportunities previously reserved for institutions or wealthy individuals.

These platforms challenge traditional business models across a range of industries – creative destruction that is a natural part of economic progress. The economic fundamentals underlying this transition suggest positive long-run implications: higher rates of economic growth, higher standards of living, more innovation and lower barriers to entrepreneurship. 

Smarter capitalism and the need for a new social safety net

As the scale of peer-to-peer expands, however, society needs new ways of keeping consumers safe and of protecting workers as it prepares for an era of population-scale peer-to-peer exchange. Governments need to understand and embrace this ongoing transition rather than impeding it, realizing that society’s interests are best served if they wield regulatory power to proactively partner with or delegate responsibility to the platforms. In tandem, forward-looking platforms should embrace their new responsibilities, rather than resisting them: participating in the provision of the social safety net is smart capitalism in the long run. 

By creating new ways of providing familiar services like accommodation and transportation, and blurring the lines between personal and commercial economic interaction, this new wave of digitally enabled peer-to-peer commerce has spawned numerous regulatory battles around the world.  This conflict, focused largely on consumer protection issues of safety, licensing and screening, is a natural by-product of a process of disruption that will redefine the roles of city and state regulators around the world. I have argued that part of a solution is to create a partnership between platforms and government, one that ideally may yield new self-regulatory organizations.  As cities realize that urban density favours peer-to-peer, and sharing-friendly governments are rewarded with higher rates of local economic growth, this new consumer protection partnership will emerge naturally, albeit slower than many of us would like.

The media focus on consumer protection, however, overshadows a deeper set of regulatory issues that are emerging as we radically restructure what it means to have a job.  A recent study by the Freelancers Union suggests that one in three members of the US workforce (and a higher proportion of younger people) is a freelance worker. As the collaborative, sharing, and peer-to-peer segments of the economy expand, this trend towards self-employment accelerates.

In the not so distant future, being employed full-time by a single corporation or government agency may be the exception rather than the rule.  As we create this new economy of independent contractors, freelancers, unconventional workers and micro-entrepreneurs, important worker protections like health coverage, insurance against workplace injuries, paid vacations, a stable income, and other safeguards often provided or guaranteed by large institutional employers will need to come from other sources.

New roles for governments, markets and peer-to-peer platforms

Where will this safety net come from? Governments will face significant challenges funding these capital contributions to society as corporate and local taxes drop, driven by fragmentation in the scale of supply, and an increase in the proportion of dues paid to a platform’s country of origin rather than the nations in which their services are provided.

One response might be to facilitate new market-based solutions. For example, as corporate pension plans have dwindled in the US over the last few decades, the 401-K and associated programs have evolved to facilitate retirement planning. These represent a partnership between different stakeholders – individuals put aside a portion of their income each month, corporations supplement their contribution, and the government provides a tax break. We may seek to create similar structures for other slices of the safety net. It is also likely that emerging collectives like the Freelancers Union, Peers in the US or OuiShare will expand their scope and reach, fashioning a range of ‘protection’ products tailored to the providers of peer-to-peer platforms. 

However, the real opportunity is for the platforms themselves to embrace some of the responsibility. Protecting the providers that power their profits isn’t simply ‘doing the right thing’, it can also be smart capitalism. Today’s Internet marketplaces are not mere clearing houses for matching and price-discovery. Rather, they are new market-firm hybrids that centralize certain activities (branding, trust, payments, and sometimes pricing and customer service), while decentralizing others (supply infrastructure creation and actual service provision).  Offering a branded service experience of consistently high quality requires a reliable and steady source of high quality supply from providers. This supply must be ensured by platforms that lack the typical directive authority or culture building capabilities that traditional firms use to manage their employees. Put differently, a platform’s most important economic ‘inputs’ are its providers. Making sure they are protected, secure, and thus more focused on their provision activities makes good business sense.

Provider protection is also good retention strategy. Recently, Uber’s drivers seem increasingly frustrated by rising platform commissions (as high as 25%), unilaterally determined fare changes, and new fees on equipment. Driver turnover will be expensive and can undermine the long-run quality of Uber’s service. It also raises the prospect of unionization (last week’s driver strike, although symbolic, may be an important leading indicator), or of large-scale provider migration accompanied by the creation of local driver-owned cooperatives that compete with the multinational platforms. The latter scenario – a threat to any provider-dependent platform – is especially likely for ‘taxi’ or chauffeured urban transportation platforms where a majority of demand from each consumer is concentrated in a specific city, making ‘network effects’ from global reach a less effective barrier to entry. These risks can be mitigated partially by a worker safety net that is platform-specific and creates a longer-term partnership with providers, locking them in. It can thus be a key component of creating shareholder returns. After all, there’s not much value in a peer-to-peer platform when there aren’t any peers on the supply side.

The platforms will play a critical role in averting a possible dystopian future for the ‘Uber economy’, one in which the safety net created by modern capitalist societies over the last century is whittled away over time. Yes, with great opportunity comes great responsibility, but that’s only part of the story. Forward-thinking platforms should realize that preserving and enhancing these protections is also a path to longer-term profitability. They should welcome this new role. It fulfills part of their destiny as the new economic institutions of the 21st century. 

Arun Sundararajan is a professor and the Rosen Faculty Fellow at New York University’s Leonard N. Stern School of Business. Follow him on Twitter @digitalarun.

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

Tags: Arun Sundararajan , progressive capitalism , new deal , sharing economy , innovation , consumer , responsibility , safety net , peer-to-peer , Uber , Lyft , Sidecar , infrastructure , industry , industrial policy , entrepreneurship , regulation , platform , participation , participatory democracy , social safety net , smart capitalism , Freelancers Union , corporations , insurance , institutions , government , migration , Uber economy

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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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