The shabby economy



Yesterday, I attended a panel discussion on the "Sharing Economy" at the Battle of Ideas. Benita Matovska, who describes herself as "chief sharer" of the comparison website Compare & Share, enthused about how the Sharing Economy would build communities, transform capitalism and restore the planet. "It's all about trust," she said.

No it isn't. It's all about money.

Here's what Matovska herself says on the Compare & Share website.
I was trying to book a family holiday in Morocco - when we travel as a family we're quite adventurous, we like to share, meet real people and have those amazing money can't buy experiences....
I'm sure everybody would like to have experiences money can't buy. But actually she wasn't after a "money can't buy" experience. She was after an expensive experience at a cheap price:
I spent hours searching through site after site and not finding the unique holiday experience I wanted at a price I could afford. I wanted to go to one single site. And that was my light bulb moment - a comparison site for the Sharing Economy. I wanted to be able to car share at my destination, find sites where I could experience the holiday through the eyes of a local, to contribute to the local economy (I care) and of course to discover hidden vintage markets and cool collectibles.
And she got it, too.
Last summer - once Compare & Share had launched accommodation - my dream holiday in Morocco became a reality. We stayed in a gorgeous beach house near Essaouira. The highlight was being invited to a rural beach wedding and my daughter and I dancing barefoot at 2 am on floor drums with a room full of Berber women and girls celebrating - a priceless experience!
I could say a lot of unpleasant things about this. Her "priceless experience" amounted to cheap voyeurism by a rich snob who wants to "share" other people's cars and houses so she can have a cheap holiday. There's a disturbing colonial attitude underlying this quote too: she and her daughter surrounded by a bevy of adoring native women....it's straight out of the Jewel In The Crown. She'll be "sharing" big game hunting next.

But didn't it ever occur to her that the "rural beach wedding" she attended was probably created as a tourist attraction to fool people like her into believing they are "experiencing the holiday through the eyes of a local", because, you know, "genuine" local events sell holidays? The natives aren't stupid. They know how to milk tourists for money.

Anyway, more power to Matovska for disrupting the holidays industry, just as AirBNB is disrupting the hotel trade and Uber the entrenched self-interests of regulated taxi services. Travel agencies and car hire firms are badly in need of a shakeup. And if as a result of cutting out the middlemen the "local economies" in tourist spots get more money, that's all to the good. But please don't call this "sharing". It's trading.

Letting your spare room out through AirBNB is not "sharing your house". It's letting a room for money. Working part-time for Uber is not "sharing your car". It's driving a car for money.

Ah, but we all know that AirBNB and Uber are wicked capitalists ripping off the genuine sharers, don't we? They aren't part of the real "sharing economy", which is all about people doing things for each other and sharing unused assets. Apparently no-one does this any more, so we need websites to help us do this.

This would be fine if "sharing" websites actually encouraged sharing. Buying things collectively so everyone can use them. Lending your lawnmower to someone who needs to cut their lawn. Or better, cutting their lawn for them. For free, because they are your friend or your neighbour, or simply because you want to help them.

But by and large, that's not what these "sharing" websites do. They are trading platforms. Marketplaces, where people can sell services and rent out or exchange assets.

Selling seats in your car is not "sharing car rides", it's transporting people around for money. People "sharing" their house with you are letting out their house for money. People inviting you to share their meal are not doing so because they like your company, they are making money from cooking and entertaining. Locals offering you "experiences unlike any other" are not doing that because they love you, they are doing it because you will pay them.

Websites like these are simply Ebay for services. Street traders, online. My friend Mervyn Dinnen calls it the "Who will buy?" economy, 21st century version. Instead of looking out of the window at the street traders, Oliver checks his iPad.

These websites have 21st century marketing, too. People who wouldn't like to see themselves as doing anything as wickedly capitalist as selling describe themselves as "sharers", even though their form of sharing involves charging people. And their customers are also "sharers", even though they have to pay. How to hook the gullible, 2015 edition.

To assist with hooking the gullible, the mix is lightly spiced with genuine sharing opportunities. Matovska's website, in the same paragraph, brings together Tabl and Grub Club, both of which are distributed marketing platforms, with Casserole Club, which encourages people to support needy neighbours by providing food for free. Altruism and trade become indistinguishable. Both are "sharing".

There are also "sharing" sites whose real purpose is to make money by providing intermediary services. BorrowMyDoggy, for example, hooks up dog owners with people who would like a dog but can't have one themselves. But both sides have to pay a subscription. So it's a commercial dating agency. For dog lovers.

Of course, some forms of trade in the "sharing economy" don't involve money. They are barter. You could see Casserole Club as bartering food for friendship, for example. But defining an altruistic enterprise in such terms is a very slippery slope. Any charity could be seen as bartering services for self-esteem or status. I'm not sure this is particularly helpful.

Definitely barter, however, is this.  "Did you know that there is £3.5 trillion of stuff going unused globally?" trills Matovska's website. "Why not start sharing some?" Yes, it's a jumble sale. Or a charity shop. Beloved of churches and the Women's Institute for generations, the "sharing economy" has discovered them. But there's a twist. Let's not sell old stuff for money. Let's just put up a sign saying "Share" and let people take what they want in exchange for dumping their own old stuff.

But charity shops and jumble sales make money for local communities and good causes. How is undercutting them "building communities"? How is dumping your stuff on a table for it to be taken by a total stranger "making connections"? Pardon me, but this is just getting something for nothing, isn't it? It contributes absolutely nothing to the economy, local or otherwise.

Indeed the whole idea of the "sharing economy" seems to be based not on the idea of working together to produce something for mutual benefit (the cooperative principle) but on millions of people scraping a living by selling services and renting assets to each other. How does this add value to the economy over the longer term? There is no production. It is entirely consumption. Recycling is all very well - and we do need secondary markets - but we cannot build an economy solely on sweating existing assets. An economy that exists solely on consumption has no long-term future.

The sharing economy is the shabby economy, the frugal "make do and mend" society where no-one will buy anything unless they absolutely have to and everyone is running down their existing assets. The Victorian novelist Elizabeth Gaskell wrote about this in her novel "Cranford": genteel elderly ladies making a virtue of thrift because they were actually dirt poor but too proud to admit it. It's the hallmark of a society in decline, a society that has nothing innovative to offer, a society so fearful of change that it dare not create anything new. The sharing technology may be innovative, but the economic vision underlying it is stagnation, not prosperity.

And it's an unpleasant vision, too. Sharing is a fundamentally generous act: it is giving goods, services, time, for nothing. But people who are always looking to make money aren't being generous. If everyone is constantly looking for ways to make money from "sharing", we will be not only economically but morally poorer.

Sharing is also an act of faith. You lend someone your car if you trust them not to steal it and not to crash it. If you don't trust them, you either don't lend your car or you charge them to borrow it - in which case you are in a trading relationship with the borrower, not a sharing relationship. Money is an expression of LACK of trust. So the "sharing" economy, in seeking to monetise the generosity that people show towards others, is not "building trust". It is destroying it.

So the "sharing economy" is shabby, unproductive, stagnant, mean and distrustful. I don't want to live in such an economy. I would much rather have Mike Wright's vision of an economy founded on advanced manufacturing and high-tech services, in which skilled people earn high salaries. Mike is an executive director of Jaguar Landrover. He's a filthy capitalist. So am I.

And so, actually, are Benita Matovska and her kind. After all, they don't do this sharing stuff for free, despite their altruistic spin. They make money from it. That's old-fashioned capitalism. Not "transformed" in any way.

Related reading:

The something for nothing society
GDP transactions in secondary markets
Generosity




Comments

  1. There seem to be two parallel arguments in your post. One of them - the main one - is to show the sharing economy as another side of capitalism... and debunk some of the marketing spin which surrounds it. I'm completely on board with that!

    Your other idea is that the "sharing economy" is shabby, unproductive, stagnant, mean and distrustful - and there, I disagree. As you argued so clearly, I think it's like any other business relationship: so it aspires to being open, clear, efficient and mutually beneficial.

    To me, the driving force behind the sharing economy is making use of spare capacity. Perhaps you drive a five-seater car to get to work. Perhaps you live in a house that's too big for you - or perhaps you're just going away for a couple of weeks, which means it's empty! Maybe you simply have spare time and energy, and not enough cash.

    These companies have succeeded because they allow this spare capacity to be used, shared and monetised. I wouldn't say that's saintly, but it's definitely useful - it means we have better lives with less consumption than alternative methods, which is where the profits come from.

    So keep bursting the bubbles of the marketers... but spare a thought for a textbook example of the free market in action. It's "just" business, but as you say, you're a filthy capitalist ;)

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    1. Well said, and still good post.

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    2. I think it might be helpful if I unpack my statement. Every adjective in it comes from the main argument.

      "Shabby" has two meanings. I've used it here to mean asset quality. If you persistently milk existing assets as a means of scraping together a low income, and your income is never enough both to maintain your assets AND live, your assets become more and more dilapidated - i.e. shabby. However, "shabby" is also used to mean poor treatment of other people. I think that applies too, in this case - see my comments about "mean".

      "Unproductive" speaks for itself. If all you do is rent out assets for money, you produce nothing. I really object to the political spin (often dressed up as economics) that tries to present rent-seeking as a productive behaviour. It isn't.

      "Stagnant" follows from unproductive. It also follows from the very low incomes of people who depend on renting out existing assets to other people whose very low incomes depend on renting out other assets. If everyone lives like this, we can't have growth. Some people think this is a good thing: indeed Matovska, in her summing up at the Battle of Ideas, presented the "steady-state economy" (i.e. stagnation) as a solution to finite resources and infinite population growth.

      "Mean": meanness is the driving force behind this. Matovska wanted a once-in-a-lifetime holiday but didn't want to pay a once-in-a-lifetime price for it. The doggy dating agency I mentioned was set up by dog owners who didn't want to pay people to walk their dogs. There are endless examples of this in the "sharing economy". "Free stuff" undermines people's ability to make money legitimately from productive activity.

      "Distrustful" follows from my observation that genuine sharing is free because it follows from a relationship of trust. Monetising a relationship is an expression of lack of trust - think about pre-nup agreeements, for example, which in effect undermine the permanency of marriage by setting up in advance arrangements for its failure. When we no longer see people as friends and neighbours but as money-making opportunities, and we believe they see us in that way too, we no longer trust them.

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    4. My main objection is against your sentence: "If all you do is rent out assets for money, you produce nothing."

      Take the example of "dumping your stuff on a table and allowing it to be taken by a complete stranger." That transaction will not be reflected in GDP stats, true. No money changed hands. And that thing already existed, so there was no new output. But that item, when placed on the table, was of little or no value to the offerer. Yet that stranger might be able to extract value from the item. The transaction therefore leads to previously unrealised value being extracted from the asset through an increase in its utilisation.

      Isn't that growth? I mean, perhaps not in a GDP measurable sense, but in terms of total utility right?

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    5. Economics has always distinguished between economic value and use value, or utility. The economic value of an item is defined as the amount of money that an actor is willing to pay for it in a free market. These items exchanged for free therefore have no economic value. I agree the items presumably have use value, or people wouldn't pick them up, even for free - after all, there is a deadweight cost to useless items. Would they then be able to extract economic value from those items? Perhaps. But there is an opportunity cost involved. At the margin, items obtained for free from a "sharing table" crowd out purchases of new items. Consumption is still the same, but growth is reduced because the economic value of exchange falls to zero. In other words, "free sharing" actually reduces GDP growth even if the sharers are able to generate returns from their new assets. It's back to the points I made in the "something-for-nothing society". Persistent expectation that goods and services will be free or nearly so depresses the economic value of productive activity.

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    6. "At the margin, items obtained for free from a "sharing table" crowd out purchases of new items". Consumption is still the same, but growth is reduced because the economic value of exchange falls to zero."

      Okay. Lets look at this another way. The item on the table is a drill. The person giving away the drill has no use for the drill. The person taking the drill would have purchased a drill, but instead gets it for free. The drill maker's output falls by one drill. This is bad because the drill maker should have made a drill to sell to the person needing the drill, so the economy should have had two drills of which one was useless to the person using it.

      Why?

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    7. Correction: "useless to the person holding it"

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    8. We can debate endlessly the virtues of recycling, but that doesn't change the economics. Your own example shows that at the margin, production falls as a consequence of free exchange. This could be an incentive to drill manufacturers to improve their products in order to encourage people not to recycle old drills but to buy new ones. But the price still falls, either directly (because the manufacturer has over-produced drills) or indirectly (because technological improvement doesn't enable the manufacturer to raise prices). Deflationary effects like this look good for consumers, but they don't make for a prosperous economy.

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    9. You may argue that if the person dumping the drill is doing so in order to buy a new one, that encourages production. Indeed I argued that myself in the "GDP transactions in secondary markets" post - see links. But it is not clear to me how free exchanges free up people to buy extra goods more efficiently than car boot sales, flea markets, jumble sales and charity shops. Indeed, if people need to sell old goods (even at a heavy discount) to afford new ones, then free exchanges must (again at the margin) reduce the sales of new goods, since they undercut existing second-hand markets.

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    10. "This could be an incentive to drill manufacturers to improve their products in order to encourage people not to recycle old drills"

      Or they can have a designed lifetime, after which they break. In the extreme, they are cheap and built shoddily because they don't care and will walk away with their profits. Or they ensure that "upgrades" enforce obsolescence (viz the computer and smartphone markets). All of these enhance GDP, but are socially useless.

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    11. Interesting exchange. In Italy there's this association called "Bilanci di Giustizia" (roughly translates to "Balances of Justice") http://www.bilancidigiustizia.it.
      One of their mottoes is "spend less to spend better" i.e. the drill you've found for free will allow you to save that extra cash you'd like to have to spend on a night out at the theatre or whatever.
      I think that we can agree that if barter aka "sharing" will allow an impoverished middle class to find resources to be spent in the real economy-- if possible for locally produced goods or services -- then we can create the base for a "less dynamic" economic growth that could positively dent the hyperactive Boom-Extract-Bust short-termism that is becoming the hallmark of capitalism v2.0...

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    12. Why "spend less" spend better is always a good think even when you are wealthy. It is better for the one who spend but also to the everyone because first when you spend "better" you drive innovation and smart business, second you can use the money left to purchase other goods or in investment. Either way you push the economy forward.

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    14. "All of these enhance GDP, but are socially useless."

      Yes. Upvote.

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  2. Great piece. Did you see Jenny Turner's article in the LRB from a few years ago on the Battle of Ideas/Institute of Ideas/Spiked/LM/Living Marxism/RCP and the strange, strange group that is behind all of it?

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    1. This comment has been removed by the author.

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    2. Here’s the link: http://www.lrb.co.uk/v32/n13/jenny-turner/who-are-they

      I think it’s readable without an LRB subscription, but possibly only temporarily.

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  3. "Indeed the whole idea of the "sharing economy" seems to be based not on the idea of working together to produce something for mutual benefit (the cooperative principle) but on millions of people scraping a living by selling services and renting assets to each other."

    Yes, spot on. And note that this trend encourages individualism rather than collectives. I see it as a direct undermining of collective bargaining on terms of trade, relentlessly driving them downward. We really are headed to neo-feudalism.

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  4. There is no such thing as society.

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  5. the "sharing" economy, in seeking to monetise the generosity that people show towards others, is not "building trust". It is destroying it

    I remember making a very similar point when LETS were in vogue - yes, it's a nice idea to be able to trade my bag of surplus runner beans for your hour of baby sitting, but wouldn't it be even nicer just to give you the runner beans?

    LETS seem to have died the death; hopefully this will too.

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  6. What does the Jewel in the Crown books or TV series have todo with this question? dancing surrounded by adoring natives was exactly what British colonial expats would never do

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    1. That's a fair point. I need a better example.The ladies of the Raj would never do anything so common.

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  8. When times get hard it is often from too much government. Taxes are high and businesses and jobs have been leaving. One way people get by is to barter. If I trade you some corn I grew for some eggs you got from your chickens, neither of us is going to pay sales tax, income tax, unemployment insurance, social security, business licenses, etc. Part of the efficiency of these online services is that they are close enough to barter that they are not taxed like normal large business. A regular taxi driver needed a $1 million medalion from the government. An Uber driver needs nothing. A regular hotel pays all kinds of taxes. But when someone "shares a room" (even if really they rents it out) they probably don't pay any tax. Something like "couchsurfing.com" the visitor might pay for dinner and perhaps no money changes hands. But part of the reason people are moving to this is that really the economy is not in good shape.

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    1. mmm, the sweet smell of ideology in the morning !

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    2. Ayn Rand, Rand Paul and Paul Ryan walk into a bar. The bartender serves them tainted alcohol because there are no regulations. They die.

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    3. Or in the above example, the slum landlord "shares" some rooms, which burn down because it doesn't conform to fire regulations.

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    4. Uber had an app that regular taxis did not but even after they got an app, they still could not compete because they had a huge tax overhead in the form of the medalion costs. This is reality. You may think it is ideology, but it is still real. Taxes do impact what people do and how they do it.

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    5. There are valid arguments to be made about closed shops and the cost of entry, but surely a taxi service is a public utility, and the public has an interest in regulation, mainly revolving around public safety. IIRC an older rival in the UK, mini-cabs, have a rather chequered history over safety, particularly for women late at night.

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    6. I am not arguing for or against regulating drivers. I am just saying the way things are. The big competitive advantage Uber has is due to taxis having to pay high taxes and so having limited numbers and higher prices. Uber does not have to pay $1 mil per driver and can have huge numbers of drives who work at lower prices. The real advantage is the avoidance of taxes.

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    7. Isn't Uber's real negative externality the increase in traffic congestion -- the very congestion that incentivized most cities to restrict taxi numbers by medallions in the first place?

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  9. Aero engine manufacturers make a lot of money on parts and backup services keeping their customers kit in tip top form. After all, a Trent engine ain't cheap.

    One the notions which leaks is the economic health of the drill manufacturer that's harmed by divvying up access to a depreciating tool.

    Surely tools should be kept in good nick and the original manufacturer could be in that game. Indifference to the longer term performance of one's products isn't a high end attitude.

    The economy of maintenance and repair has many benefits whether applied to jet engines, drills, tat or our own homes. To ought to be the real economic departure of super connected diaspora of users, owners and makers.

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  10. This would be like Paul Graham's famous quote " Internet's impact on the economy has been no greater than the fax machine's", there needs to be a study why experts can never understand and predict the trend and their utility

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  11. You need to invert the question
    why must the natives engage in wasteful export / tourist activity.
    I would suggest it is simply because they have little to no purchasing power.
    (they cannot afford to buy the existing national surplus themselves)

    Also I just finished picking rocks out of a field for the week.
    I would think because we have a unspoken understanding that I will buy more then a few pints from his pub.
    This closed loop system makes the hiring of a more expensive and indeed far more productive machine not economical from his perspective.
    This is localism in action.

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