Why the Sharing Economy is Awful

Continuing with my thinking on late capitalism has brought me to consider the idea of the “sharing economy“. Many people seem to intuitively understand the gist of the sharing economy– people use information technology in order to facilitate other people’s renting of their stuff. Immediately, there is something strange: “sharing” does not mean “renting” in any other context except in the term “sharing economy”. The sharing economy is the renting economy; no ownership is actually shared, nor is any use actually “shared”, except in exchange for money.

If anything, the sharing economy refers to the mass choice of struggling workers to rent out the combination of their labor time and their expensive stuff to information technology companies. The “sharing” with the the end-users is the least relevant part of the story because the end users are actually just consumers finding their preferred product. Consumers are not participants in the particular economic theme of “sharing”, as they share nothing whatsoever, and instead buy the product as they desire it.

Typically, the sharing economy doesn’t provide a totally novel product to consumers, but rather a more convenient product than the traditional competition for the same product. The consumers for the product being “shared” existed before the sharing economy came along, so the demand was already there too. The consumers are finding the most efficient path for their money to turn into the product they want– a path that information technology companies have provided for them by creating an app which allows for mass utilization of capital that they do not own, using workers they do not hire.

In a time of weak economic demand, the incentive to generate revenue in is high as ever. There is strong pressure to keep costs down (precluding large capital purchases or development of brand new products) and cut unprofitable programs in order to keep revenue as strong as possible despite weaker sales. This poses a problem: how can revenue be generated reliably when demand is weak? To answer this question, we have to step back and examine how revenue is made under normal circumstances.

Revenue is produced by workers utilizing capital to provide something of value. Capital may be thought of abstractly as large quantities of money that can be transformed into physical objects which are used to produce more money, or it can be thought of as the objects that produce money themselves. Traditionally, capital might be a piece of factory equipment, and the owners of capital are the business owners. Capital may depreciate in value as it is utilized to produce revenue. Eventually, the capital may need to be revitalized or replaced.

In the traditional model, normal workers don’t own the capital that they utilize to produce revenue. The worker is paid a fraction of the revenue of the company– most of the revenue of any given company is used to maintain its capital and its workforce. It is the responsibility of the owner of the capital to provide wages to the worker who utilizes said capital to produce revenue. What remains after  maintenance of capital and wages is called profit. The profit may be used to purchase more capital, put in the bank, or paid out to workers or owners. The key takeaway here is that workers traditionally do not have any financial responsibility toward the capital which they utilize. The role of the worker is to utilize the capital in order to collect wages.

The difference between companies renting capital in the sharing economy and traditional companies producing the same good is critical. The traditional competition is likely to be burdened by upkeep costs in ways that sharing economy correlates are not– after all, traditional companies have to own and maintain the capital themselves in addition to retaining workers. Sharing economy companies typically find ways to use contractors instead of full time workers, reducing their operating costs by providing fewer benefits. The utilization of worker capital to produce revenue is quite an interesting development when paired with the rise of “contractor” style employment arrangements.

The most visible pillars of the sharing economy are AirBnB and Uber. I am not trying to suggest that these companies are “bad” for the economy. I use both of these services, and enjoy the products that they offer. I am suggesting that the sharing economy is detrimental to workers who are effectively forced to pony up their own capital before being allowed to participate in what amount to low wage, unskilled labor style jobs. What isn’t commonly understood is that the sharing economy is economically exploitative by allowing people to create revenue from their personal capital.

The sharing economy turns the traditional capital-and-revenue equation on its head. Instead of capital being owned by a company and utilizing workers to gain revenue from that capital, a company merely rents capital owned by the worker as part of the worker’s wages, offloading the up-front cost of capital and discharging the costs of capital maintenance to the worker. Revenues no longer flow toward the owner of the capital, but rather to the renter of the capital. After that, things function normally: workers are paid their static amount of the revenue, which is low despite bringing capital to the table.

The effect of the sharing economy is a part-time injection of previously untapped capital into the economic ecosystem. Common items which most people have (a spare room or car, for instance) can now be used as revenue-producing capital by their owners, who are likely strapped for revenue due to poor economic conditions. Thus the sharing economy allows workers short on revenue to rent out their capital alongside their labor, allowing them to have labor opportunities that they wouldn’t have otherwise– a very strong economic incentive. Instead of requiring capital sunk on credentials or time used to beef up a resume, workers in the sharing economy are merely required to lay a chunk of their capital on the table in order to start working. In some ways, this is good, as it allows people to work for wages that would otherwise not be competitive enough to get a job.

This reversal of the normal order certainly has many other benefits: the freedom afforded to those who choose to work as Uber or Lyft drivers is much higher than the median worker who must adhere to standardized hours and habits. The same could be said for the person who puts their spare room up on AirBnB. The income afforded to the workers of the sharing economy certainly keeps many people afloat– but broadly speaking, the sharing economy is an unequal economy because neither risk nor profits are shared.

Workers accept high risk to their capital from constant heavy utilization, and are not rewarded for it. Capital depreciation is likely, and is not compensated for by wages. Total losses of capital are not compensated for whatsoever. Instead, workers put a lot on the line in exchange for average wages whose rate does not increase despite large profits. Should the worker lose their capital, they are out in the cold.

Before the sharing economy existed, the capital of the lower classes was unreachable and reserved solely for personal use; in this sense, the sharing economy is a huge economic leap forward, as it increases the ability for wealth to flow, which broadly speaking, generates opportunity. Unfortunately, within the paradigm of the sharing economy wealth largely flows upward rather than circulates. It is unlikely that a worker participating in the sharing economy will make enough money to afford another capital purchase should their revenue-producing capital be destroyed by the process.

There is a case to be made for the sharing economy to be considered a system for transferring wealth from the lower economic classes to the owning class. The capital of the lower classes is used as a certificate signalling employment-worthiness, then is used to generate revenue for those who can afford to rent it out in mass to create products for consumers. The profits made are not returned to those who own the capital, but rather to those who own the information technology company which rents the capital. The owners of capital are in this situation bled at every step of the process and subject to high amounts of instability.

What’s a consumer to do? To start, do research and find out which sharing economy product provider is the most ethical. Paying workers better wages for ponying up their own capital is more ethical than the alternative. Finding out which companies bring on workers to be actual employees rather than contractors is also a good idea. Profit-sharing for workers and accommodations for worker capital loss and depreciation are items which are yet unheard of, and so are to be considered the icing on the cake.

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