Wait a second! Bad for the economy but good for people? How is that possible? Most of what we hear on the news, from our politicians, and in casual conversations is about the health of the economy. The underlying assumption is that what’s good for the economy is also good for everyone. It makes sense in theory. The larger the economy, the more goods and services are available, the more choice we have, the happier we are…or so goes the theory.
But is this really true? A relatively new business model is challenging this assumption. It’s called collaborative consumption or the “sharing” economy. The way it works is by finding and utilizing excess capacity in existing resources, both physical (e.g. cars, apartments, clothes) and non-physical (labor, time, transportation). For example, have you ever used websites like Craigslist or Wikipedia? Have you ever sold second-hand clothes at a consignment store or let a friend crash in an extra bedroom? If you have, then you have participated in collaborative consumption.
While eBay and ZipCar are known to nearly everyone, new companies in the past few years have figured out innovative ways to efficiently use of other resources with high idling rates: websites like AirBnB make use of extra space in our homes, GetAround provides more effective use of our cars, TaskRabbit allows each of us to more efficiently use our time. Well, this is a great thing, right? New businesses are being created which create employment and the economy grows, right? How can that possibly be bad for the growth economy?
There are two important pieces to the explanation – one at the macro level, the other at the local. At the macro level, when banks loan money for a new business, mortgage, or credit card purchase, they are, in effect, loaning money into existence. This money did not exist before the loan was made and is literally created as an accounting entry in the bank’s ledger. In addition, interest is also charged on every new loan; the effect being that the amount of debt is always greater than the money supply. This practice can only continue working if more money is loaned each year to be able to pay off the principle plus interest loaned in previous years. In fact, if the overall GDP fails to grow year after year, banks are crippled and the entire apparatus for new money creation is destroyed.
At the local level, the purpose of any economy is match goods with needs. And while professional marketers are continuously trying to expand the needs and wants of modern consumers, it is becoming increasingly difficult to find new needs to fill. Hence, collaborative consumption business models are a real problem for the growth-seeking macro economy. While these companies can and will provide growth for their respective businesses, they are not actually meeting any new needs. Nearly all collaborative consumption businesses just meet existing needs in a fun, community-building, and cheaper way.
Another way to say it is that collaborative consumption businesses steal market share from established businesses but generate far less revenue than the replaced businesses. For example, when was the last time you looked for information in an encyclopedia Britannica? Prior to the Wikipedia and other information sharing websites, the encyclopedia market in America has shrunk from $800 million in 1989 to $300 million in 2003. How about Craigslist? This non-profit has destroyed hundreds of millions of dollars in sales from classified ads in traditional print media. The more people that rent spaces through AirBnB mean fewer people staying in hotels. In effect, the collaborative economy cuts out the middle man, allowing needs to be met more efficiently and cheaply.
While this is a good thing for people, it is a bad thing for the macro economy. Collaborative consumption is actually reducing scarcity and meeting more needs while generating far less revenue than the previous method for meeting those same needs. Today, if I don’t own a car, I am easily and safely able to borrow someone else’s car, thanks to GetAround. Rather than having an inauthentic travel experience in a hotel, I can find a variety of lodging options through AirBnB. If travel agencies are too pricey, I can find a local tour guide on Vayable. Music and video sharing has wiped out billions in sales of entertainment. Each of these businesses enable more exchanges of goods and services by letting people efficiently share the costs of existing resources, creating a negative net effect on macro-level economic growth. How is a poor economy to grow?
Very few these days can doubt that a transformational shift is happening in the world. A multitude of crises – energy, water, land, economic, environmental, even spiritual – are converging. In our hearts (and increasingly in our minds as well), we are realizing that the linear business models of the past, which Van Jones describes as “turning living stuff into dead stuff”, are no longer appropriate for the health and longevity of our civilization. Yet our system compels us to grow…or die. The sharing economy shows us it is possible to increase well-being while turning off the growth engine.