First an example that’s by now old hat. In an age before cell phones and personal computers, there was a more rigorous separation of work and personal life. People need to be physically co-located in a office. They commuted there every day, worked in a dedicated personal office or cubicle, then went home where work as a rule did not intrude. Today’s workers are checking email every waking hour (and even being interrupted during the night), while also spending much more time on personal things (online banking, fantasy football, or random web surfing) while in the office. The internet has enabled distributed work environments, in which teams collaborate from offices, airports, and homes around the world. Companies increasingly have turned to “hoteling” or other shared space concepts in the office on the assumption employees no longer need dedicated space. Many people have flexible work arrangements or otherwise telecommute. In the latter case, home and office have literally merged.
This has had huge benefits across the board. Companies love it because they can access cheap labor pools overseas, effectively recruit people with a need for workplace flexibility, and reduce their office space needs. Joel Kotkin has said the latter trend may mean America has hit “peak office.” Workers get the flexibility they like, can save on commuting costs, access geographically remote clients, etc. The environment benefits from reduced commuting. The ultimate green commute is one you don’t have to make. I would say that the balance of the benefits here has accrued to business, while workers have sometimes had arrangements they don’t like forced on them. Still, on the whole this shows great promise of being a win, win, win.
The “hoteling” concept and “just in time” delivery aren’t limited to corporate uses. Things like car share are bringing them to the household market. The average personal car is supposedly idle 90% of the time. When you factor in all the additional infrastructure costs needed to support a one person, one car model (e.g., parking), the deadweight loss from all that idle capacity is stunning. Imagine factories that sat idle 90% of the time doing nothing. If a corporate manager had this low a rate of asset utilization, he’d be in deep trouble.
When you sign up for Zipcar or another service, you avoid some of this deadweight loss. By effectively sharing a fleet of vehicles with others, a relatively small number of cars can serve a large number of people, greatly improving asset utilization rates and delivering big value to consumers, even when they are paying a business to manage the fleet for them. It’s a huge form of productivity gain. This also has the effect of converting transportation from a largely fixed cost to a mostly variable one, with signficiant impacts on the decision making process for everything that involves transportation (mostly positive, I believe).
Though having a limited addressable market at present, obviously car sharing in the Zipcar style poses a threat to the entire US car industry, arguably one of the most important employers in the country and one President Obama himself personally intervened to save during the meltdown. Clearly the highest levels of politics in America will defend the car industry, though to date there’s been very little complaint from them about car sharing.
Things have been different when it’s transport service providers who are threatened. Public transit agencies have long been unrelentingly hostile to jitney services. Today car service booking tool Uber and ride sharing company Lyft have experienced an all out regulatory assault from entrenched interests. Lyft is a particularly interesting case. It’s a peer to peer ride sharing platform. Just as 90% of the time a private car is unused, when it is used, 80% of the available seat capacity goes vacant. Again, this is a massive deadweight loss. (The amount of theoretically wasted capacity in the world of private cars is stunning). Imagine an airline trying to make a business out of 20% load factors. It just doesn’t work, yet we as individuals run a “business” like that every time we drive our cars solo. Lyft helps fill up those empty seats, and even get some money – “donations” – in the process.
In other words, Lyft is a business that effectively turns your personal vehicle into a pseudo-livery vehicle. I’ve long argued that we should have “every car a jitney” by legalizing it and having personal auto polices cover ancillary commercial use as a matter of course. Lyft is trying to solve that problem and make it happen. Obviously the traditional “commercial” sector (e.g., taxis), which is highly regulated and subject to many taxes and fees hates this. They feel, rightly to some extent, that there’s a double standard. This is the type of conflict and legal uncertainty are spurred when the boundaries between personal and business, and between exclusive and shared use, start breaking down.
The big kahuna in provoking outrage of late has been AirBnB, an application that lets people rent out rooms in their homes as de facto hotel spaces. Again, the same principle applies. An empty bedroom is deadweight loss just like an empty office or an idle factory. It makes sense to put those spaces to work where feasible. This had been done previously in the form of house swaps and couch surfing. But the rise of commercially oriented AirBnB has raised hackles, especially in governments that have strict rules and high taxes on hotels. There have been a number of media articles of late taking note of or weighing in on the controversy. For example, in the New York Times piece, “The Airbnb Economy in New York: Lucrative but Often Illegal.”
Again, the benefits are clear in the improved utilization of space which is a pure efficiency gain. What’s more, AirBnB was even used by the government during Hurricane Sandy to find temporary free housing for those displaced by the storm. Peter Hirshberg noted that this type of distributed app might be the real killer app for smart cities, and will play an increasingly important role in urban resiliency. But it legitimately does create a set of parallel environments and rule sets, and exposes a world in which ancillary commercial activity at a residence is something that doesn’t really fit into our existing categories.
The list of situations like this are endless. Many zoning laws don’t appropriately allow home based businesses. Fund raising bake sales have been banned because it’s not legal to sell products prepared at home. In some places there have been issues with selling vegetables from home gardens.
Then there’s the disputes arising from the increasing use of public space for commercial purposes, whether that be curb side intercity bus service or food trucks. Pushcart style food vendors, often ethnic, are also often technically illegal (e.g., rogue elotes stands).
In short, traditional barriers are falling and boundaries are dissolving, especially when it comes to those key dimensions of personal-commercial, exclusive-shared, and public-private.
I don’t want to suggest all of the complaints about these are unfounded, though many of them are pure rent seeking. From the standpoint of someone running a fully commercial operation, who complies with massive amounts of costly red tape, it certainly seems unfair that others are allowed to operate what are basically businesses under a lighter tough regulatory scheme. The status quo isn’t necessarily where we need to be.
But let’s take a step back and look at the big picture. Our economy is in huge need of a massive injection of dynamism and new value creation. Many observers have said we need a completely new economic model. Walter Russell Mead has called this “beyond blue”. Richard Florida styles it the “great reset”. But clearly the old ways of doing things aren’t working and we need change.
This new style “shareable” economy based on peer to peer production in a distributed, small scale form is one that promises to provide at least part of the answer. It also renders addressable a huge amount of previously trapped value. Companies reaped huge amounts of gains by eschewing vertical integration in favor of more networked relationships. That’s corporate-speak for peer to peer sourcing. Similarly, things like hoteling, just in time delivery, etc. have let to much greater and more effective asset utilization. The amount of under-utilized assets in the household sector is stunning. This is about bringing to that household sector the same types of efficiency boosting and value creating techniques previously employed only by traditional businesses.
But beyond the sheer efficiency gains, I think it’s under appreciated in developed countries how economic informality can create economic dynamism. Peruvian economist Hernando de Soto noted that lack of property titles and difficulties of the formal economy perpetuated poverty because people in developing countries couldn’t access the system for credit to fuel business, etc. In the developed world we’ve got a similar problem brewing. Our economy has been largely entirely formalized to the point where we are choking in red tape that has produced an economic system that has failed too many of its residents and leading to the creation of these informal economies as a safety valve. And our societies are very ill equipped to deal with that as we’ve become excessively formalized.
We don’t need to establish property titles as we already have them, but we do need regulatory systems that enable entrepreneurship and new business models like peer to peer to thrive. What’s more, I think enabling some level of an informal sector to flourish is actually a good thing, as it’s a de facto “incubator” for new ideas that can later be developed into a more officialized system. Without a toleration of informality, these would never get off the ground. I’ve highlighted how this worked with regards to uncertain property titles on abandoned buildings in Berlin that helped launch the creative scene there. I also highlighted similar trends in Detroit. Those again were born of desperation, but we’re starting to get there in our economy more broadly.
It seems hypocritical to me for businesses to suggest that consumers be prohibited from doing exactly what business does every single day to improve productivity and generate more value. (It would hardly be the first time though. Business love globalization – for themselves. They can buy raw materials in Brazil, manufacture in China, do their IT in India, etc. But you try applying “consumer direct globalization” by purchasing your drugs from Canada or buying an out of region DVD and see how far you get. It’s a completely two tier system designed to free corporations while trapping the consumer in hyper-segregated markets).
This would seem to be one area where the left and right could agree. Free marketers should love light-touch regulation and lower taxes in the new peer to peer economy. The left should like the way it frees consumers from dependency on big business/neoliberalism, sustainability, etc.
Adjusting our rules to make this happen is an imperative. A non-profit called Shareable and the Sustainable Economies Law Center recently issued a report called “Policies for Shareable Cities” that talk about what a lot of places have been doing to make this happen. For example, they explained how Portland updated its zoning code to allow “food distribution” an accessory use in all zones in order to facilitate the development of the Community Supported Agriculture Model. Similarly, Marcus Westbury has talked about the need to update the software of cities in order to help redevelopment, as he helped with in the Renew Newcastle project.
But beyond new rules, maybe we should just go along with no rules for a while, and let this sector develop. After all, that’s what we did with tech. The government took a hands off approach and the feds even prohibited levying taxes. This helped the United States build a massive industry off internet technology, one that has continued to thrive even with the rise of offshoring. We should do the same here to see if we can replicate that success with peer to peer shared production in the household/personal sector.
Jon Seisa says
Apparently, we’re headed towards Singularity in a Matrix. This may not lead to a humane outcome in the end. And I suspect it will have a retaliatory backlash at some future point. I recollect once a Techie posting on a blog to the paraphrased effect, “I’m a tech-savvy oriented person with all the gadgets, and as a programmer I’ve developed some of these high-tech items in Silicon Valley, and I get this feeling all this tech saturation where people are daily embroiled in their devices, walking around with their heads down hypnotically staring at their screen pads, ultimately, may be too much and is dehumanizing our global culture.” I surmise that when the lines of distinction between labor and living are blurred, becoming unified, then we lose our bearings of self-worth, we become un-human, gradually morphing into societal high-tech slaves ripe for insanity, posthuman, imprisoned in some kind of gleaming yet hellish Matrix-Minority Report. As we now know there is no seclusion of personal autonym in the new interconnected global beehive network; we are stripped of all personal privacy, exposed to the world and to all who would dare abuse it.
Richard Lewis says
The thought that supposedly underutilized private “capacity” (autos, bedrooms, etc.)provides significant market opportunities must confront some fundamental realities: 1. My personal “space” (car, home, yard)is of enormous implicit psychological value. 2. My personal physical security is of utmost importance, and is placed at significant risk by sharing personal space with unvetted strangers. 3. Individual instantaeous mobility as with a car provides large, quantifiable, economic benefits in opportunity gains and simple time savings.
Rather than waste, those resources of personal space and mobility represent investment in identity, independence, and security. For the minority of people for whom such investment is unimportant, niche “sharing” initiatives may be of some utility and I see no logical reason for them to be significantly impeded.
Aaron M. Renn says
Richard, that may be true today, but symbols of status and such change over time. No one is forcing you to sell your car.
However, to make that “investment” you speak of, you need the money to do it. That’s in short supply today. Perhaps I wasn’t clear enough in the piece, but like informal economies elsewhere, there’s a lot of financial necessity driving these kinds of lifestyles. People increasingly no longer enjoy rising pay, living standard, and jobs that enable them to purchase things just to have them like previous generations did. Necessity is the mother of invention in this case.
Chris Barnett says
People at the low end of the socioeconomic spectrum have long utilized slack capacity by barter and by sharing cars for “gas money” (“donations” in Lyft terminology) and sharing housing by taking in boarders or allowing couch-surfing in spare rooms. More-creative solutions I’ve seen in urban areas include “sharing” utility services (illegally).
Now that the limits of consumerism have hit the middle and upper-middle classes, we have billion-dollar apps and serious discussions about legalizing what already happens in the informal economy.
Rod Stevens says
I’m reacting to the notion of the “big reset”. It’s one thing to save costs, another to embark on a new venture.
The “sharing” economy people speak about is basically wringing waste out of the system, getting cars moving more of the day. Yes, there’s potential to make cities more efficient, by eliminating all of those unused parking spaces and desks, but that while that’s making us more “productive”, it’s not really advancing growth on the sales side, on net imports. Over time, the second and third world countries will gain the same advantages, if they aren’t already there in their native thrift. (Go to a place like Valdivia in Chile, and you’ll see a shuttle bus system that would be the envy of any North American city.
What am I talking about on “revenue growth”? New technologies and more sophisticated production of things we make and sell the world. We did this in the 70’s and 80’s with electronic hardware, and then in the 90’s and 00’s with software. We did it back in the 30’s, 40, 50’s and 60’s with automobiles, washing machines and other consumer goods. We did it back in the 1890’s through 1940’s with steel, and in the decades before that with steel and machine tools. It’s one thing to “re-set” how people live and consume, and even how they work, in terms of where they commute to and how they organize themselves on the job, but what matters most in the long run, in terms of exports and wealth creation, is what they make. I’ve got to believe that the real key to that is rebuilding our educational system here, so that both the average worker and the entrepreneur who comes up with a new idea are operating on a higher technical level, can think and do more.
Chris Barnett says
Further on Rod’s comments: I almost posted earlier that it is difficult for an economy to shrink its way to (revenue) growth.
Rod Stevens says
I’m referring to the “next big thing”, and there is a fine line between efficiency and cost cutting, but real breakthrough inventions take us to the next level. 3D printing is one of those things. So is nano-technology. All of the things you read about in “Technology Review”. Those advances create wealth.
Josh Lapp says
Very on point with the lack of fixed costs in regards to transportation on the new sharing model. Instead of being saddled with hundreds of dollars in inflexible costs (car payments, insurance, maintenance) I can now decide based on my needs and current bank account balance which mode is best for me at that time.
If I have extra time and not extra money I can choose the bus or bike share (cost is fixed so its essentially ‘free’ after the membership) but if I’m running late or its cold and I have money to spend I can choose Car2Go. Choice and flexibility are the beauty of this new economy.
The new economic and social realities of the Millienals and the passing of the boomers and older generations are removing both the need for personal ownership of so much ‘stuff’, the stigma of other transportation modes and the territoriality and suspicion with ‘strangers’ that has been a byproduct of the ill-fated American Dream of the 20th Century.
Hear, hear to Jon’s comment. Human greed has created outlandishly large, and thus inefficient, vehicles, housing, etc. A downsizing would make private ownership much more cheaper instead of a further march towards “everyone belongs to everyone else” mentality.
(Full disclosure: I use and love bike-sharing services, and other sharing services. But they should not be the standard, but a very viable option.)
wkg in bham says
The article and comments brought to mind an idea of Jane Jacobs she discussed in her book “Cities and the Wealth of Nations” (highly recommended). The gist of the idea is cities become economically strong via import replacement. Two ideas here are replacing imported cars and gasoline with locally sources products (services in this case). Taking this idea even further, a city would strengthen itself even farther if it developed a vehicle manufacturing capability (could range from bikes, to cars to buses….) and develop an export market. Some of the commenters have hit on the revenue generating capability of ideas rather than expense reduction — this is kind of what I mean. You’re not creating real wealth until you’ve created a product that can be exported and sold for money.
George Mattei says
This post mad me thing of early 1900’s America. Really, the description of the “future” sounds much more like that past than the present. In the old days, people were very connected with their neighbors and they shared quite a bit, including transit. Perhaps technology will bring those days back, albeit in a different form.