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Opportunity and Mobility in the Sharing Economy

By Christopher Koopman

Much of the news surrounding the rapid growth of the sharing economy seems to focus exclusively on the headline-grabbing, billion-dollar valuations that companies like Uber and Airbnb received. More recently, the ride-sharing app and Uber-competitor Lyft was valued at $2.5 billion. These stories fuel a rather popular narrative that the sharing economy is a thinly veiled attempt to profit by cheating the system, circumventing taxes, evading safety regulations, and flouting labor laws.

Yes, these new firms are challenging the traditional approaches taken by both incumbents and regulators. Focusing exclusively on this part of the story, however, actually misses the true value of these new, innovative services. And for the 80 million Americans who transact through the sharing economy, it represents so much more.

In fact, a recent survey of consumers across the America found that 86 percent of adults believe the sharing economy makes life more affordable. This is true for individuals on both sides of the transaction: producers and consumers. For consumers, the sharing economy provides access to goods and services that have been too expensive for many in the past.

For those looking to produce within the sharing economy, opportunities are now available that simply didn’t exist a decade ago. A young, cash-strapped couple may not have seen their spare bedroom as way to afford their apartment until the Airbnb platform provided them with a way to rent it out to vacationers. A single mother working toward her degree who wants to supplement her income, but is unable to commit to a second job, may not have viewed her extra hour between classes as a profit opportunity until Instacart and TaskRabbit allowed her to put that time to use shopping for others. A retiree with a garage full of power tools may not have viewed it as a way to supplement his pension checks until 1000 Tools connected him with people in his area wanting to rent his tools.

Averaging 425,000 guests per night, and more than 155 million guest stays in 2014, a firm like Airbnb is creating real value for individuals to generate income in ways otherwise unavailable a decade ago. But this isn’t limited to those directly engaged in these services. An entire ecosystem is emerging around the growth of these firms.

As author Thomas Friedman explains it, Airbnb isn’t simply creating opportunities for hosts and guests within their platform, but for all types of work surrounding these rentals. People are offering home cleaning and repairs between rentals, as well as coordinating key exchanges. Services such as Feastly will connect guests with local chefs who will cook for them, and Kitchensurfing will bring chefs right into the home they are renting. Guests can also connect with locals who will help them find destinations in the area and even make the necessary reservations.

Some criticize this as being a “share-the-scraps economy.” Former Secretary of Labor Robert Reich has described the sharing economy as a world where work is unpredictable, workers have no power or legal rights, labor bears all the risks, and people work all hours for almost nothing. His criticisms, however, seem to ignore some basic realities about the way that the sharing economy is evolving in real time.

The sharing economy is a route rather than a destination—creating mobility that its critics fail to recognize. For many, these firms are generating streams of income that were historically available only to the wealthy. In the past, rooms were only offered for rent by those wealthy enough to build hotels. Airbnb allows anyone with extra space to penetrate a market traditionally dominated by the likes of Conrad Hilton and a few others. In 2014, private, short-term rentals through Airbnb totaled nearly 22 percent more than Hilton Worldwide.

The sharing economy also mobilizes workers in a way traditional business models simply could not. Moving between Uber and Lyft, or from Instacart to TaskRabbit, is much easier than trying to transition from one traditional full-time job to another. And with services such as Peers.org, workers not only have the freedom but also the information to seek the work that matches their abilities and schedules, as well as the best platforms for them.

This freedom and flexibility gives workers leverage they don’t have elsewhere. For many of these new firms, their value is based on the size of their networks. Ride-sharing firms like Uber and Lyft, for example, are only as valuable as the number of passengers and drivers they connect. Not only are the firms competing for customers, but for drivers as well. In fact, Lyft, with its $2.5 billion­ valuation, is planning for a $30 million loss in 2015 due to both promotions and also guarantees regarding driver compensation. This is paying dividends for those looking to turn their cars into streams of income.

From this perspective, when the sharing economy is allowed to grow, the story isn’t “big business taking advantage of local government.” Nor is it a story of billion-dollar startups undermining local business (although hotels and taxis are certainly feeling the pressure). The growth of the sharing economy is a story of real opportunity being created for real people: the young, cash-strapped couple, the single mother, and the retirees taking what they have and putting it to work for them. It is a story economic empowerment today, occurring in ways unavailable and unimaginable in yesterday’s economy. It’s Horatio Alger, reborn.

Christopher Koopman is a research fellow on the Project for the Study of American Capitalism with the Mercatus Center at George Mason University.

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