The Future of Our Economy is “Shared”
I’d like to start off by thinking about how the economy was organized in the 18th century when much of the economic textbooks were written. Most of the economic activity in the economy was through the one person shop. It was a market economy where individuals interacted with other individuals. Over the course of the 20th century, you know, at the beginning of the 20th century, half of the US work force was self-employed. By the end of the 20th century that number had dropped to less than 15%. And so what happened over the 20th century was our transition from a market economy to an organizational economy, where most of economic activity was organized inside firms. So, I think we are at the cusp of the invention of a third model, a lot of us call it the sharing economy. But we are creating this new generation of platforms that are hybrids between firms and markets. They do some of the things that markets do and some of the things that firms do, and I see them altering the way that we organize economic activity across a range of things from renting a car to getting your groceries, to getting a doctor, all the way to finding a place to stay or finding a ride. A lot of the early stage investors into technology in Silicon Valley and beyond see tremendous potential in the sharing economy as reflected by the massive infusions of venture capital into the space. We’ve seen money flow into labor markets like Upward, Handy and Thumbtack.
We’ve seen them flow into local retail, last mile retail operations, like Postmates and Instacart. We’ve seen them fund peer-to-peer lending sites like Prosper and Funding Circle. We’ve seen even more money go into the real estate applications like Tujia, Airbnb and WeWork. But by far the largest sort of flow of capital has been into the transportation sector as reflected by Uber and Lyft that are based in the United States. Didi Kuaidi in China, Ola in India and BlaBla Car in France. Now if you think about the fundamentals of the automobile industry today, this infusion of billions of dollars makes a lot of sense. The typical car is used about 1 to 1.5 hours a day. When it’s used, it has about 25% occupancy. What this means is that we’ve got a low single-digit percentage of efficiency in an industry that sits on trillions of dollars of assets. It’s a double-digit percentage of many of the world countries GDP. And so, when you have a set of platforms that are saying that we can create a slightly more efficient model of using this capacity and of organizing this. These billions of dollars of investments don’t make– do make a lot more sense. You know, we’ve seen Uber get to the point where it is valued at the level of a mid-sized to large car company. But it’s not just Uber and transportation. Airbnb today has 2 million listings. The world’s largest hotel chain has about 700 thousands. By the end of this year, Airbnb will book more sort of like, you know, bookings every night than the world’s largest hotel chain, and the valuation sort of speak to that increase.
Now, standing here at a beautiful hotel in Dubai, it makes you wonder, right? I mean, you know, does the advent of these peer-to-peer accommodation platforms like Airbnb mean that we’re going to put hotels out of business? I don’t think so. What I think we are doing is inventing a new way of organizing economic activity, one that I call crowd-based capitalism that is going to set aside the managerial capitalism of the 20th century. It’s going to feature a greater level of efficiency in how we use our assets, our labor, and our capital. It’s going to feature a lot more peer-to-peer interaction, rather than institution to individual interaction. It’s blurring the lines between personal and professional in the provision of commercial services. Let me give you an example, you know, all of us at some point if we own a car have dropped someone at the airport. You know, it’s not uncommon to sort of pick up your friend’s kids from football practice to drop them at school. We’ve had people stay at our homes, we’ve lent them our apartments. We might have had someone over for a meal, we might have lent a friend money to sort of start a business, all of these were under the personal umbrella. And then you had profession providers, you had taxi drivers, you had bed-and-breakfasts, you had restaurants, you had banks. What these sharing economy platforms are doing is blurring these lines. You now have someone who is sharing their personal space occasionally, but on a commercial basis for money. Someone who’s giving people rides, not all the time, full time, but occasionally.
And so this blurring of lines between personal and professional is a big part of why I think we’ve seen so many regulatory challenges emerge around the sharing economy and in a few minutes I’ll talk about some solutions to these regulatory challenges. I also see this new form of capitalism as blurring the lines between gift economies and market economies. Through history, we have always had exchange where the object being exchanged wasn’t that important. It was the act of giving or receiving and the building of community that was more important. And the sort of the purpose of the transaction. Over the 20th century as managerial capitalism had started to dominate, a lot of this gift economy activity has been marginalized, and I see some of it coming back into commercial activity, into everyday economic activity, through the sharing economy. You know, so a lot of these platforms sort of in some way span the spectrum.
You know, for the peer-to-peer accommodation platform Couchsurfing it’s very much a gift economy, you get a couch to sleep in someone’s home, independent of like you know whether you offer a couch in your home. People are connecting to the social network rather than thinking about getting a place to stay. On the other end of the spectrum you have a platform like One Fine Stay through which you can rent for every night at a 1,000 Pounds a night a fancy town house in Mayfair. That’s very much market economy, it competes with luxury hotels. And you’ve got Airbnb which is somewhere in between. Yes, it’s commercial. Yes, it’s market-driven, but there’s also something personal, there’s something personal about giving the gift of your space to someone else. I see this blurring of lines in financial services as well, from the gift economy Kickstarter to the very market economy peer-to-peer lending platforms for businesses Funding Circle. And then there’s Kiva, a platform for loans that’s somewhere between the market economy and the gift economy. Y
ou see this also in the transportation sector, but there’s another dimension of this newly emerging transportation sector that I’d like to focus on more, and that is the kinds of infrastructures that we can build once we start to tap into the assets that are lying fallow more efficiently. I think of this as invisible infrastructure, I think of it as a way forward in building public transit infrastructures for the 21th century, without a great deal of investment in steel and concrete. and to illustrate this I want to show you a visualization of one particular platform, it’s called Blabla Car. They are based in France. They allow you to book a seat in someone else’s car if you want to travel from one city to another, much like you would book a train ticket. They are now in 19 countries around the world. And here’s their activity over one 12-hour period. he little dots that you see moving from place to place are people traveling in empty seats in other people’s cars. And you can see as the spider web threads the global scope of this kind of infrastructure. Today, Blabla Car carries more people every day than the US National Rail System. They carry more people in France than the French Rail System Eurostar. And they’ve created this capacity without a single dollar of investment in new physical infrastructure. It’s a digital platform layered on top of excess existing assets. You know, as we sort of transition to these new models of peer-to-peer we start to run up against some regulatory barriers, because the regulatory infrastructures that we have today were created for 20th century capitalism.
They were created with the assumption that it would be an institution providing, rather than an individual through a platform. And so I think we’re at the early stages of a fundamental rethinking of how we regulate activity in our economies where the lines between a platform and a government are going to start to blur. Tim O’reily spoke to you a few minutes ago about governments being more like platforms, and that’s an important idea. What I’d like to communicate is something slightly different. I certainly think that governments– the role of governments needs to change. But what I’d like to emphasize is that we’re going to enter a world in which the things that governments used to have to do by themselves are now going to be done by a larger group of stakeholders. I think of that as the creation of other entities, entities other than governments that you might think of as self-regulatory organizations.
These kinds of organizations are not new. In the United States they play a role in the regulation of nuclear power, in the regulation of the chemical industry, in the regulation of the cotton industry, and, yes, in the regulation of financial services. They have had varies success across different industries, but the idea that an entity other than the government does the regulation with the oversight of the government I think it’s critical for the regulation of this new form of crowd-based capitalism. One particular form of a self-regulatory organization that II think will become increasingly common over time, is contained in the idea of peer regulation, where as we move from having, say, thousands of hotels to millions of Airbnb hosts. Or hundreds of restaurants to tens of thousands of people hosting dinner in their home. Or thousands of taxi drivers to millions of people who are sort of renting out space in their car occasionally. The burden that will be placed on a government in regulating every single provider is going to be enormous. And I expect that we will shift instead to a model where the experts on the platform start to police and train the novices. Some form of peer regulation under the appropriate umbrella of a right self-regulatory organization. I also see a lot of promise in a different approach, which I think of as delegated regulation through data. To me, this sort of the other side of the coin of open data. The idea of open data has to do with in part, sort of making data transparent Often it has to do with the transfer of data from a private entity to a government regulator.
To me, the idea of delegated regulation through data reverses that flow. Rather than transferring the data from the platform to the government, transfer the regulatory authority to where the data is. We’ve seen this happen already. We see this happen when YouTube regulates what videos can be displayed on its site. We’ve seen this happen when Apple and Kindle start to sort of decide how we use our IP. But I think that there’s immense promise here because a lot of the technological advances that allow us for example to detect credit card fraud or to control spam can be put into action in solving some of the world’s bigger problems. One example of a platform that uses delegated regulation through data already is a peer-to-peer labor market called Tack Rabbit where they mine patterns to try and understand whether anybody is being discriminatory in their choice of labor. Now, when I speak about labor platforms it leads me to the other set of policy issues that are going to dominate the 21st century of crowd-based capitalism, and these are the labor policy issues.
We’ve seen the emergence of a number of peer-to-peer labor platforms, ranging from freelance labor platforms to platforms for personal services. And what these are doing are blurring another set of lines. They’re blurring lines between full-time jobs and casual labor. We’ve got a wide variety of ways in which people may contribute work productively, that may not fit into usual boundaries of a full-time job. At this point in the United States and Western Europe, 20-25% of the work force are freelance or work for themselves, rather than working for an organization. This number is likely to double in the coming years, and so we are going to see a much greater fraction of people that don’t do it in the box of a full-time job. I think this trend will accelerate as we sort of start to see the emergence of platforms that aren’t just for freelance services but for corporate services. They are platforms that will allow you to get a sales force on demand. They’ll allow you to get an MBA consultant on demand, a lawyer in demand, an accountant on demand. This is all work that used to be done by a full-time employee within a company, and as this work starts to go out of the organization, and it seems like the people who are choosing this form of freelance work aren’t doing it for economic necessity. This is from a survey that the US GAO ran a few years ago that show that people who choose self-employment or being an independent contractor choose it voluntarily by and large, rather than being forced into it. So, this is what the work force wants. It’s not what they’re being forced to do. But what it’s going to do is it’s going to challenge our funding the social safety net. You think about any society, you realize that one of the things that they are most proud of is how well-protected their work force is.
You know, how many hours a day do they work? Do they have stability of income? Do they take paid vacations? Do they have health insurance? Do they have other kinds of insurance? Is there work place protection? Do they have benefits? Can they retire comfortably? These are things that we think of as signals of progress in society. And these today in many countries are funded largely by the company that you work for or the government that you work for. The contingent on a model of full-time employment. And so if we want to protect the workforce of the sharing economy of crowd-base capitalism, we’re going to have to invent a new funding model for the social safety net that I think will take the form of a new partnership between the government, some of the platforms and the individual. A more radical proposal that is making the rounds in Silicon Valley today is of paying everybody a universal basic income in minimum amount of money that is given to each individual independent of employment status.
This is tied to both the transition that we’re seeing because of the sharing economy and the fears of like, you know, job loss, because of automation. So, this is one end of the spectrum of funding our social safety net, but I see a lot of interesting middle ground where models like what the US has done for retirement through their 401K program, where the individual contributes, the company matches and the government gives you a tax break. I see a lot of potential there for the future funding of our social safety net. I also see one of the most compelling dimensions of promise for the sharing economy in creating a more equal society. What do I mean by that? Well, you know, as we move away from getting stuff from institutions into getting stuff from other individuals through peer-to-peer platforms, what we start to do is to create a workforce that is not just working, but are part owners of the means of production. Sellers on EtSy, hosts on Airbnb, drivers on Uber. They are all micro entrepreneurs, and one narrative around this transition is that this will lead to a greater spreading of the wealth as a larger fraction of the population owns the means of production. This could either come through the platforms cooperatives where the providers own the platform, or it could come from shareholders on platforms that have providers stock options much like companies have employee stock options.
And the final idea that I want to touch on, and this is sort of on a cautionary note, because I think this is going to be a labor policy challenge in the future, is of what Om Malik termed a few years ago as data Darwinism. As our access to opportunity is shaped more and more by these platforms, and by the reviews that are left by other people, by the data trail that our performance leaves, we risk running into a situation where the rich get richer and someone who got a bad start sort of gets naturally selected out of the market because they can’t make up for a sort of a performance that was sub-par to begin with. The reason why this concerns me is that there is a lot of bias inherent in how we rate people. You know, if your future job prospects are colored by the fact that your client had a bad day yesterday and gave you a bad rating and instantly that sort of causes your marketability to fall, introduces new regulatory challenges and suggests a new role for government. I think the future of crowd-based capitalism is going to be shaped by the blockchain, where we move the crowd from being the source to being actually the set of people who make the market And I think that this will shape a lot of crowd-based capitalism in the years to come.
You know, we’ve talked about a number of industries, transportation, accommodation, food services, healthcare, labor markets. I think there’s a lot of exciting stuff happening in energy. One sort of batteries that can store solar power become a commercial reality. And so a lot of people I talk to have this reaction of, is my industry next? You know, it’s an exciting time, it’s a time of great opportunity. But it’s also a time where we really have to fundamentally rethink how we regulate both on the consumer protection side and on the labor force.