The sharing economy: Distribution of value and corporate dominance
Phuah Eng Chye (16 December 2017)
Sharing substantially changes the organisation of activities, labour, assets and capital that operate in an ownership regime. In this context, sharing generates value through using information to facilitate participation. There are two broad types of sharing platforms; namely the for-profit platforms and the commons or open-source platforms and they are differentiated by how they distribute value.
The for-profit sharing platforms use information to shift risks and to minimise costs with a view to maximising the valuations and eventually the profits of their businesses. The for-profit platforms therefore have the objective to capture the lion’s share of value from any business activities, which by implication reduces the value that is available to other parties such as competitors, employees or contractors. This is consistent with the secondary information effect of simultaneous concentration-fragmentation which postulates that the intermediation function will tend to concentrate among a few players while markets and products will fragment. These trends will aggravate societal inequalities.
In contrast, the commons or open-source platforms are built based on the philosophy of free sharing of public goods. Open-source platforms such as Wikipedia are often praised for sharing intellectual assets, making widespread collaboration possible and promoting innovation, fairness and social cohesion.
Both types of sharing platforms create immense value for society. For-profits focus on generating financial value to provide a return to their investors. In contrast, the value generated by the open-source is mainly social; i.e. the value is not monetised and they generate little in the form of wages or profit. Hence, sharing platforms create both measurable and non-measurable value and can promote equality or inequality. To a large extent, for-profit sharing activities extract value from social capital but funnel the benefits to their owners and top management.
In this regard, Juliet Schor observes “technologies are only as good as the political and social context in which they are employed”. She argues “the fact that users create so much of the value in these spaces militates in favor of their being able to capture it, should they organize to do so.” Hence, the “key to making sharing economies socially just is to emphasize an explicit politics of sharing, as well as nurturing collective, public forms of sharing.”
A more severe threat derives from the platforms’ ambitions to be globally dominant. Juliet Schor points out “this moment is reminiscent of the early days of the Internet, when many believed that digital connection would become a force for empowerment. The tendency of platforms to scale and dominate (think Google, Facebook, and Amazon) offers a cautionary tale. So, too, does the history of Zipcar. Once the face of the sharing economy, it is now a sub-brand of Avis. Will other sharing platforms follow similar trajectories as they grow?”
Juliet Schor notes “while some of the platforms present a gentle face to the world, they can also be ruthless. Uber, which is backed by Google and Goldman Sachs, has been engaging in anti-competitive behavior, such as recruiting its competitors’ drivers.” While representatives may articulate a neoliberal rhetoric about free markets, “the more the platforms are backed by and integrated with the large corporations that dominate the economy, the more monopolized the sector will be, and the less likely value will flow to providers and consumers.”
Hubert Horan adds “from its earliest days, Uber’s investors and managers have always recognized that investor returns would require global industry dominance, and the elimination (or effective nullification) of longstanding laws and regulations designed to protect competition, and to protect consumers from the risks of anti-competitive market power. This presumes that urban car services can be turned into a winner-take-all-game, where the winner can earn sustainable rents once quasi-monopoly industry dominance has been achieved. Dominance would also allow Uber to leverage its platform in order to expand into other markets that it could not otherwise profitably enter.”
Hubert Horan notes the transition from “converting the app from a benign ordering tool to a monopoly controller of all information about demand, capacity and pricing, driver employment and compensation. Uber could improve utilization by unilaterally imposing much higher prices for peak period and low-density neighborhood service, although this would effectively eliminate taxi service for a major segment of (mostly lower income) users. This would convert a piece of publicly regulated urban transport infrastructure into a privately owned and controlled discretionary consumer product primarily targeted at wealthier customers. The welfare impact would be analogous to the conversion of urban expressways into privately owned toll-roads.”
In this regard, Silicon Valley companies have been blatant about their quest for domination. Joshua Gans notes “Lyft’s vision is for large fleet ownership. Explicitly corporate. Explicitly non-sharing…our fleet will provide significantly more consistency and availability than a patchwork of privately owned cars. That kind of program will have a hard time scaling because individual car owners won’t want to rent their cars to strangers. And most importantly, passengers expect clean and well-maintained vehicles, which can be best achieved through Lyft’s fleet operations. Today, our business is dependent on being experts at maximizing utilization and managing peak hours, which allow us to provide the most affordable rides…that sounds precisely like the views taxi operators had pre-sharing.”
The quest for dominance has resurfaced concerns over corporate monopoly. Matt Stoller points out “increasing concentration of ownership has also led to unprecedented levels of corporate crime. In case after case, courts in Europe and the United States have ruled that giant companies are operating as cartels, engaging in illegal conspiracies among themselves to divide up their turf. As a result, they have been able to fix the price of almost everything in the economy: antibiotics and other life-saving medication, fees on credit card transactions, essential commodities like cell-phone batteries and electric cables and auto parts, the rates companies pay to exchange foreign currency, even the interest rates on the municipal bonds that cities and towns rely on to build schools and libraries and nursing homes.”
Matt Stoller reminds us that in 1933, Louis Dembitz Brandeis blamed the Great Depression on the gross inequality in the distribution of wealth and income which giant corporations have fostered and had argued that the government should regulate the concentration of wealth and power if it threatened public welfare. Matt Stoller notes the current trend towards “corporate consolidation doesn’t just undercut freedom in the marketplace – it undercuts the economic equality and free flow of information on which our political system depends”. He suggests what is needed is “a new agenda – one that could once again make tackling the power of monopolies” at its core.
In this context, the generation of value from better use of information raises interesting questions about how this value should be distributed.
- The for-profit sharing model is reminiscent of how wholesalers and retailers once exploited their informational advantages at the expense of farmers and consumers in rural societies. Is it acceptable for the value to be largely captured by those who control the information? To be fair, will the companies not seeking domination survive? Can the consequence of monopolistic domination be avoided if anti-trust laws were more rigorously enforced?
- Sharing platforms argue that they are purely information intermediaries. While they insist on their rights to enjoy the maximum latitude of doing business in all markets, they reject any social responsibilities and associated costs. In this regard, the virtual and autonomous nature of their business model or absence of relationship translates into a lack of obligations and recourse. But so long as they generate externalities or affect areas of broad public policy such as labour rights, welfare, taxation and public-related services, then it is unavoidable that they should be subject to oversight and accountability. Automation should not be an excuse to avoid responsibility and regulators are likely to assert their powers once they figure out the most practical way to regulate in the new landscape.
- The sharing economy switches the focus of economic activity from production to participation. The joint contribution of producers and consumers to value creation challenges the traditional ideological approach that attempts to divvy up value between labour and capital. Perhaps it is more useful to change the debate on inequality from one revolving around capital to one revolving around information.
The answers to the questions on the distribution on value and domination are important because it will dictate the direction of government policy. The current politics favour standing back and letting markets and information effects take its course. That was fine at the start when profits were a small proportion of GNP but as profits grow their share of GNP, the adverse consequences of inequality are becoming evident.
In any case, looking after the welfare of the masses is what governments are supposed to do. Throughout history, governments have always played a balancing act to moderate concentrations of power – whether it is the brute strength of warriors, the coercion of the masses, the superiority of machines, the domination of capital and now the intelligence of information. When governments fail to provide a counterfoil to amassing powers, their policies will end up reinforcing corporate oppression.
We can look to history to see that many policies have been applied to change the distribution of value and to thwart domination. Policies such as wealth taxes and basic income are touted to mitigate income inequalities while anti-trust and competition laws exist to restrain dominance and monopoly. But these policies seemed to have lost efficacy, either because the controls were watered down or because they lost relevance as the landscape changed.
There are wistful suggestions to address inequality and economic stagnation through expanding the sharing commons to increase the generation of social capital. The problem with such solutions is that social value is not recognised in a macroeconomic sense in that it does not lead to employment (paying jobs) and generate income. As a result, these suggestions have gained little traction. A new paradigm is badly need to help us understand how to harness social capital to promote economic growth.
Overall, the sharing economy is far more complex than the services or manufacturing economy. It increases the possible permutations for organising economic activities. This, in turn, imparts a new spin to an old problem. Policy design need not start from scratch but there are few clues as to which of the existing policies to tweak or to overhaul.
Hubert Horan (Nov-Dec 2016) “Can Uber ever deliver?” Part One to Five. Nakedcapitalism.com
Joshua Gans 20 (September 2016) “Neither Uber nor Lyft believe sharing is the future”. Digitopoly – Competition in the Digital Age. http://www.digitopoly.org/2016/09/20/neither-uber-nor-lyft-believe-sharing-is-the-future/
Juliet Schor (October 2014) “Debating the sharing economy”. Great Transition Initiative. http://www.greattransition.org/publication/debating-the-sharing-economy.
Matt Stoller (13 July 2017) “The return of monopoly”. New Republic Magazine. https://newrepublic.com/article/143595/return-monopoly-amazon-rise-business-tycoon-white-house-democrats-return-party-trust-busting-roots
Phuah Eng Chye (2015) Policy paradigms for the anorexic and financialised economy: Managing the transition to an information society. http://www.amazon.com/dp/B01AWRAKJG
Phuah Eng Chye (15 July 2017) “The significance of information effects”. Economicsofinformationsociety.com. http://economicsofinformationsociety.com/the-significance-of-information-effects/
Sarah O’Connor (8 September 2016) “When your boss is an algorithm”. FT Magazine. http://www.ft.com/cms/s/2/88fdc58e-754f-11e6-b60a-de4532d5ea35.html?siteedition=intl
 Based on the experience of financial markets, the information effect hypothesis suggests that in disrupted industries, key intermediation functions will concentrate among a few global players while a long tail which is highly fragmented with a great variety of offerings will emerge. Phuah Eng Chye
 Louis Dembitz Brandeis authored Other people’s money and how the bankers use it and advocated reforms to curb the power of large banks, money trusts, corporations, monopolies, public corruption and mass consumerism.