The foundations of the sharing economy are heavily based on technology – it exists on the Internet and mobile – but also on society and community: the economic and social impact on the community lies at the core of many initiatives.
Analyzing the sharing economy in depth poses enormous challenges. The earliest examples of large sharing ventures have evolved into vast technological platforms, business giants that structure the rental economy by offering solutions to latent problems in highly regulated markets. In addition to this almost universally familiar rental economy – the one we use to find rides and rent cheap apartments – there are other initiatives, based on sharing objects or knowledge, exchanges, recycling, and co-creating, that are likewise generating options where before there were none.
The implications of this go beyond the creation of new opportunities and benefits for consumers and founders. These initiatives have a clear impact on traditional industries unable to operate in similar conditions due to regulations, their specific assets, or a simple lack of flexibility. They also affect regulators, which are expected to be both flexible and firm with regard to new realities not covered by laws and regulations drafted in completely different technological and social contexts. They affect prospective customers and users, by increasing supply, generally at better rates. And they affect the people who participate in them, generating new revenue from goods, services, or knowledge that were hitherto difficult to mobilize beyond an informal or local economy.
Creating wealth
The sharing economy’s potential to create jobs and wealth and mobilize underused resources, its social and community components, and even its vision of a more honest and controlled form of resource consumption make it a good fit in a society that is increasingly concerned about these issues.
The sharing economy is gradually spreading to all regions of the planet. This is apparent in the recent IE report La economía colaborativa en América Latina (The Latin American Sharing Economy), prepared for the Multilateral Investment Fund. The report was based on a survey of the founders of the region’s largest initiatives. The results paint a clear picture of what is going on in this new industry and are intended to help regulators, institutions, and companies interact with it, facilitating its grow and ensuring it has a more positive impact on the national and local economies. When asked about the future, the respondents replied that their greatest concern with regard to growing their initiatives was the lack of confidence and knowledge that the new business models’ prospective users have of what the sharing economy represents and how it is organized. While international examples help, they too closely resemble traditional companies. Although the rental economy they symbolize does mobilize underused resources and produce benefits for new (non-professional) economic agents, it is so steeped in controversy that it fails to promote the view of this sector as something entirely clear and transparent.
The expectations for growth in this market are very optimistic. The formulas have already been successfully test-driven in other areas, and if they manage to break through the barriers of mistrust and ignorance, the future will be bright. While this can be achieved by the sheer weight of the models themselves – they work and help many people – the path will no doubt be shorter if institutions lend a hand. In this regard, it is important to recall that, in addition to putting underused goods and services into the economic circuit, these initiatives create jobs in alternative, undeveloped areas of the economy, which can be good places to learn, among other things, how the rules of business, reputation, or online transactions work. The learning potential they offer for other areas of the economy is huge.
The expectations for growth in this market are very optimistic. The formulas have already been successfully test-driven in other areas, and if they manage to break through the barriers of mistrust and ignorance, the future will be bright.
The role of institutions
So what can institutions do? They have a crucial role to play at this stage of the sharing economy’s development. The potential impact of sharing initiatives on the creation of small business networks, collaborations to improve the economic conditions of small communities, and the development of skills related to the Internet and mobile technologies make them a tool for social transformation.
One key area in which they can act is obviously the regulation – most likely, flexibilization – of markets such as those for transport or vacation rentals, with a view to leveling the playing field, probably by raising some barriers for new businesses and lowering others for traditional ones. This approach has been used successfully, as in the case of passenger transport in Mexico City. However, its impact at the local level, on the generation of local champions, is limited: due to the very characteristics of platform-based technology and reputation systems, markets tend to focus on just a few players. The head start by companies such as Uber or Airbnb in these areas makes it difficult for local initiatives to gain traction. However, in other areas, where proximity and the local context are more relevant, such as services, training, manufacturing, the environment, or agriculture, growth options do exist for local initiatives, and they hardly require any new regulations.
Consumer confidence
These initiatives do require another type of support: consumer confidence. And not only from early adopters and social activists, who are already customers and drivers. Other consumers need to give the new options a chance too, need to understand that the model is different, that it is based on sharing or local production, or on specialists whose expertise comes from what they do in their private lives.
To this end, local success stories are crucial. It is necessary to design support strategies to help raise awareness of how the system works and of local knowledge, building the necessary confidence by drawing on that sharing context, rather than simply explaining the technology itself and how it supports the economy. The aim should be not to rehash the good work of the cases we read about in the papers, but rather to promote new stories with local significance, to support them in the early stages, and encourage partnerships and clusters.
And traditional companies?
The parties inevitably overlooked in these types of analyses are traditional companies, representative of the industries affected by the sharing economy and collaborative consumption. Beyond the threat, such businesses can learn and collaborate in this area:
- They can learn by helping their clients share, facilitating the resale of their products, extending their useful life, demonstrating their quality, and providing a service to their customers and society at large. Companies such as Decathlon and Patagonia already do this.
- They can also learn by using the sharing economy’s own business models, which are being applied in a growing number of areas, from cars to rental equipment for construction companies. This also gives manufacturers the opportunity to create completely different service models.
- They can collaborate by helping the sharing networks that arise in their industry, which need not be direct competitors: training initiatives at the base of the pyramid or clothing exchanges supported by fashion industry companies are just two examples of this type of effort that are already taking place. Doing so will offer them insight into what this type of customer is seeking, while at the same time allowing them to support local development, strengthen their corporate social responsibility policies, and play a more important role in the community.
- They can collaborate and find alternative sources of income by finding ways to channel their underused resources (from space to knowledge) into the circuits created by the new models.
Community and society
Although the threats and changes are real, the potential societal benefits of initiatives that retain the spirit of the sharing economy are important enough to merit close attention from all levels of power. Institutions should act now, if not at the regulatory level, which undoubtedly requires time and thought, then by supporting activities likely to have real impacts on their communities. The rental economy requires regulation and balance; the sharing economy helps communities and prospective users trust its models.
The proponents of these initiatives are clear: their main reasons for pursuing them are related to society and community. If they succeed, they will not only create jobs and wealth for disadvantaged groups, but also encourage people to learn how to do the things surrounding technology, which could give rise to a whole new business world.
To have local examples, it is necessary to develop and strengthen a technology, knowledge, and trust ecosystem. Not to do so would be to miss a key opportunity to participate in the development of a more just and conscientious society and economy, more closely linked to the local community and people, and less to a system with a largely unrecognizable face.
© IE Insights.
