• Chelsea Rustrum

a16z Podcast – Sharing Economy, a Response to Arun Sundararajan

Updated: Feb 21

I’ve decided to start listening to what other leaders in the sharing/collaborative/on-demand economy are saying these days and give my two cents. We tend to work in our own areas. Arun is an economist who teaches at NYU and just wrote his first book, The Sharing Economy, The End of Employment and Beginning of Crowd-Based Capitalism. Our thoughts vary widely in some areas and are aligned in others. Would also love to know what you think!

Arun and I originally met at the Share Conference in 2014 where we were both speaking. Below, you can see a few dimly-lit snaps of the after party.

So in this podcast, I’ll first go over what was discussed in my own words, followed by my reaction to Arun’s thoughts and the questions presented by Sonal Chokshi, a legendary editor and longtime journalist.

The talk starts out with Arun asserting that the government doesn’t need to regulate the sharing economy, followed by an explanation of just what is this “Crowd-Based Capitalism” he speaks of.

Crowd-Based = Not needing to hire own employees or use own assets, but rather utilize through access. Capitalism = Market based capitalism with a new way of organizing labor

So, straight off, you can see this is mostly about the labor side of things, rather than the community, individual, or lifestyle implications the sharing economy has on society.

One of the first questions asked is, how to do you integrate the sharing economy into GDP?

This is a great question. I was very much looking forward to the answer, but felt like there wasn’t a lot of depth in this response. Of course, I’m not an economist by training, but I’d focus more on the wellness side of how GDP must change for the future of work.

Arun’s thoughts are that a lot of value goes uncaptured by the way we currently measure GDP, including: – value created by tech progress (such as Facebook facilitating new social connections) – value distribution – GDP doesn’t give you an idea of how much value is distributed, but rather how much value is created – other quality of life measures (work/life balance, meaningful work, etc.)

Most of these categories are associated with labor, but I’d like to include many measures of wellness in our overall economic health, which includes factors of things like mental health, physical health, life expectancy, etc.

What Arun did say that I stronger agree with. There’s a disconnect between progress and what we value, which is the subject of my next book – VALUE!

Next question… what are the economic effects of the sharing economy?

  1. Increasing capital through more efficient use.

  2. Increase in consumption from an increase in variety (think different Airbnb options). Most economists agree that when you increase variety, there’s a positive economic impact and democratization of opportunity. Along these lines, Arun said, “…removing barriers to ownership, increases access.”

  3. Many business micro business owners. This, Arun says, is a move from most people being consumers to owners, which could reduce inequality.

  4. Some positives and some negatives in economies of scale. This, Arun says, is a move from industrial manufacturing to makers, where we could lose some economies of scale.

My thoughts: Point number 3 is where we really differ. I see many sharing economy “owners” as employees based on the way they work and are incentivized. Owners “own” and for the most part, I don’t see owners of the sharing economy, sharing in profits or governance of the platforms themselves.

Moving on. Is this really democratizing? Zing! I really love Sonal’s direct, unapologetic questions.

Arun encourages us to look at the data and says we need to look into how the individual and the institution shifts the power from the provider of labor to the individual, which empowering for individuals. He tells us that there is significant value creation for micro entrepreneurs of sharing economy who are below middle class.

My thoughts: I’d love to see this data he speaks of and learn some hard numbers and contrast those numbers with the value creation of actual ownership of the platforms, including venture funds, founders, and early employees. The sharing economy could be democratizing, but the way that it’s currently setup, the kid with the most toys wins and runs the show. If you’re just a toy seller, you’re not a true owner as there’s no long term value. An Uber driver, for example is not an owner… they are a driver using their own assets and resources as part of a larger networked platform (Uber itself) who owns the long term gains of the drivers efforts. I do, however, think the power of the crowd is great. I do think things like crowd equity are going to make a big difference in the future in terms of how ownership is considered and distributed.

How can we protect benefits?

Arun said the 20th century workforce needed a benefits plan for full-time workers, but we increasingly need something new. There’s no comparative funding model or safety net for the future of work, which includes a lot of contract workers. Arun sees that the future models around benefits for sharing economy workers will include a combination of the individual, the government, and a 3rd party. He compares 401k to what’s yet to be created, saying that this plan runs through a company, supported by government structure, and run by a 3rd party, similar to what he sees coming for gig workers.

My thoughts: Yes and! We need to do more than sit around and wait for policy makers to make up their minds about what to do. We also need stricter or more conclusive guidelines on what it means to be an employee verses a contractor. Personally, I’d like to see a delineation for a digital worker.

What is the governments role in the future of work?

Arun compared how twenty years ago people were concerned about offshoring to how they go on about automation today. He called newer companies, like the Airbnb and Uber platforms “firm-market hybrids.”

Then he spoke briefly about the potential of decentralized ownership in the form of platform cooperatives, which gives rights the value creators of these firm-market hybrids, saying that he’s cautiously optimistic about such ideas.

What Arun seemed to be more interested in is the potential for bias or discrimination to play a role in ratings and reviews, preventing sharing economy workers from being able to get or keep work. He doesn’t want to see us create a new category or utility for discrimination to be legalized. He thinks your reputation should be a gateway to access, but that the algorithms need to take bias into account and adjust for that.

My thoughts: These new platforms that rearrange labor and individual resources need to work on an entirely different premise that what we’ve ever seen before, so we need new ownership models like platform cooperativism or value sharing modalities to enter the equation. This will help all of the value creators to have a say and to work as an ecosystem rather than as a top down, what I’d call in many cases, platform monopoly.

Where is this going in terms of regulation? 

Arun says regulation is growing, but the parties regulating are not the government. He gave some examples how regulatory enforcement has moved to the platforms themselves, with the government helping to set the regulation, but actual enforcement happening through outside agencies. One example given was shared transportation companies and how they have to work with regulatory agencies that are a third party to the government, but that they actually internally regulate themselves. Another example was home owners associations with how they might deal with Airbnb rentals.

Arun thinks that the owner of the data should hold the responsibility in terms of regulation. For example, if Airbnb knows how much money you’ve made, they should self regulate their hosts, collecting taxes and such.

All of this is similar to how credit card companies deal with fraud. The government does fight fraud, the credit card companies deal with it internally, so the incentives need to be aligned.

My thoughts: Wow, this is so loaded and scary that I don’t even know where to begin. If we continue to replace government with private enterprise, the incentives are clearly not aligned, and not only that, but we’re in for some highly unregulated platform monopolies that will do what’s best for business (their bottom line) verses what’s best for the population at large. Taken to the furthest degree, let’s take safety for example, who is liable if someone is stabbed, raped, or murdered using one of these platforms? I do think we need some overall regulation for digital workers. Again, this could roll into a third delineation of workers that are neither typical contractors nor employees, but rather digital workers.

What do you think?

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