The sharing economy is growing as a form of trade in different spheres. What factors have contributed to its growth and what part can it play in development?
The Institute for the Integration of Latin America and the Caribbean (INTAL) has been working to develop the state of knowledge on technological change, global trade, and new forms of integration. Earlier issues of INTAL Connection analyzed the impacts of the technological revolution on trade, ICT-based services, digital manufacturing, the bioeconomy, big data, and nanotechnology.
This article addresses the development of tools for the sharing economy and lays out the main opportunities it may bring for Latin America and the Caribbean and the challenges it poses.
“The sharing economy is a movement that will have an impact on par with the emergence of the Internet,” argues Shervin Pishevar, an expert in venture capital and an enthusiastic investor in technological start-ups. The majority of the economic, social, and even political revolutions that we’ve witnessed in recent years have shared one intrinsic feature that has made their impact radical and immediate: technology. But there are other contributing factors: the low global economic growth of recent years and new levels of awareness of the impact of climate change.
If we examine the technological heart of this new trade paradigm, what we find is that new technologies have cut trade costs in novel ways and made access to the information necessary for trade more affordable. The information and communications revolution has enabled markets to expand, led people to explore new alternatives, and sped up transactions. However, all this has already been happening as a result of e-commerce, which has grown markets and made our world more integrated. So what’s new about the sharing economy? What makes it different is that it has enabled the creation of a supply of and demand for goods that were previously not in circulation, or were only trade to a very limited degree. The way this new trade is taking place is increasing the personal contact between those involved and saving resources, such that it dramatically reduces the impact of our actions on the environment, in addition to other costs.
The sharing economy is making it less important for us to permanently own certain goods, especially certain long-lasting ones. Why should I buy a car if there’s a platform that lets me access transportation cheaper and faster? Owning goods is becoming less important than having access to them, which is supported by the idea of a cheaper, more efficient, and much more sustainable form of trade. But as with any disruptive change that threatens the status quo, the sharing economy is not without its naysayers. There are also legitimate concerns around the regulation of these new business models and worker protection.
In Latin America and the Caribbean, this economic revolution could be the driving force we need to innovate in productive sectors and generate new types of exports, above all in the service sectors. We have a young population that openly embraces technology, a production model that needs to become more efficient and competitive while also making responsible use of natural resources, and a culture in which sharing lies at the heart of our concept of family and social relationships. Government regulation, especially at the local level, and greater regional integration could be the keys to help us ride this new wave.
From “You Are What You Have” to “You Are What You Share”
Sharing is as old as humanity itself, but collaborative consumption and the sharing economy are phenomena that were born in the Internet age (Belk, 2014). What is new is the scale of the goods and services that can be traded in less time, at a lower cost, and even between strangers.
The meaning of the term “sharing economy” is somewhat vague and can include a large range of activities (Richardson, 2015). According to Thomas (2015), it was mentioned for the first time in 2008 in reference to a form of collaborative consumption involving activities such as sharing, exchanging, or hiring resources without the need to transfer ownership of them. Authors such as Stephany (2015) suggest that the sharing economy is based on the possibility of taking goods that are being underutilized and making them available to the community through the Internet, which cuts down on our need to own things (Richardson, 2015).
According to Belk (2014), there are two common denominators for the sharing economy. First, access to goods and services on a temporary basis without a transfer of ownership. Second, using the Internet as a space to carry out these transactions, especially since the development of Internet 2.0 and the spread of mobile technology. As a model, the sharing economy is characterized by the following core features (PWC, 2015):
Trade in goods and services are based on online platforms that enable real-time connection so as to bring the supply of goods and services together with consumer demand. For example, Airbnb connects travelers seeking rooms or houses to stay in with owners; a single click brings an Uber driver to pick us up and take where we need to go in a matter of minutes.
Access vs. Ownership
Accessing a good or service may include a range of possibilities that focus more on use than ownership. This shift from ownership to access (Romero and García, 2015) is giving many people the chance to enjoy experiences that they might not previously have been able to afford and making goods available in a way that allows them to be used more efficiently.
Collaborative and Community-Based Consumption
The idea of belonging to a community and generating value on both sides of a given transaction has given rise to a more sustainable and affordable form of consumption. This creates a closer relationship between whoever is offering a service and whoever uses it, impacting both sides. Two examples of this are the carpooling system run by Bla Bla Car or Wallapop’s online marketplace for secondhand goods. The main added value of this new trend towards sharing, in addition to economic gains, is the production and development of knowledge, which can become a starting point for new business models (Romero and García, 2015).
Trust Is the Foundation for Success
Technological development is giving way to a new type of economy where goods and services are shared and traded via online platforms that use an unbeatable marketing system: reputation and consumer confidence. Without other travelers’ recommendations, it would be impossible to stay in a stranger’s house or let people you don’t know into your car for a day-long journey. More information is circulating on the market, which enables us to allocate resources and meet needs more efficiently.
The idea of sharing without the need for ownership and of making goods that aren’t being used optimally available has also grown in recent years as a result of the low growth of the economy, which has prompted people to look for cheaper options for essential services. These new forms of services also mitigate the inequality that has emerged. Mainstream forms of consumption actually tend to generate an inequality gap, in that hyperconsumption and waste coexist with precariousness and basic needs not being met.
Creativity can come to the service of need and “collaborative or participatory consumption could prove resilient in the current economic and financial climate, and provide a response to the growing uncertainties caused by the economic crisis. It could also represent an opportunity to get back on track towards sustainable economic, social, and human development in an environmentally friendly way,” adds the European Commission in its report.
As a result, for thousands of people, platforms such as Airbnb or Uber have given people a way out of unemployment or become a source of extra income by enabling them to rent out a room in their house or spend a few hours of their free time behind the wheel. They’ve also used platforms like Wallapop or eBay to sell things that they don’t use anymore or that they’d rather get rid of.
Concern over the negative effects of climate change on our planet has also been a major factor. It is clear that current levels of production and consumption in some countries are not sustainable or compatible with the idea of greater equality and access to resources for the entire population. It is predicted that by 2025 there will be 9 billion of us on the planet, which means we will have to radically change our forms of consumption.
The third factor, and perhaps the most important, is technology, which has relentlessly changed the rules of the game by modifying a huge number of activities across the board, adapting processes to this new reality.
Carlos Blanco, a well-known Spanish entrepreneur, believes that “this new way of consuming is a consequence of digitization, but it’s also a response to overpricing, bad service, and bad regulation. It’s a Trojan horse into a system that encourages the existence of US$533 billion worth of objects that are never used” (García Vega, 2014).
Some 40% of the world’s food production goes to waste; private cars spend 95% of the time standing still; in the United States there are 80 million drills whose owners only use them 13 minutes per year on average; and English drivers waste 2,549 hours of their life circling the streets in search of a parking space (García Vega, 2014). In other words, we are up against huge waste that new technologies could help to address.
However, the new model is not technology itself. Instead, technology has enabled an innovative paradigm shift that empowers individuals, creates economic, social, and environmental value, and enables collaborative practices that are a fundamental part of human nature and that allow others to use resources more efficiently (Martin, 2016)
A report by the consulting firm PWC (2014) predicts that the sharing economy has the potential to grow from its current income level of US$15 billion to US$335 billion by 2025. Many industries have been shaken up by these new practices. These include the hotel sector (Airbnb, CouchSurfing, or Homeaway), transportation (Uber, Lyft, Bla Bla Car, and bike-sharing systems), entertainment (Netflix, Amazon Library, or Spotify), and even the banking sector, through new microfinancing models using crowdfunding platforms or new forms of payment.
Like in any revolution, the sharing economy has winners and losers, supporters and naysayers. Many enjoy it, few can ignore it, and it is developing at a dizzying speed. Despite PWC’s positive economic projections, there are still few studies that effectively measure the real impact that this transformation is having on all sectors of the economy.
For some authors, the sharing economy is a response to a culture marked by hyperconsumption and waste (Shor, cited in Richardson, 2015), or a way of driving responsible consumption as a new path to sustainability (Martin, 2016). It is also a way of promoting greater equality in resource distribution by lowering the barrier to access: only paying to use a good or service is much cheaper than having to buy and own it (Botsman and Rogers, 2010).
However, other authors emphasize that some collaborative platforms, especially those that are most widespread, such as Uber and Airbnb, are being criticized for transferring risk to consumers, creating unfair competition, establishing parallel or legally questionable markets, and even promoting tax evasion (Martin, 2016).
This has translated into episodes of violence in some cities (such as confrontations between taxi drivers and Uber drivers), and many have pointed to the lack of regulation and slow reactions from governments as being the cause.
An article in the Harvard Business Review acknowledges that there is mutual interest between companies that form part of the sharing economy and governments (especially at the local level), but they fail to agree on how to regulate these new markets (Summers and Cannon, 2014). These authors believe that the key lies in aligning firms and governments to establish innovative, flexible forms of regulation that will enable this new model (which is sometimes still somewhat uncertain) to grow and develop, while also protecting those working within it and providing a way out for those who wish to leave it.
But the authors also call on companies to take part in developing these new regulations—both winners (the new platforms) and losers (taxi unions, for example). They advise companies to be proactive, reach out to regulators, share information, and make use of research and best practices in other countries and cities. “It is easy to blame regulators for business problems […] It is more difficult but far more rewarding to avoid regulatory problems and enjoy business success” (Summers and Cannon, 2014).
There are many examples of local governments addressing the problems posed by these new businesses through innovative laws. In Amsterdam, Airbnb has become a major tax ally by regulating its operations in terms of security and competition with traditional hotels (limits to the number of days per year a room can be rented out) and identifying citizens who benefit from it to ensure they pay tax on their extra earnings. In some instances, local governments themselves have launched sharing economy initiatives. The best-known examples of these are bike-sharing systems, which cut down on traffic and reduce air pollution.
More Sharing Tools in Latin America and the Caribbean
Latin America could have been the epicenter of this new trend. Sharing is in our DNA, we are aware of the effects of climate change and the need to care for the environment, and the majority of our population are millennials, and thus digital natives. However, we still lack solid policies that promote the development of these platforms and regulate economic activity within them; a transparent, flexible financial system that permits greater international transactions; and, of course, greater regional integration between our countries so as to strengthen our markets and become more competitive.
The agenda of collaborative activities that could have a major impact on developing and improving sectors that contribute to expanding and diversifying the region’s exports is yet to be written. Most governments in the region have responded to this phenomenon with reactive proposals regarding the provision of domestic services, particularly transportation. But the idea of taking advantage of these schemes within the tourism industry, for example, or of promoting the use of sustainable resources in the region is only just starting to emerge.
According to Ricard Pérez Garrido in a report on the collaborative economy in Latin America (IE, IDB, and FOMIN, 2016), “the sharing economy presents enormous opportunities for developing economies in terms of resource optimization, job creation, and the spread and maturing of technologies that are more linked to real socioeconomic contexts than a forced globalization.”
According to the report, sharing economy initiatives are concentrated in a handful of countries, led by Brazil (32%) and followed by Argentina (13%), Mexico (13%), and Peru (11%). “This is a very young ecosystem: most initiatives were created in the last five years. The speed at which technologies have been adopted in recent years and the growing popularity of these initiatives as ways of structuring traditional trade relations imply the need for a major launch platform that would generate multiple alternatives as real, viable examples of this sort of undertaking emerge” (IE, IDB, and FOMIN, 2016).
Platforms and initiatives that were developed abroad currently coexist with others that were created in Latin America itself. The best-known and most used international platforms are Uber, Airbnb, eBay, Bla Bla Car, Cabify, Wallapop, KickStarter, and Homeaway (Ouishare.com). Due to the size of the market these companies are accessing, their local growth has been exponential in recent years.
Initiatives created in the region itself are more modest but they still have enormous potential. In Brazil, examples include Vayable (the hotel sector), EasyTaxi (transportation), and Tutanda.com and TuVakita (two start-ups from the FinTech world which are attempting to make inroads into the financial sector). Other start-ups in the media and entertainment sector have altruistic aspects to them which are often the reason they were founded or the driving force for the entrepreneurs behind them. This is the case with Linguoo, a platform created by Emanuel Vilte, an Argentine computer scientist who started from the idea of creating an app that would allow the visually impaired to access online content, but which has the potential to become the radio of the future. Today, Linguoo has more than 25,000 users in over 88 countries and is growing by 24% annually. Its founder recently won second prize in the INTALENT competition that INTAL organized to reward creative and innovative entrepreneurs in the region.
Emanuel Vilte, who was awarded a prize by the MIT Technology Review en español as one of its Innovators under 35 for 2015.
Photo credits: MIT Technology Review en español
All the same, there are a few successful initiatives that have managed to take off and make an impact on the economies of their country or the region. There is a need for intelligent policies that regulate this new economic model but are flexible enough to allow it to grow in the direction where it is needed. There are successful experiences that may prove to be sources of inspiration; however, there needs to be consultation with firms, universities, governments, labor unions, entrepreneurs, and other players in the business ecosystem regarding the challenges they are facing and the opportunities that lie ahead of them.
The following are some of the factors that we will need to work especially hard on if local platforms are ever to truly take off:
- Generating confidence in the market. Customers/users get involved in these new business models very slowly, sometimes because they don’t yet trust them, and sometimes because they don’t know enough about them. Other interesting tools include the sharing of success stories and joint promotion efforts between services and the public sector (for example, in cases where a new service improves aspects of citizens’ everyday lives, such as transportation or security).
- Intelligent legislation. This would entail neither stopping new economic players from entering the system or creating legal vacuums that encourage parallel markets or abusive labor practices. Instead, it would focus on jointly developing policies that would guarantee a progressive transition to new forms of production and consumption, generating new opportunities for workers to become part of the system, with safeguards and rates, as should also be the case in traditional industries or firms that are seeking to modernize.
- Fiscal collaboration between government and new platforms so as to guarantee that the services they provide coexist peacefully and that these new taxpayers are meeting their fiscal obligations. The collaborative economy must be collaborative on all levels.
- Protection and openness to guarantee investment in research and development and new patents, while also offering entrepreneurs and new firms data and research that they can use to develop and create alternative ways of consuming and enjoying certain goods. For example, providing data on water or electricity consumption so as to stimulate alternative and more efficient forms of consumption, production, and distribution.
- Legal and physical security. On the one hand, legal security is needed so as to guarantee that contracts are complied with, which will drive investment. There are still major legal vacuums in terms of the regulation of new forms of consumption and trade in goods and services. On the other hand, there needs to be more work in relation to citizen security. High crime rates in some parts of the region would make it difficult for some initiatives to triumph simply because of people’s fear of strangers (for example, Bla Bla Car or carpooling systems in general).
- Financial and banking integration. The exponential growth of the sharing economy is due partly to the speed and ease of carrying out financial transactions through digital platforms. This includes not only traditional payment methods but also new applications, forms of financing, and means of payment. Without greater integration and support for new financial technologies (FinTech), it will be hard for the sharing economy to evolve. This could constitute an obstacle in Latin America.
- Internet access and education. Despite progress in these areas, in recent years there has been a stagnation in digital penetration and a backsliding in the quality of education. We need a population that is prepared, skilled, and connected so that it can put all its creativity to work to create new forms of production and consumption that are more sustainable, make more of an impact, and allow our region to solve the grave problems of inequality and poverty once and for all.
- An outwardly looking agenda. The countries of LAC need to move forward with promoting collaborative schemes that have repercussions on exports. For example, small and medium-sized enterprises could come together to access strategic resources that would allow them to reach new markets: sales platforms; reductions in transportation costs through collaborative logistical activities; public purchases that go beyond borders and that seek to operate at scale so as to bring prices down; a crosscutting use of big data tools to leverage trade intelligence; encouraging collaboration between the public and private sectors to optimize foreign trade institutions that currently operate in an unarticulated fashion and carry out overlapping tasks. The impact on global value chains remains to be studied, but in any case, these aspects need to be taken into account. Similarly, more sophisticated statistical studies need to be carried out so as to gauge prospects for the service sector in the international context more effectively.
Disruptive changes make us feel strong and vulnerable at the same time. As a society, we can clearly see the benefits that the sharing economy entails, but we also perceive how fragile its foundations are. We need to invest in a new form of production and consumption that will be sustainable for our society and that of our children, but at the same time, we need to protect those who such changes will hit hardest.
Carlota Pérez at the London School of Economics states that “technology only defines the space of what is possible, but creating an environment where everyone stands to benefit is a sociopolitical choice.” As always, we are the architects of our circumstances. For the sharing economy to work as a system for everyone, we need to understand that responsibility for it must also be shared.
Today, taxi drivers are declaring war on Uber drivers. Meanwhile, a spin-off from the Massachusetts Institute of Technology (MIT), NuTonomy, has just announced that its autonomous (driverless) cars already circling the streets of Singapore, and in a few years they will be doing the same thing in cities throughout the world. So will Uber drivers soon be declaring war on… Robots? Everything is changing at a dizzying speed. There is no time to waste on pointless struggles. Instead, we need to work together to find sustainable solutions that include everyone and improve our lives.
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