Saturday, December 20, 2014

The Sharing Economy Versus the Servant Economy

Reader ‘J’ alters us to this post, which bookends the last series of posts nicely – that the modern propaganda called economics, especially Neoliberal economics, is only possible by forgetting all of economic history. From the post: “…this idea that there was once a time when this country had free and unregulated markets is a persistent one... The Statute of Labourers in 1351 is usually regarded as the first labour legislation in English Law. …Until 1875, …the imbalance of power between workers and their employers wasn’t just economic; it was legal too. That balance only began to shift towards the end of the 19th century, at first with health and safety laws and later with trade union and employment protection. For most of the period since the middle ages, though, labour law was firmly on the side of the employer....Those who complain about employment law often say that the government has no business meddling in the labour market. In fact, governments have been meddling in labour markets for almost as long as they have existed...The myth that there was a time before The Fall, when the state didn’t meddle in the affairs of free men, is persistent, especially on the libertarian right.”

The Legend of the Free Labor Market (Flip Chart Fairy Tales)

I’m reminded of this story told by Franklin Roosevelt (I cannot independently confirm whether it is true):
“Let me take you back three hundred years to old King James of England. The reign of this king is remembered for many great events—two of them in particular. He gave us a great translation of the Bible, and, through his Lord Chancellor, a great statement of public policy. It was in the days when Shakespeare was writing Hamlet and when the English were settling Jamestown, that a public outcry rose in England from travelers who sought to cross the deeper streams and rivers by means of ferry-boats. Obviously these ferries, which were needed to connect the highway on one side with the highway on the other, were limited to specific points. They were, therefore, as you and I can understand, monopolistic in their nature. The ferryboat operators, because of the privileged position which they held, had the chance to charge whatever the traffic would bear, and bad service and high rates had the effect of forcing much trade and travel into long detours or to the dangers of attempting to ford the streams.” 
“The greed and avarice of some of these ferryboat owners were made known by an outraged people to the King himself, and he invited his great judge, Lord Hale, to advise him.” 
“The old law Lord replied that the ferrymen’s business was quite different from other businesses, that the ferry business was, in fact, vested with a public character, that to charge excessive rates was to set up obstacles to public use, and that the rendering of good service was a necessary and public responsibility. “Every ferry,” said Lord Hale, “ought to be under a public regulation, to-wit: that it give attendance at due time, keep a boat in due order, and take but reasonable toll.”
Defending the Public From Greed (Resilience)

Such interference in the economy! Imagine the hue and cry if you tried to do that today in the age of Neoliberal market utopias! There was apparently more regulation for the common good in the 1600’s than there is today in age of nuclear power and biotechnology. Who is really more feudal?

Two sentences from the above article deserve special attention:

"The important thing to understand about master and servant law, though, is that workers were subject to criminal sanctions for breaches of their contracts while masters were only subject to the civil law. You don’t need to think about that for too long to see the lop sidedness of it. Workers of limited means had to pursue employers through the courts, while employers had the entire law enforcement apparatus of the state at their disposal."

This is coming back with the rise of noncompete agreements:

Ties that bind: The market for smart people is clogged up by all manner of dubious legal restrictions (The Economist)

Noncompete Clauses Increasingly Pop Up in Array of Jobs (New York Times)

Not only that, as I’ve pointed out before, the American system where you are dependent upon your employer for health care and other benefits effectively “ties” you to your employer in a semi-feudal relationship. If you are without work, you are on your own! Employers are also pushing off the costs of everything on the employees themselves. They’ve already done this with education – you need to spend tens of thousands of dollars of your own (usually borrowed) money just to make yourself amenable to the jobs that are on offer. The employers do nothing but sit back and pick the employees who can afford to bear the highest education cost burdens and profit from this educated workforce while giving nothing back in return. Without this educated workforce, profits and prosperity would not exist. This is getting easier as good jobs are getting more scarce - people are more desperate.

"Where we think of employers and employees, our forebears thought of masters and servants. Nowadays, we use the word servant to refer to household staff but, until recently, it was a general term for a worker."

Servants, eh? Back to the future! That brings us to the so-called “sharing economy.” I recently read this:
Of the many attractions offered by my hometown, a west coast peninsula famed for its deep natural harbor, perhaps the most striking is that you never have to leave the house. With nothing more technologically advanced than a phone, you can arrange to have delivered to your doorstep, often in less than an hour, takeaway food, your weekly groceries, alcohol, cigarettes, drugs (over-the-counter, prescription, proscribed), books, newspapers, a dozen eggs, half a dozen eggs, a single egg. I once had a single bottle of Coke sent to my home at the same price I would have paid had I gone to shop myself.

The same goes for services. When I lived there, a man came around every morning to collect my clothes and bring them back crisply ironed the next day; he would have washed them, too, but I had a washing machine.

These luxuries are not new. I took advantage of them long before Uber became a verb, before the world saw the first iPhone in 2007, even before the first submarine fibre-optic cable landed on our shores in 1997. In my hometown of Mumbai, we have had many of these conveniences for at least as long as we have had landlines—and some even earlier than that.

It did not take technology to spur the on-demand economy. It took masses of poor people.
The secret to the Uber economy is wealth inequality (Quartz) Of course it is! If you think about it a minute, you realize that only in a vastly unequal economy will a single person have enough income to buy the labor of so many other people. If incomes are relatively equal, you will not pay for people who make roughly the same income as you to serve you. You cannot, it makes no sense. A service economy not only requires, but engenders a world of six-figure corporate technocrats on one side, and Wal-Mart associates and baristas on the other. There can be no other model for the "service" economy.

In order for a single family to be able to afford a maid, a nanny, a personal chef, a personal assistant, a personal trainer, a chauffeur, an interior decorator, a personal shopper, a dog walker, a house sitter, a Yoga teacher, etc., they must make an order of magnitude of more money than all of those people because all those people are economically dependent by that person's income (they may have a few other clients, but these are low-productivity services not amenable to improvement, and there are only so many hours in the day). We're going back to the world of Downton Abbey.

I actually worked with someone from Mumbai once. I remember the shock and amusement from us Americans when she casually mentioned growing up with servants. Well, this will not be surprising or shocking to future Americans. Is this the America you want, because it's where the elites are taking us.

Another thing - what the sharing economy is has been badly misused. Somehow it came to mean anything done with your smartphone, or involving computers in any way.

Um, no. The idea was a) to utilize resources sitting idle, and b) to discourage the need for individual people to have to buy something that they would use only infrequently. And if they did end up buying it anyway, they could recoup some of the costs by sharing it (step a).

The model for this is the public library. Everybody pools their money for free to build a place for everyone to use that contains the contained knowledge of society embodied in books. It benefits the whole community. It's a nice vision.
But beneath all the hype is a sensible idea: there are a lot of slack resources in the economy. Assets sit idle—the average car is driven just an hour a day—and workers have time and skills that go unused. If you can connect the people who have the assets to people who are willing to pay to rent them, you reduce waste and end up with a more efficient system. 
In the past, this was hard to pull off, because the transaction costs involved in borrowing and lending were high: there was no easy way to find someone who had what you were looking for and no easy way to know if someone was trustworthy. So if you borrowed a lawnmower it was typically from your neighbor. But digital technology has made it much easier for buyers and sellers to find each other quickly, and to evaluate the people they’re trading with. The effect has been to make sharing a much more plausible business model.
Uber Alles (The New Yorker)

This is the sharing economy that I supported. There are some companies in this model. Airbnb allows people who have a spare room sitting empty to rent it out. Zipcar allows people who don't want to bear the enormous burdens of having to pay for a car when you only need it occasionally to share it with other people. Tool libraries and time banking are cooperative ways to put idle resources to work and reduce unnecessary consumption, and hence resource use. Rideshare services allow people who have an empty seat in their car to give it to someone who needs it. That should be a good thing in a time of economic decline and resource scarcity.

Here's what it's NOT - a way for more people to be servants. Note to the media, just because you summon something with a smartphone does not automatically make it part of the "sharing economy" Yet lazy journalists everywhere treated every new business proposal coming out of Silicon Valley as something to do with "sharing" when it was really just another way of taking advantage of desperate people.

And now the usual suspects whose job it is to rationalize and justify whatever new war against labor is going on, are touting what they imagine to be the "sharing economy" as a viable replacement for jobs and employment in actual businesses! The same people who touted the "service economy," and the "knowledge economy," are now touting the "gig economy" and "Uber-for-everything" as the next wave. We will all be mini-entrepreneurs working for ourselves, they say. Total freedom! Well, see where that leads above. It's yet another con-job in the service of the rich.

This is what I oppose. Uber is in no way a part of the sharing economy. It has nothing to do with sharing. The same goes for things like Mechanical Turk and Taskrabbit.Those are ways to bid down the cost of labor and insert profit-taking middlemen. As this comment notes, "I wish people would not call renting a car ride from an independent contractor “sharing” — there is nothing being shared here, a service is being sold, plain and simple." Here's Ran Prieur's description of Uber:
Through a smartphone app, they "arrange rides between riders and drivers", but unlike Craigslist, Uber controls all the information and all the money. They also aggressively externalize costs: they profit from everything that goes right, while only passengers and drivers suffer from anything that goes wrong.
That's not "sharing." Stop using that term. That word does not mean what you think it means.
In its essence the sharing economy is similar to offshoring and outsourcing in how it works...Let us establish the basics: high income for individuals, absent government fiat, is based on a tight supply of whatever it is they are selling, and nothing else...Hotels make decent money because any Joe or Jill can’t sell their rooms.  Taxi drivers (or, more accurately, those who own the licenses) used to make decent money because any schmo with a car couldn’t compete.  And so on.

In manufacturing terms, when those jobs pretty much had to be in a first world country, and the government enforced the ability of unions to strike by forbidding replacement workers, assembly line workers made good money.So the sharing economy increases capacity.  It increases supply to areas which had constricted supply. Supply increases, and the profits and/or wages of those in the old sector go down...All of these platforms: Spotify, AirBnB, etc… take huge margins.  Spotify takes 30%.  This is in line with what App Stores take, again, 30% being standard.

That number is one we’ve become numb to, but it’s essentially oligopoly or monopoly profits, a huge distribution rate. If you add that much to the cost of a product, it will sell far fewer copies and make far less money.  That percentage comes directly out of profits. In most cases, one or two sites control most of the business.  Maybe three.  That makes them oligopolies or monopolies. You go through them, or you don’t make a living, and once they are established, they are essentially impossible to dislodge.
Why the Sharing Economy is Destroying Prosperity (Ian Welsh)
Gabriele Lopez, an LA Uber driver, also lies. “We just sit there and smile, and tell everyone that the job’s awesome, because that’s what they want to hear,” said Lopez, who’s been driving for UberX, the company’s low-end car service, since it launched last summer. In fact, if you ask Uber drivers off the clock what they think of the company, it often gets ugly fast. “Uber’s like an exploiting pimp,” said Arman, an Uber driver in LA who asked me to withhold his last name out of fear of retribution. “Uber takes 20 percent of my earnings, and they treat me like shit — they cut prices whenever they want. They can deactivate me whenever they feel like it, and if I complain, they tell me to fuck off.”

In LA, San Francisco, Seattle, and New York, tension between drivers and management has bubbled over in recent months. And even though Uber’s business model discourages collective action (each worker is technically in competition with each other), some drivers are banding together....Uber drivers in LA, the largest ride-sharing market in the country, held dozens of protests over the summer to oppose rate cuts....Drivers are going up against a burgeoning goliath valued at around $18 billion. The company just hired David Plouffe, who managed Barack Obama’s presidential campaigns; it’s active in 130 cities; and if company executives are to be believed, it doubles its revenue every six months.

Uber makes that money by relying on a network of thousands of drivers who are not technically employees of the company, but rather independent contractors — the company calls them “driver-partners” — who receive a percentage of its fares.From the very beginning, Uber attracted drivers with a bait-and-switch...
Against Sharing (Jacobin)
It isn’t just companies and regulators who will have to be flexible, though. Workers will, too, since the sharing economy requires people to function as micro-entrepreneurs. Uber is just a broker, and the drivers aren’t anyone’s employees, any more than the landlords in Airbnb’s system are. They are all independent contractors, working for themselves and giving the companies a cut of the action. This has certain attractions: no boss, the ability to set your own hours, control over working conditions. It also means no benefits, no steady paycheck, and the need to always be hustling; in that sense, it fits all too well with the free-agent nation we’re increasingly becoming. Sharing, it turns out, is often a hell of a lot of work.
Uber Alles (New Yorker)
Wired's cover story this month is about the rise of the "sharing economy" — a Silicon Valley–invented term used to describe the basket of start-ups (Uber, Lyft, Airbnb, et al.) that allow users to rent their labor and belongings to strangers. Jason Tanz attributes the success of these start-ups to the invention of a "set of digi­tal tools that enable and encourage us to trust our fellow human beings," such as bidirectional rating systems, background checks, frictionless payment systems, and platforms that encourage buyers and sellers to get to know each other face-to-face before doing business. Tanz's thesis isn't wrong — these innovations have certainly made a difference. But it leaves out an important part of the story. Namely, the sharing economy has succeeded in large part because the real economy has been struggling.

A huge precondition for the sharing economy has been a depressed labor market, in which lots of people are trying to fill holes in their income by monetizing their stuff and their labor in creative ways. In many cases, people join the sharing economy because they've recently lost a full-time job and are piecing together income from several part-time gigs to replace it. In a few cases, it's because the pricing structure of the sharing economy made their old jobs less profitable. (Like full-time taxi drivers who have switched to Lyft or Uber.) In almost every case, what compels people to open up their homes and cars to complete strangers is money, not trust...
The Sharing Economy Isn’t About Trust, It’s About Desperation (NYMag)
As an Uber/Lyft driver, I’ve received dozens of emails and texts encouraging me to resist government meddling. I may drive for these companies, but I’m not stupid. Just broke and desperate. Which is why I use my own car as an unlicensed taxicab, despite the risks associated with transporting drunk and impatient people through crowded urban streets. I know I’m not protected from misfortune. When something goes wrong, whether it be car-maintenance or worse, I’m on the hook. My personal insurance policy is completely invalid when driving for-hire. If I get in an accident, I’ll be at the mercy of the offshore insurance company Uber uses to cover their drivers. From everything I’ve read about the experiences of other drivers, Uber won’t be clamoring to come to my aid. There isn’t even a number to call in case of an emergency. I could have bodies splattered all over the asphalt and still only be able to submit a support ticket through Uber’s website. And hope for the best. Even though drivers make these companies billions of dollars, we are entirely alone out on the streets.
Being Uber Ain’t Easy: Why Drivers Should Support Regulation (Disinfo)
The median income of the self-employed has been falling for some years now. This is because, as we know, the increase has come not from those running new businesses but from odd-jobbers scratching around for work. These figures are not adjusted for inflation, so the real-terms shrinkage in self-employment incomes will be even higher. Is it any surprise that the OECD blames the rise in self-employment for half of the UK’s increase in inequality?
Why the rise in self-employment is a Bad Thing (Flip Chart Fairy Tales)

Many of the above articles make the same mistake - lumping these predatory services in with "sharing" thanks to the media debasement of the term.  The true sharing economy provides are ways to use idle resources - not provide replacements for genuine employment. It would be a real shame if the actual "sharing economy" went away thanks to this misunderstanding.

P.S. The Economics profession priesthood always circles the wagons in the face of any attack. Here's one response the BBC show critical of economics teaching: Thoughts on “Teaching Economics After the Crash” (Medium)


  1. I never realized that Uber was considered part of the sharing economy. I thought of it more as in bike shares, and maybe even Zip cars- although it is for profit. And public spaces, public gardens, public transportation, etc. But I never thought that something that is basically a car service app would be considered part of the sharing economy.

    1. I didn't either until I started reading all these articles attacking the sharing economy. And when you read them you will notice every one of these articles uses Uber as their prime example of why it's a bad thing. Everything being done on a smart phone these days is now being considered somehow part of the sharing economy by the press even though it has nothing to do with it.

      I wonder if there is some intention here. It would be nice if journalists would somehow stop conflating these things, but I don't expect it.

  2. A couple of months back I wrote a post on The Societal Cost of Computer Science -- I was trying to figure out whether there's something deeper in why tech startups have this sort of flavor, and I think it's actually rooted in some of the key design ideas of the field of computer science.

  3. I was a translator for many years including years before and after the internet became a common tool and most of my fellow translators and I chose to be freelancers we all loved the ability to set our rates and take only the work we wanted. Many of us abandoned mid-level professional jobs to do this work but it didn't take long for me to regret my decision. Being a mini-entrepreneur was essentially like running on an endlessly looping treadmill that increased speed as the internet added more and more translators into the mix, even in really exotic language combos and specialties like translators with medical degrees. The only way to make money was to constantly increase your speed and degree of specialization or bid for huge projects and outsource the work to really low paid translators usually in distant countries. I dropped out in the early 2000's and got a real job and after crunching the numbers I discovered that I often made less than minimum wage a fact that was often covered up by the high total value of the projects and the complexity of the payment systems.


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