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December 30, 2013 - nocon

‘Welcome’ to the Sharing Economy — Also Known as the Collapse of the American Dream

By strauss_steven@yahoo.com (Steven Strauss) Your opportunity to be a “micro-entrepreneur”: By cleaning other people’s homes or renting out your spare room.

Thomas Friedman, and others, have recently extolled the virtues of the sharing economy (see “Welcome to the Sharing Economy,” or “How to Monetize Your Closet“). At the risk of bragging, my immigrant parents were clearly trendsetters in this area. They typically rented or borrowed spare rooms (rather than stay at motels/hotels, or in a regular apartment), cars, clothing, shoes or pretty much anything they couldn’t afford to own themselves — which was just about everything. They also pioneered as “micro-entrepreneurs,” always willing to do an odd job for cash. Of course, this was in the late 1930s, when my poor and uneducated immigrant parents were just one step short of becoming homeless. The 21st century sharing economy isn’t being embraced because people want “lightweight (asset-free) living.” It’s usually embraced for the same reasons it was embraced in the 1920s-1930s. For many people, there’s not any other choice.

Airbnb is the archetype of this trend. Its service allows people with a spare room to use it as an ad hoc “bed and breakfast.” It rents these rooms to complete strangers, who in turn get to stay with complete strangers. What a delightful and desirable use of one’s home!

Mr. Friedman writes enthusiastically about a future where we will typically: rent out our power tools, give each other rides, and provide cleaning services — all via Internet-based platforms such as Airbnb. We’ll achieve a brave new world where each of us will be (in Mr. Friedman’s words) a “micro-entrepreneur.” That’s kind of like being a real entrepreneur, except you won’t have: a regular salary, paid vacations, employer-provided health insurance, or a chance of getting rich from an IPO. Being a “micro-entrepreneur” in this brave new world seems instead just a euphemism for being an employee, except with reduced compensation, job security, benefits and protections.

I suspect Mr. Friedman, who makes $40,000/speech, isn’t an active and regular user of Airbnb. He’s not likely to want to stay with random strangers when he travels, nor have random strangers stay at his home. Similarly, I doubt any of his family members would welcome the opportunity to become “micro-entrepreneurs” by cleaning other people’s homes.

I’m not criticizing the entrepreneurs who’ve spearheaded creation of this new and improved sharing economy. By building two-way feedback loops (both buyers and sellers rate each other), they’ve improved the experience for everyone, and lowered search/transactions costs. For VCs or entrepreneurs creating a marketplace/platform in this space (e.g., the next Airbnb), this could be an exciting and profitable opportunity. But let’s not delude ourselves about some of the underlying economic forces driving this trend.

According to Pew Research, income inequality has returned to levels not seen since the 1920s. In 1928, the top 1 percent of families received 23.9 percent of all pre-tax income, while the bottom 90 percent received 50.7 percent. Today, we’re back to approximately these same patterns of income distribution.

We’ve also created an underclass of people not suited to employment in a modern economy, but perfect “micro-entrepreneurs” for the sharing economy:

“Twenty-five percent of Americans that start high school do not graduate. Entering the workforce without a high school diploma means an unemployment rate three-and-a-half times the rate of those with a college degree. And for those who do find full-time work, they on average earn less than half of what a college graduate makes each year.

Thirty percent of high school graduates do not go on to college right after graduation. In the workforce, a high school graduate earns on average more than someone without a diploma, but still only 60 percent of what a college graduate makes each year.” -Source: CNN

On top of these long-term trends, we currently have about three job seekers for every available job, and 11 million people looking for work — so the growth of the sharing economy isn’t surprising.

Americans aren’t looking forward to their new careers as “micro-entrepreneurs.” According to a recent Bloomberg National Poll, Americans — by a margin of about two to one (64 percent to 33 percent) — believe the U.S. no longer offers everyone an equal chance to get ahead. As you might expect, these feelings are most pronounced among those most likely to be offering their services as “micro-entrepreneurs” in the sharing economy.

So “welcome” to the sharing economy — also known as the collapse of the American Dream.

Steven Strauss is an adjunct lecturer in public policy at Harvard’s Kennedy School of Government. Immediately prior to Harvard, he was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. Steven was one of the NYC leads for Applied Sciences NYC (Mayor Bloomberg’s plan to build several new engineering and innovation centers in NYC), NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the U.S., Asia, Europe and the Middle East.

Source: Huffington Post

    

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  • […] Americans aren’t looking forward to their new careers as “micro-entrepreneurs.” According to a recentBloomberg National Poll, Americans — by a margin of about two to one (64 percent to 33 percent) — believe the U.S. no longer offers everyone an equal chance to get ahead. As you might expect, these feelings are most pronounced among those most likely to be offering their services as “micro-entrepreneurs” in the sharing economy.  […]

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