Turf wars on the frontiers of the sharing economy

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The sharing economy is turning into big business now, with companies perceiving a potential advantage: Looking to save money, big business dives into the sharing economy.

And, as this new economy grows, there will be turf wars between the old and the new world. A recent headline on Mashable read “New York Goes to War Against Airbnb for Disrupting Hotel Business“.

I’ve been expecting to see headlines like this for a while, as governments and old economy businesses realise that their revenue models are being disrupted by new businesses in the so-called sharing economy.

Sharing economy?

It is ‘so-called’ because what is termed the sharing economy really seems, for the most part, to consist in increasing the utilisation of existing assets already held in private hands.

Thus Airbnb enables owners to capitalise upon their existing excess housing capacity to earn revenue, while UberX enables car owners to use their existing asset to earn revenue.

This new economic activity is powered by the maturing of mobile technology and the development of clever peer-to-peer applications. This phenomenon builds upon the foundations of social media and the Web 2.0 revolution of the mid-2000s. In the sharing economy we see the unlocking of earning potential from people’s existing assets.

It is interesting that this phenomenon emerged after the global financial crisis, when consumers sought additional revenue sources as traditional work remained scarce for many in the US.

Organisations like Airbnb and Uber are on the frontier of the sharing economy. And this frontier is a place where intermediary businesses are being displaced by the democratisation of economic activity.

Governments are just now beginning to perceive the potential for this kind of economic activity to disrupt their existing revenue collection model. Apart from traditional corporate taxation, the economic activities of these new kinds of businesses do not fall within existing tax raising processes.

Taxation and Government relations

Yet, now that these companies are reaching sufficient scale, they are coming to the attention of various governments around the world. This is requiring these companies to rethink their relation to taxation and local regulation.

For example, Airbnb, which has always resisted hotel taxes being applied to its business, recently indicated a more positive view to hotel taxes being applied to their business: Airbnb Is Suddenly Begging New York City to Tax Its Hosts $21 Million.

Airbnb has even pointed out that New York city is not setup to receive hotel tax payments from Airbnb on behalf of people letting their apartments.

Governments are not really setup for collecting business taxes from the multitudes. This increases the need for governments to explore e-government and electronic delivery of services. It also means that governments need to start rethinking the boundaries of their various constituent groups – since companies, individuals, and collectives now start to have fuzzy boundaries.

The boundaries between personal and business activity are already starting to blur with the emergence of the sharing economy.

Regulation

This highlights some issues for the sharing economy. How do these organisations fit into the social and economic structures of government? How do these sharing economy organisations, which are often loose networks of individuals, comply with things like health and safety standards, insurance, and contribution to taxation systems?

Over many years western society has created a safer lifestyle for people by regulating certain industries to protect health and wellbeing. And, while some might argue that the nanny-state has gone too far, when disaster strikes the populace often seek regulation for their protection. This is why fire codes have made modern buildings so safe in comparison to the past.

Democratisation of economic activity

With the emergence of the sharing economy there is a growing tension between traditional corporate modes of organisation, such as government and large corporations, with new kinds of collectivist modes of organisation that are looser and more fluid.

These new models of organisation provide an umbrella for individuals to participate in economic activity in ways that were previously impossible. It is a kind of democratisation of economic activity for individuals, enabling them to scale their operations using web and API driven solutions.

This unlocking of the excess economic capacity of assets that are in the hands of ordinary private individuals is the next wave of economic activity.

How the tension plays out, between the traditional corporate organisations and the emerging collectivist organisations, will be very interesting.


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