What is the sharing economy?
The sharing economy is based on the idea that surplus resources in society, should be used to help cover people’s needs. Coordinated by digital services, anyone can share their property or car, knowledge and skills, time or money. The idea is that ownership becomes unnecessary as long as one has quick and easy access to goods and services.
The sharing economy has seen rapid growth in recent years, and now counts some of the world’s fastest growing companies. Uber and Airbnb are worth respectively 50 and 25 billion US dollars, and are the world’s largest actors in their sectors, without owning any physical assets themselves. By letting people rent out a guestroom in their house or using their own cars to transport others, they have bypassed traditional actors in the taxi and hotel industry.
The sharing economy
- Means people prefer access over ownership
- Challenges traditional industries with new business models
- Includes some of the world’s fastest growing companies
- Raises questions on labour rights, tax and market regulation
The principle behind the sharing economy is not new. Time-share flats is one preceding example of buying access rather than owning. What is new with the sharing economy is the widespread use of smartphones and the opportunities the Internet provides in coordinating services. Mobile Internet gives access to payment services, maps and social media. This constitutes the infrastructure for services in the sharing economy.
Mutual trust between provider and customer is an important element of digital platforms. In the sharing economy, trust is systematized. Both customer and provider evaluate each other through reviews and ratings. In many ways, these reviews function as an internal regulation, where disreputable providers quickly lose customers and bad customers are rejected.
Norway is entering a phase where innovation and restructuring processes will be crucial to maintain the welfare state. The sharing economy provides several opportunities that can contribute positively to this:
More sustainability, by better utilizing existing resources. Car sharing services such as Nabobil can lead to fewer car purchases, while carpooling services like GoMore can contribute to less traffic on the roads.
Increased productivity, as the available resources in society are used more efficiently. These resources may include office spaces, advanced production equipment or labour.
Increased innovation, especially in service industries, can contribute to boost value creation and development. Low capital requirements for establishing companies and low thresholds for sharing one’s own resources can lead to larger markets and more competition.
The UK has investigated how the public sector can benefit from the sharing economy. This has initiated the project “Space for Growth”, where public institutions rent out empty office spaces and warehouses to freelancers or small businesses. Similar arrangements are also being planned for cars, lawn mowers and other equipment.
In the sharing economy the lines between professional and amateur, employee and freelancer, become blurred. This makes it difficult to define the sharing economy within established structures. A dilemma for the authorities is that early regulation of the sharing economy may inhibit innovation, while late regulation may allow individual actors to dominate the market or exploit loopholes.
Working conditions: The sharing economy makes it easy to work as a freelancer, and to choose when and how much to work. This may be as an Uber driver or by taking on assignments through platforms such as Finn.no or TaskRabbit. A key issue here is whether so-called micro-entrepreneurs are independent contractors or employees — with the rights and duties this entails for the company.
Two class-action lawsuits in California and Massachusetts, for example, contested that Uber should classify its drivers as employees with the rights it entails, such as health insurance, pension etc. A settlement was reached in both cases, agreeing that in exchange for significant concessions offered by Uber, drivers will remain independent contractors. However, a group of Bay Area Uber drivers state that they are dissatisfied with the settlement.
Tax: In San Francisco the treasurer has stated that Airbnb is not exempt from the city’s 15% hotel tax, while Airbnb claims current regulations are not adapted to internet-based business models. The tax authorities should ideally facilitate innovation, ensuring fair market conditions while retaining the tax base, but it may be difficult to see the consequences of this in periods of rapid development.
Should individuals profiting from the sharing economy pay the same taxes as established businesses? Digital payment services make all transactions transparent, thereby providing good opportunities for adapting national and local tax schemes.
Market regulation: A challenge when regulating the sharing economy is that it may be difficult to distinguish between individuals making a subsidiary income and professional actors. An overview of Airbnb in New York City, for example, showed that professional actors accounted for 37 percent of the profits. One person alone was responsible for 272 apartments. The market for long-term rentals has in some cities decreased, as many items are offered as short-term rentals on Airbnb instead.
Responsibility and security: In traditional hotel and transportation industry, there are strict regulations for security, insurance etc. Should the same rules apply to individuals as to hotels or is it reasonable that the regulation is proportional to size?
Measures and strategies in Europe
There are already several examples of governments taking action both for and against the sharing economy.
The UK: National strategy
In September 2014 an independent report was prepared for British authorities, investigating how the UK may become a global centre for the sharing economy. The authorities have followed up with a separate report containing specific recommendations.
Leeds and Manchester have been appointed pilot cities for the sharing of publicly owned cars, properties and equipment. The report also contains a number of industry-specific recommendations that deal with market regulation, security and labour rights.
The trade body “Sharing Economy UK” has been established to support British businesses in the sharing economy. Their work includes developing a trustmark for sharing services and responding to challenges of their members.
Germany, Belgium and the Netherlands: Different forms of regulation
Local authorities in Berlin have banned unregistered short-term rental of property. In Brussels they have adopted a softer approach, allowing short-term rentals as long as permission is given from the commune and co-owners of the building. Short-term rental is allowed in Amsterdam, as long as the number of guests does not exceed four persons per reservation.
A European Agenda for the collaborative economy
In June 2016, the European Commission presented guidance with the aim of supporting consumers, businesses and authorities in the sharing economy. The guidelines explains how existing law should be applied, and invites member states to review and revise existing legislation according to this guidance, where appropriate. The commission emphasize that the new business models brought forward by the sharing economy, can make important contributions to jobs and growth in the EU, as long as it’s developed in a responsible manner.