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Sharing economy: how the wind of trust has changed direction

The sharing economy has wind in its sails. Its proponents are growing in numbers and the utopian narrative disseminated by its promoters is currently in vogue. But there is another side to the coin.

May 2015
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Executive Summary

Rachel Botsman, the face of sharing economy, talks about this model in the following terms: “Trust is the new currency of the 21st century.” She thereby point out a unique trait of Western societies. While these face major mistrust issues regarding their governments and corporate authorities, while individuals tend to grant their trust only to their closest relatives, an increasing number of people are placing their trust in strangers encountered on digital platforms. Their trust in centralized institutions is completely shaken while trust “shifts to distributed and connected communities,” according to Rachel Botsman.

Wind in the sails

One can only agree with her. Proponents of the sharing model are constantly growing in numbers. According to a PWC study conducted in the United States in December 2014, 44% of respondents knew the concept and 19% were already involved in a transaction of this kind. In France, according to a survey among 60 million consumers in 2014, 41% of French citizens resort often, or fairly often, to sharing consumption: 14% have already used the BlaBlaCar website – either as passengers or as drivers.

In the area of housing, sharing initiatives have proliferated around the globe. In the auto transport, they are taking off right now; in a field such as finance, they remain marginal. But everything is going very fast and this economic model has the wind in its sails, because the reasons to join it are adding up: 78% of users find it boosts purchasing power, 64% social bonds and entertainment, 43% say they favor it for ideological reasons. Could this enthusiasm be the prelude to unprecedented behaviors?

Sharing economy isn’t easy to define, as various activities fall under its umbrella.

In absolute terms, this model could include “commons-based peer production,” a term coined by Yochai Benkler who also analyzed and promoted it. The best-known example is the Wikipedia encyclopedia. But the designation “sharing economy” is reserved for the pooling of assets, spaces (typically, housing) and tools. Based on the so-called “wealth of networks” which can mobilize enormous underutilized resources available to individuals, sharing economy invents new ways of producing and consuming.

It aims to create a new pattern of social organization that takes advantage of widespread and low-cost connectivity: the backbone of the system is cooperation, breaking with the hierarchical system built on the law of competition/elimination that characterizes modern societies.

It regenerates former activities such as barter, the recycling of used objects, and short supply chains for agricultural products. It energizes new markets aiming to provide access to “surplus resources.” Thus, it makes the most of the capital invested by individuals: carpooling, cars, tools or housing leased for a short periods of time.

The Airbnb platform hosts many types of offers: individuals who attempt to offer, often cheaply, part of their apartments, sometimes a country cottage, or a trailer in their garden on the one hand; and traditional guest houses or “professional/amateurs” who manage a small housing stock, on the other.

The greatest benefit of this economy, the feature responsible for its success among users is the quality and depth of the offer: it is particularly clear in the case of carpooling or house sharing, where big corporate players were quickly overtaken by platforms mobilizing hundreds of thousands of individual resources.

But the offer is not all: sharing economy is also about the newly recovered human dimension of these interactions, something that cannot be reduced to mere monetary exchanges.

Sharing economy promotes the exchange of experiences in providing services, including in the financial sector (KissKissBankBank, Ulule) and the sharing of spaces dedicated to innovation (hackerspaces and coworking places).

Its activities range from voluntary and mutually-supportive sectors to the most popular platforms of the commercial sphere, some developing according to hyper-capitalist dynamics (Uber, BlaBlaCar, Airbnb, eBay...).

Its business models also vary widely ranging from the “gift/counter-gift” model to subscriptions and fees on transactions, not to mention advertising.

Let’s take a look at both sides of this economic sphere.

Silicon Valley utopias

Beyond all these shades of sharing economy, its matrix is based on a single pattern: that of the free and self-sufficient individual, connected to peers through a network without intermediation – the philosopher’s stone of Silicon Valley. This economic form relies on Internet users being very prone to trust his peer because the quality of services or goods exchanged is no longer guaranteed by a logo (company, brand...). Besides, customer reliability is not assured either.

Of course, major operators that organize these digital meetings load their platforms with protocols and applications that mitigate risks (identity validation, reputation indexes, transaction security). Small sites, however, do not offer all these means and rely more on the self-organization of the parties. But the fact is that we exchange and deal quite easily with people we have never met in real life: we step aboard the car of a stranger; as a driver, we welcome a traveler who just logged into the app; we share or we occupy a private apartment. We step without any doubt into the privacy of others as if it were a natural thing.

These situations existed to some extent before the Internet, but digital technology amplified this tendency for openness to others, the spirit of confident C2C, to the point it has become something quite ordinary. Through social networks, many people throw out their subjectivity without holding back and for no particular purpose. Thanks to sharing consumption, this proximity to others links people in the real world.

His magnification of coolness and familiarity, the craze for spontaneous sociability that is more a character trait of Anglo-Saxon countries than Latin countries, can be read through the comments on the sites. Of course, their reliability should be taken with precaution: the number of repeated formulas suggests the emergence of routine social norms, a ready-made narrative that filters reality. On Airbnb, comments appear formulaic and, above all, unanimously rave – probably because users are not interested in appearing as “bad bedfellows” and degrading their own profile, which could deprive them of access to the service. They have an implicit understanding of the importance of online reputation capital. On TripAdvisor, a site which rates and reviews hotels – in a usually very complimentary way – things are more mixed. An analysis of the references on the site Couchsurfing shows that while 90% of the comments on the host are very complimentary, only 55% of travelers write an evaluation: the other people don’t express themselves because, as shown by a survey conducted among these “silent” users by Lada Adamic (University of Michigan), their appreciation is either neutral or negative.

Just after the financial factor – which remains by far, the primary motivation – the choice of this mode of consumption is often justified by an ethics of human relations and it is not uncommon for travelers who could resort financially to professional services to prefer the direct exchange between persons.

Promoters of sharing economy greatly value this type of ethics. Participating in this model is viewed as sharing values in terms of consumption such as preference for eco-consumption, disdain towards big brands or the rejection of shopping spree; it also means joining a community of ideas – a fraternal vision of the world, a slogan worded in one way or another on the home page of all these sites.

This ideal is so trendy that it even tends to pervade large sectors of the market economy. Service professionals penetrate sharing sites, the dream of Silicon Valley is gaining ground in advertising companies and traditional firms that enrich their services with sharing sites. Or sometimes, just reintroduce old sharing programs: Decathlon for instance recreated Trocathlon, an event dedicated to trading used sports equipment launched already thirty years ago.

Sharing economy is the sign of a better society: if socialism was an ideal for the 20th century, the sharing system could be the political paradigm of the 21st century.

The value of this paradigm is far from going unnoticed in financial circles. Of course, these are very selective and many startup creators won’t be able to find any source of funding. But winners reap very high profit levels. Brian Chesky, Nathan Blecharczyk and Joe Gebbia founded Airbnb in 2008. Their company, which now boasts 25 million travelers and accommodations in 190 countries, is valued over $10 billion and raised $500 million in March 2014. How is such a credit possible, for a company with rather modest sales revenues (250 million in 2013) and of less than 1,000 employees? Investor confidence has been pegged to the incredible growth of overnight stays registered on this impeccably designed website – two of these creators met in the school of Design of Rhode Island – wrapped up in an e-evangelical message: staying with the locals, feeling at home.

But these utopias and success stories have their setbacks and the question of trust needs to be raised differently.

The other side of a labor crisis

The sharing economy can be seen in a different light: that of labor crisis. “The Sharing Economy Isn’t About Trust, It’s About Desperation” wrote a journalist in the NY Magazine, noting that the boom of the sharing economy followed the 2008 financial crisis and the rise of unemployment in the United States: a scathing response to the amazed text from Wired on the sharing economy.

A post from Uber published in September 2014 also caused a scandal: the company was “pleased” to provide extra work for teachers, a notoriously poorly paid professional group in the United States. Sharing economy, in fact, offers to a growing proportion of citizens of the developed countries, those whose incomes are insufficient and have not benefited from the end of the crisis, the possibility to increase their income by becoming a host, a driver or a casual worker and, conversely, of consuming at lower cost. Subletting ones apartment, dressing with used clothing, carpooling, bartering and buying low-cost products, this mentality is prevalent among new generations...

People who earn their bread by renting their car or their apartment, a way of gaining free time for more creative activities or, more prosaically, of increasing revenues, have become known as slashers.

Opening the door of one’s home or car to strangers met over the Internet certainly entails some risks but it is hardly traumatic, especially among young users, for whom the barriers of digital anonymity are easily overcome. Meeting “friends” from social networks in real life, far from being a taboo, is becoming quite normal. In France, for example, according to a survey of Apprentis d’Auteuil published in April 2015, one third of the 16-25 years old meet contacts made through social networking in real life and this percentage is higher for young people of the working class.

On the other hand, sharing economy is more a matter of pragmatism regarding an economic necessity than the projection of existence on a Technicolor image. Trust in others has nothing evangelical. Rather, it is part of the simultaneous management of credit and suspicion, something Facebook users are quite accustomed to.

The propensity to place trust in others has certainly increased with the sharing movement. But trust is not straightforward. It results from economic constraints, as well as a technical work of profiling users intended to “publish” their solvency and seriousness. Something like “informed trust.”

It works in very strict legal framework. On commercial sites, operators are trying to develop a trusted space to facilitate services for which they assume no liability. For example, BlaBlaCar is not responsible in case for car accidents: the driver and the insurance are. They make many recommendations for the parties to mutually verify their true identity, publish photos and connect via Facebook. Mark Zuckerberg’s network serves as a kind of digital guarantor: just as it is difficult to live without Internet in today's world, it is difficult to take part in the sharing world without holding a Facebook account. Meanwhile, they offer insurance, develop reputation indexes, monitor operations by checking data and sometimes even throw out suspicious cases. Above all, they create a trusted third party for financial transactions.

All these precautions are creating a favorable climate for the transaction between two parties who don’t know each other and become responsible for one another. But in the end, they trust each other by best interest or ideology; and the social habitus that is created, especially among younger generations, with the dissemination of sharing consumption, tends to shape a standard of behavior that places trust in the members of the community.

The various facets of the sharing economy can be declined endlessly. This movement is still in its infancy and heralds many more transformations. A very aggressive form of capitalism is growing, beyond any doubt, around major platforms; even if the gap is widening between beneficiaries of this turn towards networked, knowledge-based economy, on the one hand, and those affected by the labor crisis, on the other. However, trust seems oriented towards a social order based on connecting people, rather than on government regulations. For those who feel that social models in developed countries are going through a crisis, that new generations will draw less profit than aging generations, that it’s better to trust oneself and other people than sclerotic institutions – for all of these, the siren calls of the Californian model represent the hope of a brighter future.

Monique Dagnaud
Emerita Research Director, EHESS, Institut Marcel Mauss