Trust is essential in sharing economy-- Sundararajan

NEW YORK—Trust is essential in the sharing economy.

Last August 17 at Rising Minds, Arun Sundararajan, sharing economy expert and New York University Stern School of Business professor talked about his new book, “The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism” as well as that salient ingredient in how things has worked so far this economy: trust.

If you’re not in this space, it’s really about how your car (for Uber) or your apartment (for Airbnb) and earn from it. For those companies, they make use of the crowd to work for them and if you’re part of the crowd offering any of those services, you get to earn from being part of it. If you have an apartment in Manhattan, for example, you can have it rented out to anyone as long as your landlord approves.

But this only works if you can trust someone to live in your house or apartment or like in Europe, share a ride with strangers. And for some people, they’re willing to sacrifice that to make use of their underutilized assets.

Sundararajan pins down the sharing economy as an economic system with the following five characteristics:

  1. Largely market-based: Enabling the exchange of goods and the emergence of new services, resulting in potentially higher levels of economic activity.
  2. High-impact capital: Opens new opportunities for assets and skills to time and money, to be used at levels closer to their full capacity.
  3. Crowd-based networks rather than centralized institutions or hierarchies: The supply of capital and labor comes from decentralized crowds of individuals rather than corporate or state aggregates; future exchange may be mediated by distributed crowd-based marketplaces rather than by centralized third parties.
  4. Blurring lines between the personal and the professional: The supply of labor and services often commercializes and scales peer-to-peer activities like giving someone a ride or lending someone money, activities which used to be considered “personal.”
  5. Blurring lines between fully employed and casual labor, between independent and dependent employment, and between work and leisure: Many traditionally full-time jobs are supplanted by contract work that features a continuum of levels of time commitment, granularity, economic dependence and entrepreneurship.

The sharing economy has created many thriving businesses for one reason other than trust: Weak regulation, but Sundararajan thinks it should adhere to some regulatory measures, a reinvention of regulation, as most of regulatory interventions have been governed at the local level. Most of these businesses are national, if not international.

If Sundararajan had his way, he would call the sharing economy “crowd-based capitalism,” because the former still leaves a fair bit of ambiguity.

The event was hosted by Rising Minds at the Soho House.