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Sharing Economy The future of the global economy

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Economic Development

Sharing Economy The future of the global economy


Introduction

The initial definition of the sharing economy[1] is an economic model that relies on individuals sharing their assets with consumers who need them in exchange for a fee (known as “peer to peer”) or individuals sharing each other’s assets to create a socio-economic system that fulfills their needs for products and services. Thus, the “sharing economy” refers to the sharing by individuals of material assets and their untapped human experiences, either directly or through modern technology available through websites and mobile applications, which is the new active element in communication between participants in the exchange of products and services.


Figure 1: Managing the Sharing Economy

What is sharing economy[2]?

The sharing economy is a new economic trend that can be looked like business-to-business “B2B” model. The idea of the sharing economy is how both the owner of products and services and the user of such assets and services come to deal with each other in direct terms.

The main understanding of this definition is that there is a timely need for such ownership from both the owner and the user. For example, if I have a car, I do not need it all the time, so I can lease it to someone who does. It is a very simple transaction between two parties of the social and economic societies inner or external to one country’s destination. Uber, like business providers, is a great example of this sharing transaction.


Figure 2: Types of sharing economy

Parag Diwan[3] in his article “Digital Economy — Pivotal Role of Shared Economy,” has defined shared economy: “Sharing economy is defined as an economic system in which assets and services are shared between private individuals. It is used as an umbrella term for many different services, apps, and products. Wikipedia, for instance, came about as a platform where users could voluntarily contribute and share knowledge”.

To follow Diwan’s vision of the various definitions of the sharing economy through a search on the net and Wikipedia, what is the sharing economy, we will find many definitions:

1-    “The sharing economy is based on pooling and exchanging services, resources, goods, time, knowledge, and skills. Moreover, the sharing economy’s quick development is straightly connected to the development of the internet and technology.”

2-    “An economic system in which assets or services are shared between private individuals, either free or for a fee, typically by means of the internet.” “Thanks to the sharing economy you can easily rent out your car, your apartment, your bike, even your Wi-Fi network when you don't need it.”

3-    In capitalism, the sharing economy is a socio-economic system built around the sharing of resources. It often involves a way of purchasing goods and services that differs from the traditional business model of companies hiring employees to produce products to sell to consumers.

4-    The sharing economy is estimated to grow from $14 billion in 2014 to $335 billion by 2025[4]. This estimate is based on the rapid growth of Uber and Airbnb, which is indicative.

5-    Sharing economies allow individuals and groups to make money from underused assets. In a sharing economy, idle assets such as parked cars and spare bedrooms can be rented out when not in use. In this way, physical assets are shared as services.

Examples of the sharing economy[5]

• Peer-to-Peer Lending

• Crowdfunding

• Apartment/House Renting and Couchsurfing

• Ridesharing and Carsharing

• Coworking

• Reselling and Trading

• Knowledge and Talent-Sharing

• Niche Services


The term "sharing economy" began to appear around the time of the Great Recession, enabling social technologies and an increasing sense of urgency around global population growth and resource depletion. In fact, such definitions, although they are right, don’t give a deep understanding and comprehensive meaning of the sharing economy. The question now is: can the share economy compete and replace capitalism, communism and socialism methodologies or not?

Sharing economy concept

There is a similarity between the sharing economy and the barter system in the case of the exchange of goods and services between the two parties to the relationship. However, it differs from the concept of barter in the case where the exchange of goods and services is for a material consideration. What is new in the sharing economy is that the two elements of exchanging goods and services for owned assets and time, if they are available to the owner, using modern technology, and conducting the exchange process through electronic platforms, or what is known as the “platform”.

The sharing economy also replaced the concept of the traditional broker in communication between the service owner and the consumer with the concept of the operations manager through electronic platforms. Sharing economy businesses will grow by a staggering 2,133% in just 12 years, and Over 86 million Americans will use the sharing economy by 2021 [6].


Figure 3: Sharing economy evolution

The Business Model Toolbox identified the sharing economy concept as “Private customers share access to products or services with other private customers – a platform serves as intermediary”.[7]

Sharing economy methodology

The sharing economy aims to develop a partnership by using the economic resources available to individuals and organizations and marketing them directly and accurately to achieve a comparative advantage for both sides of the economic relationship. Examples of sharing economy activities are Airbnb renting (sharing rooms and apartments around the world), the Uber car rental system, as well as education web and mobile apps. Given the importance of the growing role of sharing economy products and services, the sharing economy has become a major part of the global economy, which has presented many unexpected challenges to consumers, established companies, regulators and policymakers.


Figure 4: Sharing economy placement

In his analysis of the sharing economy methodology, Koen Franken, in his article “Putting the sharing economy into perspective,” which was published in Environmental Innovation and Societal Transitions[8], defined that the sharing economy can be distinguished from three other types of platforms that are sharing economy examples pre-dating the Internet. In Figure 4 above, the sharing economy is placed in the center as it adheres to the three defining characteristics: consumer-to-consumer interaction (c2c), temporary access, and physical goods.

Sharing economy segmentation

The sharing economy belongs to the microeconomic segment, where it represents the behavior and actions of the owner of the product or service and consumers during making decisions related to the allocation of owned resources and the required pricing processes. If we agree that macroeconomics looks at the economy in its broadest sense, as it deals with issues such as interest rates, gross domestic product (GDP), unemployment rates, and other topics that everyone reads on the pages of economic newspapers, then the results drawn from the sharing economy operations will be part of the components of the macro economy.


Figure 5: Sharing economy segmentation

Shareable[9] net identified that sharing economy growth and movement are evolving quickly and in many directions. The growth of platform and worker co-ops, increased awareness of the commons, the evolution of coworking, an explosion of tech-enabled sharing services, and more are opening promising if not challenging frontiers.

Sharing economy process and sustainability

The supply and demand processes in the sharing economy affect the typical traditional economic system in the provision of products and services through private sector companies or the government. Thus, they affect prices in a completely competitive market, as the use of products and services that did not enter competition previously because they did not enter the labor market may have a positive impact on achieving the hypothesis of scarcity and providing the offer in a fully competitive market. It can be explained how to influence the competitive market simply by saying that the operations of the sharing economy led to an increase in supply, which then led to the inevitability of lower prices. The sharing economy creates new dimensions for goods and services, which may lead to a change in the consumption pattern as well as promote the sustainability of the sharing economy process.

According to Zhifu Mi & D’Maris Coffman, sharing economy promotes sustainable societies: “A simultaneous improvement in both ecological and economic efficiency is necessary to achieve the Sustainable Development Goals (SDGs). The new sharing economy has potential to promote the needed shifts in collective consumption behavior, but better governance models are urgently required.”[10]

Implications of sharing economy on society[11]

The sharing economy has experienced an intensive process of expansion, mainly in certain tourism and transport services, by renting household durables stock excess capacity. Technological progress and the development of Information and Communication Technologies (ICTs) have removed barriers to market access and information constraints, which provide households with a marketplace to rent goods and services produced by using household capital.

The production within the sharing economy falls between market production and domestic production and combines some features of both environments, but customers in others.


Figure 6: Impact of sharing economy on society

According to Putu Dinah,[12] “Information and communications technologies have enabled the rise of the collaborative consumption or know as the sharing economy. This collaboration enables the peer-to-peer-based activity of obtaining, giving, and sharing the access to goods and services, coordinated through internet-based services.”

A positive neutral technological shock to market production has a positive impact on the accumulation of durable goods, consistent with the data. By contrast, a positive productivity shock to the sharing economy sector reduces durables investment and increases business capital investment. Finally, technological shock to durables has a positive effect on household capital but a negative one on business capital.

Amani Zaher, in her article, “The sharing economy opens up new prospects for growth” in Amal electronic magazine[13] pointed out that individuals can present their experiences and transfer their ‘non-used items’ to others through a specialized website for a specified amount of money, in addition to the possibility of exploiting the individual’s talent in their spare time, so that the individual who has a talent in cooking, for example, can host individuals in their home to create a new alternative for individuals instead of the traditional form known as going to the restaurant.

Dr. Aaron Sander Jan,[14] Professor and Doctor of Administrative Sciences and Digital Economics at New York University's Stern School of Business, concluded that the remarkable progress in technology has created fundamental changes in the shape of the economy to show a new pattern that was not available before, namely, the sharing economy, which opens new horizons for the growth of the global economy. It contributed to creating new markets and diversifying the alternatives and choices available to individuals.

Sharing economy and economic theories

An important element when discussing the sharing economy is the service provider’s thinking of the opportunity cost of doing such an activity. The person tends to measure the value of that activity compared to other alternatives, which is called the opportunity cost. This person should have earned more from that project than he gave up. The questions that arise are: what is the sharing economy, and can it be part of the state economy? Is the sharing economy part of the capitalist economy or part of the socialist economy?

Sharing economy and capitalism[15]

In capitalism, the sharing economy is a socio-economic system built around the sharing of resources. It often involves a way of purchasing goods and services that differs from the traditional business model of companies hiring employees to produce products to sell to consumers.

Capitalism views the sharing economy as a qualitative transformation in the form of the relationship between the owner of the service and the commodity and the consumer of it. The sharing economy system does not depend on the presence of employees to perform the service, the process of exchanging goods and services is done through social media or electronic applications. The commonalities of this growing sector have helped startups like Uber succeed and solidify engagement as an essential aspect of boosting the future economy.

Three important elements link the capitalist concept of exchange of goods and services to a sharing economy: scale, access, and trust. A platform brings together owners and seekers and facilitates all processes between them.[16]

o   Scope: Connecting customers with owners of services and products. It is the backbone of any business.

o   Communication: The possibility of smooth and effective communication between service providers and consumers in a work system that achieves possibility and transparency while reducing risks at the same time.

o   Trust: The process of exchanging goods and services between the owner and the user is based on the concept of trust in the owner and provider of the service, which is built using the elements of insurance, guarantees, marketing, and finally the opinions of users about the service providers.

By analyzing the work system on which the  sharing economy depends in the interaction between the owner and service provider “supply” and the consumer “demand”, we note that some of the capitalist economies basically have two parties to the contractual relationship (“supply and demand”) in addition to the profit motive and competition. The ability to adapt is where the sharing economy is characterized by its ability to meet supply/demand needs in a timely manner and the ability to adapt to continue to meet increasing needs. The sharing economy is also characterized by reliance on improving supply and demand opportunities.

Sharing economy from the macroeconomic perspective

From the macroeconomic point of view,[17] the rapid expansion of the sharing economy, the diversity of micro and accelerating supply and demand processes, as well as the heterogeneity of resources and needs make it difficult to predict the movements of supply and demand due to the acceleration of the relationship between supply and demand, which makes it difficult to achieve effective matching between service providers and customers in an increasingly complex market. This makes the growth of electronic applications to bridge the gaps between supply and demand processes and achieve the appropriate level required for the services provided, one of the deeply distinctive characteristics of the sharing economy.


Figure 7: Sharing economy circulation

 

Sharing economy from a socialistic perspective

One of the most important elements of the success of the sharing economy is the ability to find solutions to many societal problems through the concept of participation, which is represented in the presence of idle and unused energy in many possessions at the same time as there is a demand for the consumption of those properties in a new way. According to this view, the sharing economy represents a developed socio-economic model that addresses the new global requirements after the Covid-19 pandemic. Research on the effect of Covid-19 on sharing economic activities has examined the effect of Covid-19 on sharing economy activities with an objective of paving avenues for future research.[18]

When the public or government sector assumes the role of customer or service provider in a sharing economy, it is necessary to understand the mechanisms of co-production of those public services with external stakeholders that may affect the sovereign validity and continuity of the economy-based allocation of public goods.

Undoubtedly, dependence on a third party requires governments to abandon their monopoly on providing services and increase their dependence on the behavior of third parties. The adoption of sharing economy applications in the public sector may require a cultural shift as governments need to accept the idea of ​​low ownership. A shift in roles when the public sector is a customer in a sharing economy exchange can result in a changing understanding of the public sector itself among citizens and other stakeholders and will raise questions in the future about why the public sector is needed if the private sector provides most of the services.

Regarding the role of the service provider, such forms of public-private partnerships based on applications of the sharing economy are unprecedented, and we must understand how these towers affect both public values ​​and their actions.

An important example of the possible changes in the role of the public and government sectors in providing public services to civil society through the concepts of the sharing economy is for the state to offer public entertainment areas for the participation of the residents of the area in which they live to invest in the form of shares to develop and operate those services, such as parks, cafes, play areas, and so on. This will lead to the transformation of the government sector and the public sector from a provider or user of the service to a manager of that relationship, allowing all parties to benefit and increase productivity.

One of the important pillars of the sharing economy is the inclusion of the concept of the socio-economic family institution and its consequences as part of the components of the overall economy. The partnership between the husband and wife to establish an economic family institution, results from cooperation activities as well as their participation in business processes relating to demand for products and services and delivery to potential customers. “Children may be the potential customer for the family” is a definition that includes the concepts of value-added for non-working women in the family, who are not less important than the role of the man who works to establish the economic and social stability of the family, as well as the participation of both the husband and wife in the creation of wealth for the family institution, which allows at a later stage the use of that wealth for consumption or investment.

From traditional microeconomic to sharing economy microeconomic

The essential question is whether the sharing economy depends on human nature as a basis for realizing the concept of partnership in business operations from the microeconomic perspective; companies have the assets and resources they need to continue their activities. Recently, individuals have been able to lead the scene. In 2009, Travis Kalanick and Garrett Camp created the Uber company,[19] and the idea of ​​Uber itself is considered a pioneering at its time, as it was possible to provide the service of finding a means of transportation by pressing only one button, and through this click, the car will reach you at anytime and anywhere. Thus it changes the meaning of Taxi transportation completely, with the Uber company now serving in more than 75 countries and nearly 459 cities and its value reaching about 60 billion dollars.

BOT concept and sharing economy

One of the significant issues in the sharing economy is to expand the scope of the definition to include all small and medium operations in which the two parties to the relationship share a common interest. For example, the state’s tendency to finance its national projects under the BOT system can be seen from the larger definition of the  sharing economy, where the two parties to a beneficial relationship share the one who has the experience and knowledge and the one who has the desire to use it with time participation after which the ownership is transferred completely, including the experience and technical knowhow necessary to operate the project in full.

Financial operations and sharing economy[20]

One of the significant questions that needs to be discussed in depth is: what is the possible impact on the financial sector of the increase in sharing economy operations? Does the typical financial system need to make fundamental changes to interact and comply with the growing requirements of the sharing economy? The answer to this question is that the sharing economy fundamentally contradicts the idea of ​​financial deposit and lending, which represent typical operations in banks, where stakeholders tend to interact directly to implement sales and purchases of products and services. Islamic banks and sharing banks represent the vision of the “financial system and the sharing economy” and its potential to contribute to achieving the dimensions of economic and social development at the macro level.

The financial target of the sharing economy can be defined as a financial model that provides financial services in the field of money management and does not lend to implement projects. The methods to be used, based on the principles of interest-free financial system.

The process of investing in the purchase of shares and bonds for new projects in the stock exchanges is a significant part of the applications of the sharing economy. Investors are looking for safer places to invest their money. It is interesting to note that there are companies like Uber which have been referred to as representatives of the sharing economy.

According to PricewaterhouseCoopers (PwC),[21] the sharing economy giants could reach $335 billion in revenue by 2025. However, the addition of sharing banks and the issuance processes witnessed by the global banking markets every day, and the development taking place in them, indicate a weakening of those numbers projected by the PwC analysis. PwC expects the sharing economy to grow at more than 30% annually, with growth spread broadly across the five major sharing economy sectors: automotive, hospitality, finance, employment, and media.

Conclusion

The efficiency in the use of resources is very significant in any economy. Here are some principles of the sharing economy:

·       Parties’ trust in each other: The trust of each of the service provider in completing the process of paying the value of the service or product for payment, as well as the consumer’s confidence that the supplier will deliver what was fully agreed upon. Any inequity in this trust or non-compliance with it from either party, will lead to the failure of the exchange or transaction between them and will lead to the failure of operations for the supplier as the consumer will put in the satisfaction survey his lack of confidence in the supplier.

·       Utility and preserving the value of resources: The consumer is no longer focused on looking for goods that he can afford to buy, but rather on the commodity that can achieve his temporary ownership “time use when needed” where the value of the thing is more useful and the value of the time of need. On the other hand, the desire of the owner to maximise the benefits of the good or service he owns when he does not need it, “the optimum use of resources”. This is because if they are to be used for the highest possible value from that resource, “unused resources = wasted resources”.

·       Transparency and openness: This mainly refers to sharing information to enable users to access resources, allowing for more possibilities for linking between service providers and consumers.

·       Joint investments: The sharing economy or the economy based on participation and sharing of resources on a productive basis continues to sweep the world in return for the decline of several economic concepts that were based on ideological foundations, such as the well-known capitalism.

·       Risk-sharing has led to a creative economy that depends on investment in the intellectual and industrial production of society without excessive protection of capital, such as investing in sharing and technical applications companies and medicines that depend on intellectual production and research and development, especially that many of the investments that were invested in research and development were not guaranteed results, but the sharing economy led to impressive results for economic policy makers.

·       To benefit from talent or experience: The idea of ​​the sharing economy did not stop at the exploitation of material assets alone, but extended to the possibility of exploiting the experiences and talents of individuals, so that a person who is an expert in certain areas can present his experiences and transfer them to others through a specialized website for a specified amount of money. In addition to the possibility of exploiting the individual’s talent in his spare time, the individual who has a talent for cooking, for example, can host individuals in his home to create a new alternative for individuals instead of the traditional form known as going to the restaurant.

The sharing economy concept has five main elements:

·       Create an added value for the good or service

·       Characterization and identification of unutilized assets

·       Online communication to exchange goods and services

·       Meeting the growing needs of society in a modern and effective way

·       Decreased need for ownership of goods and services, even if temporarily

The sharing economy appears when two important barriers that have dominated the consumption pattern of individuals in the global economy are broken, and they are the intense desire of individuals to own things such as real estate, cars and electronics, while the second factor is the dominance of major companies and prominent brand owners on most commercial transactions with individuals.

·       The sharing economy is expected to revolutionize the global economic landscape.

·       The sharing economy aims to provide a profit using the untapped resources, which reduces the cost and distribution price, and provides alternative job opportunities in countries with high unemployment rates.

The sharing economy has many advantages.

·       Based on electronic interaction and is driven by demand.

·       Associated with the reuse of unused assets through sales and the use of online marketplaces

·       Play a large and vital role in the development of societies

·       Help in overcoming many social and economic challenges

·       Maximizing the use of public facilities for the benefit of the community

·       Improving safety in relation to business: Various retailing

·       Create harmony in neighborhoods, bringing about positive change or in preventing poverty in rural villages.

Despite the difficulty of measuring the impact of the participatory economy and the difference in many of the concepts put forward by researchers due to its modernity, there are a number of financial fundamentals provided by this system that reflect positively on the growth and activity of global financial systems, most notably the low transaction cost, or what is known as “transaction cost”, which enhances the increase in transactions and contributes to the revitalization of the economy.

The process of optimizing the resources available to individuals and improving their income level is one of the most important advantages of the new system, as is the ability to create new non-typical jobs that do not require precise specializations that are difficult to obtain, which positively affects their lifestyle and consumption. The sharing economy provides a diversity of opportunities available to individuals without being limited to limited and expensive options.

References

[1] “The sharing economy: Definition, examples and advantages,” Climate Consulting, https://climate.selectra.com

[2] The Investopedia team, “Sharing Economy,” October 3, 2020, http://bitly.ws/RS9j.

[3] Parag Diwan, “Digital Economy — Pivotal Role of Shared Economy,” April 9, 2021, http://bitly.ws/RWIH.

[4] Niam Yaraghi and Shamika Ravi, “The Current and Future State of the Sharing Economy,” 2017 Brookings India, http://bitly.ws/RWNS.

[5] Manu Raj Jain, "What is the Shared Economy? Definition, Types, and Examples,” December 30, 2021.

[6] Christo Petrov, “25+ Sharing Economy Statistics to Share in 2023,” http://bitly.ws/RSk5.

[7] Business Model Toolbox, “Sharing Economy,” https://bmtoolbox.net/patterns/sharing-economy/

[8] Koen Franken, “Putting the sharing economy into perspective” Environmental Innovation and Societal Transitions 23, June 2017, pp. 3-10, http://bitly.ws/RWK6.

[9] “The Top 10 Sharing Economy Predictions for 2016, by the Experts,” Shareable, January 21, 2016, http://bitly.ws/RSnJ.

[10] Zhifu Mi & D’Maris Coffman, “The sharing economy promotes sustainable societies,” Nature Communications 10, 2019, http://bitly.ws/RSqr.

[11] Putu Dinah Sastri Pitanatri, Politeknik Pariwisata Bali, “THE SHARING ECONOMY IN CREATING LOCAL BUSINESS SUSTAINABILITY FOR TOURISM DEVELOPMENT IN BALI,” November 2016, Conference: Tourism and Events International Seminar (TEIS) 2017 At: Politeknik Negeri Bali

[12] Ibid.

[14] Ibid.

[15]Sharing economy, https://en.wikipedia.org/wiki/Sharing economy.

[16] Business Model Toolbox, “Sharing Economy,” op. cit.

[17] José M. Ordóñez-de-Haro and José L. Torres, “Sharing Economy in Macroeconomics: Collaborative Consumption and Durable Goods,” Málaga Economic Theory Research Center, WP 2019-1, April 2019, http://bitly.ws/RSvg.

[18] Mokter Hossain, "The effect of the Covid-19 on sharing economy activities,” Journal of Cleaner Production 280, Part 1, January 20, 2021, 124782, http://bitly.ws/RWMq.

[19] Dan Blystone, “The History of Uber”, Investopedia, April 18, 2023, http://bitly.ws/RWCs.

[20] Avik Dasgupta, “The Sharing Economy: Creating New Opportunities for Banks,” Nucleus Software, November 23, 2016.

[21] “Sharing or paring? Growth of the sharing economy,” 2015, http://bitly.ws/RWEQ.  


: 06-September-2023

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