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Journal number 1 ∘ Vladimer Basaria
Sharing Economy and Its Role in the Production of Public Wealth

https://doi.org/10.56079/20221/1 

 

The article discusses the specific nature of public good and its general benefit in optimal volumes; the reasons for the need to produce a public product by the state; the role of the private sector in creating a public product and enhancing this role because of the development of digital technology. The article also discusses the main reasons, trends and prospects for the development of a modern model of collaborative consumption; defines the popular term “sharing economy” and provides some historical aspects of the origins of the modern concept of collaborative consumption; assesses the value of the sharing economy in the production of modern public goods; reveals the expectations associated with collaborative consumption and analyzes criticism of the sharing economy; conclusions about the ability of information and communication technologies to promote the production of useful (rational, profitable) public goods for consumers in the private sector and it is recommended that the scientific community and government officials pay attention to this process.

Keywords: public goods, collaborative consumption, sharing economy, carsharing, carpooling, uberisation

JEL Codes: H40, H41, H44

 

Introduction

 

It’s the absolute truth, that the development of society without the production of public goods is impossible. It is widely acknowledged that public medicine and education are not just beneficial to the poor, but also to whole society (the more educated and healthier a society is, the more productive it is in the long run, and the safer and more comfortable the people's lives are in such a society). The need to organize national defense and public order, the maintenance of cultural monuments, the need to care for national forest parks and fresh air, and so on are all examples of the universal importance of public goods. There is much debate about the production and delivery of public goods to ensure a comfortable environment for people, although there is no discussion as to whether such a product is necessary for society, but rather about which product is optimal for society and to what extent and what share of total goods production and consumption it should have.

According to the popular thesis of economic theory, the free market is not interested in organizing the production of socially oriented products that do not involve profit, therefore, the state (society) should take responsibility for determining the amount of publicly needed goods, as well as their production and supply.

It is true that the notion of public goods does not imply that it is a product supplied to citizens by the state or municipal government (some public goods are supplied by private individuals, while government agencies provide citizens with both private and public products), however the main role in creating a public product is usually played by state and municipal government bodies, state-owned enterprises, institutions and organizations (G.A. Akhinov, E.N. Jiltsov, Public sector economics – М.: INFA–М., 2012, 14). At the same time, it should be noted that this objective reality may change in the future due to the rapid development of the digital economy.

 

Modern Concept of Collaborative Consumption

 

The progress of information technology and the widespread of the global network causes an increase in the production of useful public goods for people. Through the relevant internet platform, without any additional costs, anyone can use the passenger transfer service and get to the destination completely free of charge (Such services are offered to customers abroad by companies Lyft, BlaBlaCar, in Georgia - damemgzavre.ge. It is not necessary to pay for this service; drivers frequently demonstrate goodwill It’s not necessary to pay for this service; drivers often demonstrate good will and offer transportation services free of charge to those wishing to travel on a predetermined route); with the help of online services available to everyone, it is now free to leave your pet for a while for any volunteer (DogVacay); using the relevant internet platforms, people have the opportunity to have a free dinner and host someone by themselves (EatWith). The wide selection of websites allows the public to donate clothes, food, building materials or other items, etc.

The number of such projects implemented in the private sector is growing day by day, which is due to the growing desire of consumers to temporarily use unused and capitalized property on online platforms, rather than buying this property.

The economic model based on such economic behaviors of people is known as sharing economy. It can be said that in terms of content sharing economy is the same as the economic model of collaborative consumption of wealth, which involves the collective use of goods, services, barter or lease and is based on the main view that temporary use of the required product is more economically profitable (rational, advantageous) for people than owning this product.

According to “PricewaterhouseCoopers”, a reputable international auditing consulting firm, more than 19% of the US adult population now participates in the sharing economy. The same source claims that the sharing economy model is preferred by young people aged 18-24, as well as those households with an annual income of 50-75 thousand US Dollars and individuals living with children under 18 years of age (The Sharing Economy. Consumer Intelligence Series. PwC. // URL: //https://bit.ua/2020/10/5-trendiv-sharing-economy/).

The economic model of sharing consumption is not really a novelty for humanity. Before the advent of digital platforms, there were various points of rent for items or equipment for the collective use of goods and services, the so-called second-hand, libraries, etc., however, in the modern conditions of informatization of nearly all spheres of society, this model received a new stimulus for development and qualitatively changed the nature of economic relations between economic agents, which was mainly reflected in the sharp reduction of transaction costs - without the intervention of intermediaries, more and more goods and services are distributed among market participants day by day.

Experts from the World Economic Forum define the sharing economy as an economic activity based on online platform, which relies on collective consumption of incompletely (insufficiently) used assets (with or without pay) by persons of equal status (How much is the sharing economy worth to GDP? // URL: https://www.weforum.org/agenda/2016/10/what-sthe-sharing-economy-doing-to-gdp-numbers/).

What led to the development of the economic model of collective consumption in the bosom of capitalism in the 21st century?

It can be said that the current state of the distribution of capital among the strata of society has had the greatest impact on the sharing economy.

The recent increase in property inequality between the very rich and the very poor has effectively divided people into two camps: on the one hand, there is the part of the society that can buy (own) wealth without any preconditions for its use; on the other hand, there is the part of the society that is forced to use goods and services only when needed. The economic factors causing the growing property imbalance were added to the psychological one - after all, modern society is characterized mainly by the mass (often useless) consumption of material goods and the formation of relevant values.

The modern concept of sharing consumption was introduced just ten years ago by economists Rachel Botsman and Roo Rogers in their paper “What's Mine Are Yours: The Rise of Collaborative Consumption”.

In June 2010, Rachel Botsman spoke at length about a new socio-economic model at the conference of TED (Technology, Entertainment, Design), hosted by the US Private Nonprofit Foundation (whose mission is primarily to spread unique ideas), which, in his view, will radically change the traditional method of consuming goods and services in the future. According to the speaker, people are increasingly refusing to exclusively own the property, which they can use temporarily, and such behavior brings more benefits to them. To illustrate this, Rachel Botsman cites a simple example of using a hand-held electric drill (Tagarov, B.Z. (2019). The Specifics of Sharing Economy and Conditions of its Development. ЕСО. No. 7. 146): people do not pay a small amount for this tool and often buy it only to use it for 10-15 minutes during the service period and make just a few holes. "Everyone needs a hole in the wall," Ms. Botsman jokingly added, pointing out the overall benefits of renting out an underdeveloped property.

In a sharing consumption model, there is indeed a significant reserve for the profitable use of items or equipment, as evidenced by the economic effect, which is achieved with the help of economic relations between participants (landlords and passengers) of modern projects known as "carsharing" and "carpooling": as a result of these economic relations, the latency (standing, non-use) of vehicles is reduced, Increases the overall utility of vehicles, that makes the use of vehicles for transportation optimal.

It should be noted that from an ecological point of view, "carpooling" is much safer than other methods of transport: because of joint travel, the amount of exhaust in the air is significantly reduced, traffic jams are significantly eased, less and less space is allocated for car parking, etc.

It is noteworthy that the development of "carsharing" had a certain impact on household decisions regarding the purchase and sale of vehicles. For example, a survey of people using carsharing in London showed that 33% of respondents changed their mind about buying a car, while 6% decided to sell their car in the future; according to a social survey conducted in China, more than 50% of carsharing customers have postponed their decision to buy a personal car for the future. You can see the rather interesting results of one of the surveys on the same topic in the graph below (source: Ipsos views).

Considering that a change in ownership attitude can bring additional benefits to the customer (for example, a person using the same "carsharing" service saves a lot of time and money related to car maintenance), the above statistics testify unequivocally to the impressive results of rationality achieved for the whole society because of this transformation.

 

“Uberization”

 

The process of transition from the traditional capitalist model ("firm - consumer") to the digital service model of goods and services (some economists also evaluate events in this manner) is widely termed as "uberization". The origin of the term is linked to the functioning of the American company Uber, which, through the mobile application of the same name, practically searches and calls the vehicle needed by the customer internationally (more precisely, this firm digitally transmits customer request for transportation services to private taxi drivers using the company's app) (Leslie Hook. Review – 'The Sharing Economy', by Arun Sundararajan ((registration required)) // Financial Times. – 2016. – June 2016).

 

 

According to the principle of Uber, today there are many companies operating in various fields of production of goods and services: every year more than 100 million users use the service of the company Airbnb, whose Internet platform allows people to offer their accommodation to travelers in their country; more than 150 million active users enjoy eBay's largest online auction, where virtually any item can be bought or sold worldwide; the company generates hundreds of billions of dollars in online payments each year in 43 countries through Stripe's technical and banking infrastructure, and more.

It should be noted here that there is frequent controversy in scientific circles about whether the services of the above companies should be considered within the model of a sharing economy (A.Jidkov. The concept of the public good and the development of the service sector. Vestnik MU name of S.Y. Witte. Series 1. Economics and Management. #4 (23)’2017, 52). The main point of contention is likely that the direction of the collective use of wealth in the economic relations initiated by the mentioned firms is overshadowed by the commercial trend of services typical of traditional economic unions (usually these companies receive a certain commission from each transaction).

 

Expectations Related to the Modern Model of Shared Consumption and 

Critique of the Sharing Economy

 

Despite the different viewpoints on the above, many experts agree that we are currently witnessing the development of some new (more hybrid) type of economic relations, which may even have some impact on the transformation of the socio-economic order of modern society. 

Economic experts and scholars optimistic about such changes hope that people will become less and less dependent on property and will prefer to use property temporarily, that will undoubtedly help to increase investment; in addition, limited resources will be used more efficiently and rationally; reducing transaction costs will be a prerequisite for expanding the choice of goods and services at affordable prices for consumers; the degree of trust between people will increase and the level of communication will increase too; significantly reduce the negative consequences of adverse environmental impacts; large cities are gradually being unloaded, which in turn will bring about a number of beneficial changes, and so on.

It is understandable that, like any controversy, the modern model of the wealth-sharing economy often provokes fair criticism. Skeptics focus mainly on the fact that the sharing economy may threaten traditional labor markets, reduce overall wage levels, and weaken the role and influence of trade unions. Some critics are not afraid to make even radical assessments: 

  • "Beyond the automotive business, the sharing economy does not have much of an impact on people's ownership of property. Consumption will not decline, capitalism will not change," wrote the authoritative online publishing house Vox;

  • “Friends, no one shares anything with another. The term sharing economy has only created a shining halo around companies like Airbnb and Uber, it simply has no other burden ... We refer to such companies as "ordering services" in the editorial: they help people, for example, find a cleaner when they need it. This is a new approach to meeting consumer demand and let us not deceive ourselves that we are not dealing with capitalism," Wired magazine wrote.

In the end I would like to provide you with one interesting and very significant information: in the ranking compiled by the organization Timbro on the size of the common consumer economy, Georgia is in the 28th position among 213 countries in the world (Timbro. // URL:  https://timbro.se/ekonomi/timbro-sharing-economy-index/). Against this background, it is especially regrettable to note that the process of developing a sharing economy is not receiving adequate attention in Georgia.

 

Conclusions and Recommendations:

  • The state plays a key role in creating the public goods necessary for the normal functioning of society, although because of the rapid development of the digital economy, this truth may undergo some adjustments in the long run;

  • Advances in information and communication technologies allow consumers to profitably (cost effectively, rationally) benefit from a completely new type of goods and services, which, despite being produced in the private sector rather than the state, have characteristics resembling public wealth;

  • The modern model of sharing consumption is developing rapidly in virtually every country (including Georgia), so constant monitoring of this process, as well as in-depth scientific research and thorough study, is an urgent need.




References: 

  • Akhinov G.A. Jiltsov E.N. (2012). Public Sector Economics – М.: INFA–М., 2012. (In Russian).

  • Jidkov A. (2017).  The Concept of the Public Good and the Development of the Service Sector. Vestnik MU name of S.Y. Witte. Series 1. Economics and Management. #4 (23). 2017. (In Russian).

  • Leslie Hook (2016). Review – “The Sharing Economy”, by Arun Sundararajan ((registration required)) // Financial Times.– June 2016.

  • The Sharing Economy. Consumer Intelligence Series. PwC. // URL: //https://bit.ua/2020/10/5-trendiv-sharing-economy/.

  • Tagarov B.Z. (2019). The Specifics of Sharing Economy and Conditions of Its Development. ЕСО. No. 7. Pp. 140-155. (In Russian). DOI: 10.30680/ ЕСО0131-7652-2019-7-140-15

  • Timbro // URL:  https://timbro.se/ekonomi/timbro-sharing-economy-index/.

  • World Economic Forum. How Much Is the Sharing Economy Worth to GDP? // URL: https://www.weforum.org/agenda/2016/10/what-sthe-sharing-economy-doing-to-gdp-numbers/