The sharing economy is making the news daily: New startups launch and grow quickly, incumbents protest (or opt to join the innovation), and regulators scratch their heads over how to treat business models they have never seen before.
These models are generally based on the concept of “access over ownership” and sharing underutilized assets such as tools, toys, cars, and office space in ways that are economically and environmentally more efficient. Over the past few years the sharing economy has zoomed into a multi-billion dollar sector and taken root in cities of all sizes around the world.
To date, the vast majority of activity in the sharing economy has focused on the private sector: startups, private investment, and questions around what it means for big business. However, there is an equally significant set of opportunities for the public and social sectors. This is a conversation that has yet to surface in a meaningful way, and until it does, our understanding of the sharing economy is incomplete.
I entered the sharing economy after more than a decade working in international development, specifically microfinance and policies to promote innovation at the base of the economic pyramid. These experiences revealed marked parallels to today’s sharing economy, especially when one looks at the nexus of the social, public, and private sectors. How can the sharing economy help cities reach their goals around urban planning and sustainable growth? How can nonprofits and social sector organizations tap into the sharing economy, both as beneficiaries and change agents? And how can we all broaden the perspective with which we view it—both advantages and potential risks?
The Sharing Economy as Social Innovation
The sharing economy is a prime example of social innovation. At a basic level, sharing (rather than owning) assets is more economically efficient, environmentally sustainable, and community-oriented.
The sharing economy addresses a range of social problems—including isolation, over-consumption, and economic scarcity—in new ways. In addition to helping individuals meet their needs and expand their universe of opportunities, it also builds social capital—the connections within a community that help boost resilience and bring people back into relationship with one another.
My work with social innovation organizations in North America, South America, and Europe has underscored the potential for the sharing economy to benefit the social sector. In each of these places, I saw an overwhelming interest in shared means of exchange, and unique local issues where the social sector can play a role. For example, in Vancouver the focus is on how best to harness the sharing economy to help the city fulfill its mandate as the “greenest city” in the world. In Bogotá, emphasis is on how to tap into shared spaces specifically to meet the needs of low-income communities and social housing developments.
Building Unexpected Social Capital
An important feature of social innovation is that the value the innovation creates accrues primarily to society, rather than strictly to private individuals. Despite its potential to transform societies and boost the well-being of people at all points on the economic pyramid (the poor can save money, the well-to-do can reduce their environmental footprint), it is not unequivocally clear that the sharing economy meets this criterion. Whether it does or not depends on the business model, structure, and mission of the organization.
Based on direct experience across dozens of countries, I believe that the single most important factor is whether or not the sharing economy business or platform creates unexpected social value and builds community in unprecedented ways. By “unexpected” and “unprecedented,” I mean something that we could not imagine was possible before. In such cases, although certain individuals may benefit—for having come up with an idea or borne risks early on—the biggest beneficiary remains society as a whole. Moreover, such models may be for-profit or nonprofit, and technology may play an essential role or simply enable.
New Opportunities for Impact Investing
In parallel with opportunities for people to participate in the sharing economy are opportunities for impact investors. By and large, the current debate around funding focuses on venture capital: does VC investment necessarily cause a decrease—or worse, abandonment—of social value? And at the other extreme, are nonprofit or non-monetized models (e.g. swapping, gifting, bartering) doomed to struggle and never reach scale?
Framing the issue this way misses a much bigger and more valuable conversation. Investing is not binary, nor is venture funding fundamentally flawed—it depends on values, purpose, and leadership. In my opinion, the biggest investment opportunity lies in the middle area: a zone typically reserved for triple bottom line investments, social venture capital, development banks, and a range of other “hybrid” investors. Most of these voices have yet to show up.
At its core, the sharing economy is itself an example of the triple bottom line; it includes financial returns (profits, income, and/or cost savings), environmental returns, and social returns. Moreover, we see a rich blend of “returns” that accrue to monetized and non-monetized platforms. We can unlock value in underutilized assets without the injection of additional capital, and we can create value without money changing hands. This yields insights and opportunities for startups and entrepreneurs, as well as established purpose-driven companies and organizations. This is also one of the most powerful paradigms imaginable, and with such power comes the potential to disrupt.
There’s No Guarantee We Will Get It Right
My years in microfinance have led me to conclude that the sharing economy is on a similar growth curve. Early on, microfinance was funded by primarily philanthropic grants (just as we’ve been borrowing and gifting to our neighbors throughout history). Then commercialization of microfinance began, including traditional venture capital that lacked a social mission, sometimes with disastrous results. Today we see a more balanced investment spectrum, with financial and social return objectives in tandem. My goal is to guide sharing economy stakeholders toward a similar path—minus the painful lessons. I am focused on helping public, private, and social sector leaders better understand the big picture and how these new platforms can help reveal (at times in surprising ways) shared goals.
One of the challenges the sharing economy currently faces is policy. Just as we had to learn how to regulate microfinance as distinct from traditional banking, so too must we learn how to regulate shared-use models as distinct from ownership. The laws on the books today are outdated; they were drafted for an era of mass consumption and didn’t contemplate the business models we are seeing in the sharing economy. For example, one car in shared use takes between nine and 13 cars off the road—a boon for both congestion and the environment—but how do we insure it? What activities do we tax, and how?
These issues represent an incredibly exciting opportunity for policymakers and companies alike. To “get it right,” policymakers must become engaged and proactive. They must be open to learning about the sharing economy and how it can help them reach their city’s (or region’s) goals. Some cities are beginning to do this, in different ways, and the pace of activity will likely increase. Moreover, sharing economy enthusiasts need to see policymakers not as enemies, but rather as potential allies. The public, private, and social sectors share an unparalleled opportunity to come together and create shared value.
Our Window of Opportunity
If we widen our lens on the sharing economy even further, we see a multitude of opportunities for emerging markets, megacities, and the rising middle class. Under some scenarios we could leapfrog—as mobile banking did to traditional bricks-and-mortar banking—from “sharing by necessity” (economic need) to “sharing by choice.”
Imagine if emerging economies could tackle car congestion without having to endure the same negative externalities? To do so requires a shift in mindset and cultural values, however, and we have a finite window of time to act. It is estimated that within the next six years, more than 80 million vehicles will be purchased in China alone.
Taking stock of the sharing economy reveals a range of benefits alongside challenges and unknowns. These unknowns are not unique to the sharing economy; rather, they are part of a natural course of innovation that, navigated responsibly, can lead to greater resilience and well-being for society as a whole. At the same time, the sharing economy is not a panacea, just as microfinance is not a panacea for financial inclusion. However, it does help us create more efficient, sustainable, and connected communities, which just might lead to a brighter future as well.