The horizon is not so far as we can see, but as far as we can imagine

Why the Sharing Economy is Destroying Prosperity

Let us start with Uber drivers:

Uber has become like Walmart. Drivers now make less than the minimum wage when we do the math,” said Abdoul Diallo of the newly formed Uber Drivers Network, which opposes new lower fare rates set by the company.

The high-tech livery-service firm recently slashed passenger fares to compete with car services such as Lyft, Gett and regular yellow cabs, a move that drivers say takes money out of their pockets.

Some Uber drivers claimed fares — and their paychecks — had been chopped 25 percent in recent months.

Other drivers said they make less than a living wage, just $7 to $12 an hour after expenses and fees — far less than the $25.79 an hour Uber promises drivers can make by joining its fleet, protesters said.

Drivers began complaining that Uber was taking them for a ride back in July, when the company temporarily launched its less-than-taxi-rate Uber X service.

In late September, Uber ­extended those cuts permanently — outraging drivers.

Uber treats drivers like private contractors, saddling them with insurance, gas and vehicle expenses but the company has total control over fares.

In its essence the sharing economy is similar to offshoring and outsourcing in how it works.

Let us establish the basics: high income for individuals, absent government fiat, is based on a tight supply of whatever it is they are selling, and nothing else.

This can be a generally tight labor market, as in the late 90s or most of the years from 45 to 68, or it can be in a specific area.  If you have an occupation where most people can’t compete, you make more money.  This could be because you have skills they don’t have, it could be because of artificial scarcity imposed by regulation (most professions which require licensing), it could because of geography, and so on.

Hotels make decent money because any Joe or Jill can’t sell their rooms.  Taxi drivers (or, more accurately, those who own the licenses) used to make decent money because any schmo with a car couldn’t compete.  And so on.

In manufacturing terms, when those jobs pretty much had to be in a first world country, and the government enforced the ability of unions to strike by forbidding replacement workers, assembly line workers made good money.

So the sharing economy increases capacity.  It increases supply to areas which had constricted supply.

Supply increases, and the profits and/or wages of those in the old sector go down.  Spotify claims artists receive 6 cents to .84 cents per thousand plays.  That means 1 million plays will get you 6K to 8.4.  But there’s reason to doubt those numbers, Swift has refuted them, and earlier reports were lower as well, plus Indie labels get less.

All of these platforms: Spotify, AirBnB, etc… take huge margins.  Spotify takes 30%.  This is in line with what App Stores take, again, 30% being standard.

That number is one we’ve become numb to, but it’s essentially oligopoly or monopoly profits, a huge distribution rate. If you add that much to the cost of a product, it will sell far fewer copies and make far less money.  That percentage comes directly out of profits.

In most cases, one or two sites control most of the business.  Maybe three.  That makes them oligopolies or monopolies. You go through them, or you don’t make a living, and once they are established, they are essentially impossible to dislodge.

In the fifties or sixties this would have been recognized as clear abuse of monopoly or oligopoly power and they would have been busted up or regulated.

But they aren’t. Instead what they do is lower prices, vastly concentrate earnings (30% is a lot, and makes you billions if you control any reasonable platform, even if that billions is from equity), and they lower wages and earnings to everyone who doesn’t control the platform.

Now the sharing plaftorms would be ok (minus the oligopolistic abuse) in a genuinely booming economy where there genuinely weren’t enough workers, and where companies were competing for workers by increasing wages and treating them well (think how programmers were treated during the late 90s internet boom.)

Bring the extra resources online, let people earn some extra cash by driving occasionally, and move people over to the parts of the economy that are booming and need workers.

We don’t live in that world.  We haven’t, absent a few years, since somewhere between 1968 and 1980.

Instead what the sharing economy does is lower the value of specific types of labor and assets, allowing more people to compete, but reducing the actual earnings for those who are in that market.

Reduced prices might increase standards of living, and in any single case they do. The number of musicians who can’t earn a living under the new regime (not just Spotify) is much less than the number of people who can consume much more music.  People who want to be driven prefer to pay less to Uber.  AirBnB makes it cheaper to travel.  Etc… There are genuine gains.

But added to offshorng, outsourcing, oligopolistic storefronts like AppStores and Amazon, and with increase parts of the economy moving into the sharing economy, while in the meantime older jobs have been deskilled (all fast food is deskilling of cooks jobs, for example), and you reach a point where “there are hardly any good jobs”.  Prices are not dropping faster than good jobs.

The other effect of this is that because many of these trends are naturally oligopolistic or monopolistic (even fast food is, if you take a bit of time to think about all the small business restaurants they put out of business), they tend to concentrate wealth and income radically.  That leads to capture of the political process by the rich (yes, even more than already), and that leads to policies like, well, turning anti-trust law into a dead letter, or endless copyright extension, or vast numbers of anti-union policies.

As Stirling Newberry once pointed out to me the more humans are fungible; that is one human can replace another and do whatever that person is doing, the less they have value.  That doesn’t mean that fungibility is necessarily bad, it increases efficiency, can increase economic capacity, and so on, IF we choose to distribute the gains properly.  But absent trends moving in opposite directions it decreases the amount everyone except those who control the points of coordination of the economy make while vastly centralizing wealth, income and power.

The Sharing Economy really isn’t.  Sharing is the wrong word.  And for now, while some of us many win and get income we need for it, overall we’re losing.

The way we distribute resources; the way we distribute necessities and the good stuff of life is going to have to change.  Ultimately a market which  clusters into oligopolies;  deskills jobs; makes humans interchangeable; is not one which can produce widespread prosperity, let alone well being.  If we continue to distribute goods and power primarily by market success, even if we manage a fix, it will only last a few decades at most—and there is no guarantee, this time, that we will manage a fix.

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Character as Personal Destiny


A word on Abenomics, QE and doing Stimulus right


  1. BVX

    Seeing what happened to Dotcom after he announced he’d be giving artists a bigger cut of the proceeds makes it frighteningly clear just how deep and how far the rot actually goes.

    Washington is completely in the tank for monopoly capitalism now and is willing to resort to brazen thuggery to defend it, and other Western governments are scarcely sovereign in anything other than name and act as Washington’s botnet.

    There doesn’t seem to be any venue left for actual public participation in government to occur.

  2. Don’t worry, it will get worse.

  3. This is very powerful stuff Ian.

    I at least, hadn’t thought it through quite so clearly and starkly as you have articulated it here. Congratulations on that.

    I also think many people are intuitively aware that something like this is going on and are quite desperately searching for solutions, even if they ultimately prove opportunistic, temporary, short term or local. I keep meeting people who are trying not to encourage or permit this oligopolistic tendency in human (actually, mostly human male) nature to invade or emerge in their own lives. What do you/we have to offer them?

    If ‘we’ understand, then what do ‘we’ recommend?

    I’d love to see your short list Ian.


    1)Support the living wage movement — in your local municipality/organization/workplace and in your purchases.

    2) Grow or tend or nurture something — preferably organic … food, your kids, your local park., your neighbourhood and neighbours. If it reduces your participation in the capitalistic ‘play’, even briefly, you’ve scored a double hit.

    3) Encourage human contact and contacts — all this electronic, constant communication is fun and very addictive, so beware of its temptations … chain yourself to the mast of humanity through human contacts as you head through that strait, every day…


    What’s on your list?

    Best to all,


    “Curating Sex, Briefly” provides links and context for knowing ourselves through the sex and violence of human groups. It’s a Kindle Select e-book [irony! hahahaha]

  4. Jeff Wegerson

    This is what I come here for. Don’t wait too long before hitting us up again.

  5. pond

    I wish people would not call renting a car ride from an independent contractor “sharing” — there is nothing being shared here, a service is being sold, plain and simple.

    Also it strikes me that these services are less like outsourcing and offshoring, and more like the move toward temps, and independent contractors. As the feds increase the onus on companies that hire real, full-time employees through regulations, forms, and taxes, they increase the attractiveness to move employees to temps, part-time workers, and independent contractors.

    Some workers like the flexibility of these arrangements. But on the whole, less is paid for labor in an economic and political system that moves ever more heavily on capital’s side, and is ever more determined to impoverish workers and replace them with slave labor wherever possible.

  6. sanctimonious purist

    Where I live, there is something called gypsy cabs. People put out their forefinger and shake it and someone picks them up. I think it’s $5 a ride within the city. Mostly poor and working class people seem to use it b/c you don’t know who you are getting a ride from. It’s just people in regular cars who stop so its not posh or safe enough for many people. But it seems to work for many who are tired of waiting for the much too infrequent bus.

    I learned this b/c I have picked people up before without taking the money and I asked them how it works. Seems like its much better than Uber b/c Uber doesn’t check the drivers or their cars for safety either as far as I know. It’s the riders own risk I think. So this way, the driver gets the whole fee and the rider doesn’t pay an exorbitant rate.

  7. S Brennan

    I agree with your overarching point that today’s software “geniuses” are largely people* who figure out how to wedge their software between the customer and the service provider, but I am not sure artists are “labor” as recording technology has made them more akin to capitol. As invest invest their “material” and expect returns to come to them in their sleep. A cabbie must labor for every dime, every scrap. When holograms mimic live shows and put artists out of work…I may have to re-examine my thoughts on the subject.

    FYI, the guy who came up with recording music never made a dime….ditto the guy who came up with the amplification circuit, oh yeah…and broadcast of images and sound [TV]. FYI, without the amplification circuit, no mass dissemination of recorded art. Those who have made our world better go unpaid for their work. They are the true slaves of industry.

    *As a group from the early eighties onward; the software “industry” has shown itself to be largely run by the scum of the earth, not paying taxes, parasitically using the US empire’s forces to impose US laws that favor them over the rest of the world, relentless plagiarism/theft of copy writable materiel & then patenting. Recently, Software Giants a& their minions changed Patent law so that first to file has the patent, not he guy who developed it, legitimizing industrial espionage. This has had a huge impact on Silicon Valley, no longer are ideas exchanged freely…yeah, it started with Jobs & Gates, brazen thievery, it’s over the top now, the valley now attracts legions of parasitic sociopaths…not “geniuses”. And so it goes.

  8. If you control someone’s access to labor you can take a cut and prevent civil unrest through economic blackmail.

    If labor becomes more fungible and wealth and income more concentrated we will probably have a Servant Economy, with further intrusions on personal behavior and time and lowering of wages.

  9. BlizzardOfOz

    Are you sure that Spotify/Uber/app stores are making monopoly/oligopoly profits? (I know that the 30% figure is correct, just questioning bottom-line profit.) If so, then I just wonder how they manage to maintain that. In theory, shouldn’t new capital flood those markets to undercut the margins? Off course there are barriers to entry (securing the critical mass of users), but it doesn’t seem like those should be more prohibitive than other industries (eg, manufacturing) with large start-up costs.

    Looking at app stores specifically — I wonder why none of the platform owners is moving to undercut the others. Do you suppose there is some collusion or price fixing there? But you would think that Microsoft for example, which only has <5% market share with Windows Phone and seems eager to attract developers, would consider offering an 80-20% split. But they have not, they are sticking with the 30% industry standard. Probably the larger problem (for app developers) is that this is a winner-take-all industry. So you're either a making millions, or one of the many losers making close to zero — in either case, an increased 10-20% share will not make the difference.

  10. Ian Welsh

    Spotify is not. They’re not making much money at all.

    But their market valuation is huge, and that’s what matters to the people who run them, and the investors betting on them.

    The information problem is severe: there are plenty of good apps that no one buys, because they never see them. It is impossible to believe that in the long tail there aren’t lots of good apps that some thousand or hundreds of thousand of people might like. But they never find them

    Matching buyer and seller has always been the biggest problem. You don’t actually know what you might want (I want a game–but which one). And, strangely enough, the internet seems to have made it worse, rather than better.

  11. S Brennan

    Hmmm Ian…did you mean to say”

    “And, strangely enough, [Google] seems to have made it worse, rather than better.”

  12. Julien

    The difference in revenue between your app coming in at #10 and #11 in the Apple App Store might be evaluated in millions of dollars. Because at #11, no one will see it. At least, Google’s filter bubble is one of your own making. App stores have a perverse effect on discovery and they are now essentially casinos, where the winner takes all and hundreds of thousands lose.

  13. VietnamVet

    We are witnessing the steady march of privatization and deregulation of the West into a Third World standard of living. Jitney taxis and buses are the standard method of transportation in Asia or Africa. Jitneys ran in the USA until in the 1920’s when the railroads got the politicians to regulate them. The rise of Chinatown Buses and app-based ridesharing are clear signs of our return to a new Gilded Era where anything goes if it makes money for the wealthy at the expense of wages and safety of everyone else.

  14. Timothy Y. Fong

    Try this experiment, next time you have a bag of chips with your lunch:
    1. Ask the person next to you if they’d like to share the chips.
    2. When they say yes, share the chips.
    3. At the conclusion of the bag of chips, ask them for $1.00.
    4. Observe the results, which will likely be disruptive. To you.

    Sharing economy, my ass.

  15. As the feds increase the onus on companies that hire real, full-time employees through regulations, forms, and taxes, they increase the attractiveness to move employees to temps, part-time workers, and independent contractors.

    What regulations are those? ACA(aka ObamaCare)? Anything else? I’m curious what regulations you think are increasing the onus on business because you sound like a corporate shill.

  16. S Brennan

    Wow…I’m shocked, a non-idiotic explanation of why Democrats have been falling down on their collective ass.

    A few lines I want to call attention to:

    “The people who built that party [FDR-era] rallied around big things…Electrifying large swaths of the South and West changed how people lived and worked every day, how their cities grew and their farms survived. The G.I. Bill, to take another of a thousand examples, was intended to reward veterans and stave off a postwar depression, but it also opened up new possibilities of learning and travel (and therefore work) for millions of young men. This blurring of the cultural and the economic includes the civil rights legislation of the 1960s…Today’s Democratic Party, with its top-down fixes, does not offer anything so transformative. It seems scared of its own shadow, which is probably why it keeps reassuring itself that its triumph is inevitable.

    [Today’s Democratic Party] needs instead to fully acknowledge just how devastating the recession was for working people everywhere in America, and what a generation of largely flat wages did to their aspirations even before that. It needs to take on hard fights, even against powerful forces, like pharmaceutical and insurance companies ….carving out a place of respect for working men and women in our globalized, finance-driven world.”

    And tucked in the article this one line

    ” trouble was that the Clinton-Obama strategy got things upside down from the start.”

  17. EGrise

    Far too much Silicon Valley “innovation” is just parasitical rent-seeking. Exhibit A: MonkeyParking.

  18. Both Sides Do It

    Tags! Thank you.

  19. thank you sir, may I have another?

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