The Sharing Economy and Asset Efficiency
There’s a very interesting article on Business Insider that is very unfortunately spun – “The Rise of the Renting and Sharing Economy…” (good!) “…Could Have Catastrophic Ripple Effects” (bad!). It concerns the way that services like Zipcar and AirBnb are displacing traditional alternatives like buying a car or house. However, the ultimate import of this is portrayed as terrible for the American economy, which is I think wrongheaded. It is absolutely true that sharing services decrease demand for new houses and cars – but not because sharing services make us poorer, but because they make us richer.
Imagine yourself in 2003 (hard, I know). If you need access to a car on most weekends but not other times, your options are limited to either renting, borrowing, or buying. Renting it is a huge expensive pain, and if your friends will let you borrow their car three times a month they’re better friends than mine. So you are forced to buy, even though you only utilize the car for a few hours a month. This drives revenue for Ford, but it’s basically a huge waste of money for you. The per-hour cost of a car is only manageable when you use it a ton.
Now let us assume a Zipcar. Zipcar gives you access to a car when you need it at a much lower cost per hour. The cars are all owned by Zipcar and are used much more heavily than private vehicles, meaning that the total cost is amortized over many more hours. In turn, that makes it economical for Zipcar to rent out the car to you at a per-hour cost far above what they pay, and far below what you would pay in the 2003 scenario. You are far richer than you were in 2003, because you get your desired car for a fraction of the cost. Everybody wins through the magic of improving asset efficiency.
Everyone except Ford. Ford loves a world of rampant asset inefficiency because they’re the ones selling inefficiently used assets. A world where asset efficiency improves dramatically is one where their revenues decrease dramatically. The situation isn’t quite as bad with houses – but cars especially are big pieces of capital that spend 90% of their time sitting idle.
A better way to see the “rise of the sharing economy” is “Americans will have more money to spend on other things”. Most of the money that is going to Zipcar used to just be wasted, a subsidy from regular Americans to auto companies. Now it’s money in American’s pockets that is free for them to spend on things that bring them higher utility. It’s not a failure of aggregate demand, as ConvergEx suggests, but a failure of demand for specific things. The economy will reorient around doing more with less wasteful capital needed, which sounds pretty good to me.