The Sharing Economy: The Next Step in Economic Evolution

This post is part of a blogging series by economics students at the Presidio Graduate School’s MBA program. You can follow along here.

By Zach Sharpe

Currently, the growth of our economy depends on increasingly larger inputs from finite resources. Basic arithmetic can help us determine that this is not a healthy long-term plan for humanity. However, due to the neo-classical economic thought that dominates our society, we are stuck in a system that measures physical elements (like oil), with non-physical tools (such as money), creating discrepancies between what we expect from our economy, and what is actually possible.

So far, armed with theories that disregard physical limits, our economy has been successful in creating incredible wealth and technological progress. However, it has been even more successful at depleting necessary resources to near exhaustion. The minerals that we rely on for building everything from circuit boards to buildings, along with the fuels required for food and transportation, are all running out, leaving little for future generations. Without even addressing the environmental hazards that come with exploiting resources, like climate change, ecosystem devastation, and biodiversity loss, we see that something must change.

“Ecological economics,” offers a new way of viewing economic fundamentals by making a distinction between “growth” and “development.” While “growth” can be defined as an increase in output, “development” means increasing the quality of human well-being by a given output. By focusing on the latter, the new theory believes that our society can progress without destroying the ecosystem that sustains it.

Though the message is inspiring, I originally chalked it up as unrealistic outside the realm of academia. What does increasing our satisfaction actually mean? How are you going to sell that idea to Americans? As I have continued questioning, however, I have realized the movement is already well underway.

The collaborative consumption phenomenon, also known as the “sharing economy,” has potential to quickly evolve our society away from wastefulness, toward a system that better utilizes existing assets. The basic premise is that informed and connected individuals can participate in organized sharing of goods that would otherwise sit idle. Plus, the good news is that you are probably already participating in this growing trend. Anyone who is a part of a social network (700 million +), or has shared music, documents, or pictures online, is already participating in the first stage of this evolution. You have continued evolving onto the second stage if you have used online marketplaces like Craigslist, Ebay, and Amazon.com to recycle physical objects through the economy, creating less of a need to produce new items.

The third stage of this evolution focuses on facilitating an even more economical and convenient way of sharing or renting goods. Progressive companies like thredUP, AirB2B, and GetAround are disrupting the way we view consumption. These companies understand that, in a world of cloud computing, iphones, and on-demand TV, it’s not about ownership; it’s about access.

thredUP is a service that allows parents to exchange their children’s out-grown clothing and toys for goods that are more relevant to their kid’s size and age. AirBnB is a service that allows literally anyone with an apartment, home, or igloo, to become an entrepreneur in the hospitality world. GetAround, a staple in to the “peer-to-peer” car-sharing industry, has a mobile app that connects you directly with the available vehicles in the area.

While you may have reservations about the money-making capabilities of these entrepreneurs, venture capitalists do not. Google Ventures, Sequoia Fund, and individual VC’s from Floodgate Fund and LinkedIn have all invested in “sharing” enterprises. Rachael Botsman, author of What’s Mine is Yours, believes that the sharing economy as a whole is a $110 billion plus market.

As our classic economic system has begun exposing it’s weaknesses, perhaps these types of movements, fueled by a new culture of online relationships, will be the driving force that ecological economics has been waiting for.

Zach Sharpe is an 2012 MBA candidate in Sustainable Management at Presidio Graduate School in San Francisco, CA. Contact him at zachsharpe@gmail.com