The Economic Impact of the Sharing Economy - Baltimore Post-ExaminerBaltimore Post-Examiner

The Economic Impact of the Sharing Economy

The Internet’s impact on our lives, both on an individual level as well as a society, is inarguably huge. One doesn’t have to search long to find various examples of how modern technology and the increased capabilities for communication has improved our lives, although there are also some not-so-positive examples to be found here and there.

The “sharing economy” is a recent phenomenon made possible by the Internet, which allows people to get in touch with others who may need their services, with both sides benefiting from a direct interaction that skips the middleman. This has impacted the economy on a grand level, and it’s interesting to observe the effects it’s had so far.

It’s Growing Faster Than Traditional Markets

Various studies have shown that companies that provide a sharing service tend to see a significantly faster and more sustainable growth than their traditional counterparts. Uber is perhaps the most prominent example, and a simple look at factors such as how they determine their pricing can give a hint of the reason. In 2015, the company had a gross revenue of $1 billion, and by 2016 this number had doubled.

It may seem more complex on the surface – especially when one takes the company’s requirements towards drivers into account – but in the end, it’s simpler on customers, who get a perceivably better service at rates that more closely match how much they’re actually using.

If we take at another popular sharing economy company, Airbnb, we see a similar story. This company has been threatening the hotel industry since its inception and reached over 100 million stays in 2017. It is also proving popular with business travelers as well as the more conventional tourists. However, this hasn’t been without problems and as you’ll see further down, many have been unhappy with the amount of tax that is being dodged both by the company itself and by those who make money through it. So, in one way there have been benefits, but there are problems as well.

A New Way to Look at Regulations

Unfortunately, Uber is also often mentioned in a slightly less positive context, as the company has made headlines around the world with their attitude to local regulations. Indeed, the problem of sharing companies invading traditional markets with the leverage of not having to follow the same rules is a big one, and we’re arguably just starting to realize how much of an impact it can have on the economy as a whole.

People love to root for the “small guy” coming up against an established monopoly, but they often forget that those regulations, as strict as they may seem, were put in place for a reason and supporting those who’re trying to avoid them can never lead to anything good in the long run. The main regulations that are harming growth are consumer protection, interest regulation, and competition rules. These are all in place for a reason but there needs to be a balance.

The “Black Income” Problem

Last but not least, something has to be done about the way people are using sharing communities to dodge taxes and keep their income under the table. This is just one aspect of a more general problem – that the Internet facilitates tax evasion as a whole – but it looks like the sharing economy is what tipped things over the edge and made more people truly aware of the problematic situation.

Airbnb, for example, has recently been in the news for not paying its fair share of taxes in Europe. The company only paid £100,000 in tax in France in 2016, despite being the second biggest room booking company in the region. Those who rent their properties have also been dodging tax by failing to declare it and it is this that has encouraged governments to look closer at the economy. When tax needs to be factored into the rental prices at Airbnb, many need to raise their prices which then puts off renters.

In Ibiza and Spain, governments are similarly cracking down on the sharing economy. In Ibiza, owners now need a license to ensure they are paying the fair tax, and in Spain, anti-tourism marches have been held. Renters are now facing fines of up to £400,000 if they fail to participate in the sharing economy legally.

It’s not clear what can be done in this regard without invading people’s privacies on an unacceptable level, but we fully expect some changes to be introduced to the global economy in the coming years, in order to address the issues created by sharing services. On the other hand, it’s important to recognize the positive effects they’re having as well, and learn from the benefits they bring to our economy. It’s not unlikely that future official models will be based on what’s happening now.

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