Sharing Economy Failure and Prosperity

Many “sharing economy” firms are in trouble! Venture capitalists have lost millions! It’s the beauty of capitalism, improving our lives.

Yes, that’s right. I’m not being snarky. But over at Salon, Steven Hill is.In The New York Times, Farhad Manjoo recently lamented that sharing economy firms weren’t all delivering ever-cheaper, ever-better services. Some have failed, and some are stuck offering luxuries rather than bread-and-butter services. Following up on the Times piece, Hill, who has written a book-length hate-mail to the sharing economy, has condensed his findings into a new article with the amazingly long title of “Good riddance, gig economy: Uber, Ayn Rand and the awesome collapse of Silicon Valley’s dream of destroying your job.”

FAILURE ON SAND HILL ROAD

Hill’s article is, by and large, well-researched and full of interesting accounts of sharing economy firms that have turned out more like the flop Myspace than the hit Facebook. Hill summarizes, throwing in a little slam at Ayn Rand because. . . why not?

Ironically many of these Ayn Rand-inspired startups have been kept alive by subsidies of the venture capital kind which, for various reasons, are starting to dry up. Without that kind of “VC welfare,” these companies are having to raise their prices, and are finding it increasingly difficult to retain enough customers at the higher price point. Consequently, some of these startups are faltering; others are outright failing.

Hill’s article is worth reading if you ignore the socialist editorializing. Hill sneers at CEOs who say they’ve “pivoted” when they’ve really shut down. Among the many firms whose stories he tells, he dilates a bit on Exec, an erstwhile app that tried to make executive assistants easy and convenient to hire for odd jobs, as Uber did with car rides. Exec’s former CEO, Justin Kan, has written a long blog about his take-away lessons. Basically, Kan didn’t realize that good assistants don’t hang around waiting for occasional work at $20 an hour (less taxes). So his company got eaten up by the need to pay refunds for botched jobs and the search for good workers.

Far from destroying jobs, the sharing economy creates job opportunities where there were fewer or none before.

Hill snarks about venture capitalists from Sand Hill Road in Menlo Park, Ca (the heart of Silicon Valley) not understanding ordinary people. But really, the VCs should be cheered for experimenting. They are subsidizing attempts to create great new markets and connect workers with work on a huge scale. And of course, if they succeed, they expect to profit like crazy, and why shouldn’t they? Hill should be thanking them, rather than hating them.

AYN RAND AND THE MARKET

Hill seems to think “libertarian Ayn Randism” means:

1. Some are “Masters of the Universe” and peons aren’t. (That’s the reverse of Rand’s view. Objectivism holds that all people have equal rights and that any person can be morally worthy.)

2. Every business will succeed. (But of course, most don’t. Many firms fail. That’s part of a free market. Even Henry Ford had two companies that flopped before his Ford Motor Company became a mega-success.)

3. One can make a paying market work for everything (But of course one can’t. All social dealings can and should be forms of trade, but not all trade can or should be for money. A love affair is a trade of mutual admiration. Turn it commercial and you have prostitution.)

The sharing economy is really a trading economy. When you hire an Uber or book an AirBnB, you are connecting directly with a seller who wants to make a deal with you. Information technology has made it easier than ever for producers to find clients, for services to be rated, and for producers to be paid. This has lowered the transaction costs (search, advertising, bookkeeping) for all kinds of services. The sharing economy startups are trying to build out this new, low-transaction-cost reality and make profits by connecting millions of people with each other, so they can trade.

The sharing economy empowers all of us to use our time more effectively, and to live as entrepreneurs of our own lives. It has opened up freer markets in areas, like taxis and hotels, that have been stultified and corrupted by regulation. But the reason to love the free market is because it lets us control our own lives.

Far from destroying jobs, the sharing economy creates job opportunities where there were fewer or none before. Too many focus on taxi companies that have lost out to Uber. Too few focus on the huge increase in the number of taxi drivers now that Uber has set the market free. And too few focus on the time and money saved by those of us who can get an Uber ride quickly rather than waiting longer for a higher-priced cab.

Hill just doesn’t seem to understand this. He wants all workers to magically get great jobs and never take a risk. He seems to think government welfare programs, that have wasted hundreds of billions of dollars to little or no good result, and that are rigid and incredibly bureaucratic, are wonders of value creation. Meanwhile, he offers only sneering and insults to the investments of Silicon Valley in finding a better way to make markets.

When investors in a new industry fail, it is their own money they have lost. We should honor them, for working to make life better, and for putting their money where their mouths are. If only socialists like Hill would do the same.

“The principle of trade is the only rational ethical principle for all human relationships, personal and social, private and public, spiritual and material. It is the principle of justice.” —Ayn Rand

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