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NYU's Arun Sundararajan on the Sharing Economy

Tom Krackeler & Rachel English
The Sharing Economy, the end of ownership, and the trouble with GDP

Arun Sundararajan is the Harold Price Professor of Entrepreneurship and Professor of Technology, Operations and Statistics at New York University’s Leonard N. Stern School of Business, and an affiliated faculty member at NYU’s Center for Data Science and NYU’s Center for Urban Science & Progress. 

His best-selling book, “The Sharing Economy,” published by the MIT Press, was the winner of a 2017 Axiom Best Business Books Award, and has been translated into five languages. Arun has also published over 50 peer-reviewed scientific papers and over 35 op-eds. We talk to Arun about the Sharing Economy, the end of ownership, and the trouble with GDP.

Let’s start with “The Sharing Economy.” A terrific work, in which you argue that we’re in a major transformation that impacts not only businesses, not only how we work, but also government and society at large. Can you take us through the big picture?

I think that what we’re seeing now is a fundamental reorganization of how the world’s economic activity is conducted. In the second half of the 20th century, the economy in the United States and western Europe was dominated by large corporations that hired people full time and produced goods and services for mass markets. This is a form that evolved over 200 years before that from the person-to-person marketplaces of Adam Smith in the 18th century through the emergence of the railroad, the telegraph, the telephone, mass distribution, mass production to become the dominant way of organizing economic activity. What I’m seeing happen in the first half of the 21st century is the replacing of this corporate model, this industrial capitalism model with a different one that is much more centered on platforms where some of what used to happen within the traditional company is delegated to a distributed crowd of individual entrepreneurs, so to speak. So we’re moving away from the industrial economy towards much more of a sharing economy or a platform economy or a crowd-based capitalism economy where the intermediary sort of aggregates the demand. They provide search, discovery, matching. They provide some trust and risk management, but what you essentially have is hundreds of millions of consumers transacting directly with millions of tiny businesses who aren’t local like the 18th century merchants of Adam Smith, but are now reaching a global market powered by platforms like Facebook and Google and Airbnb and Uber and so on.

What we're seeing now is a fundamental reorganization of how the world's economic activity is conducted

Arun Sundararajan, Professor at NYU's Leonard N. Stern School of Business

You kick off your introduction with a great quote from the founder of Airbnb, Brian Chesky, who says, “The stuff that matters in life is no longer stuff. It’s other people, it’s relationships, it’s experience.” We think “the Subscription Economy” is representative of the fact that our world today is more about individuals and businesses becoming members of the service or paying for an outcome rather than buying more of this stuff. So is that really the same thing as your sharing economy, or are those two different phenomena?

I think that they’re related phenomena. I think the same set of changes that has led to the emergence of the sharing economy and crowd-based capitalism has also made it possible for us to imagine certain consumption experiences as being on demand and subscriptions rather than requiring the ownership of an asset. So if you think about Getaround, the peer-to-peer car rental company or even Uber or Lyft, the on-demand transportation services, these are companies that allow you to imagine fulfilling your personal transportation needs without requiring the ownership of the asset, the vehicle asset yourself. Now, they wouldn’t be possible without the advances in digital technology we’ve seen, like lots of people with GPS enabled smartphones, robust assistance, but they wouldn’t be possible very easily in a world where it was one giant corporation providing this as a subscription service to everybody. I think that what the sharing economy and advances in smartphones have done is that they’ve consumerized that powerful technology. They’ve put it in the hands of everybody, and so what we’re doing now is we’re re-imagining how we organize consumption. Twenty years ago, you had to have the asset in order to enjoy it. Now you can efficiently get it on demand.

The Sharing Economy has also made it possible for us to imagine certain consumption experiences as being on demand and subscriptions rather than requiring the ownership of an asset.

Arun Sundararajan, New York University

You have a section in your book about the “trouble with GDP.” We have argued for a long time that the way we measure GDP is outdated – designed for an industrial post-war economy, not for a service or subscription oriented economy. Can you give us the elevator pitch on what’s the matter with how we are measuring gross domestic product in this new world of sharing and subscription economies?

This is not a new problem–the fact that GDP isn’t capturing some of the progress and the real value creation from technological progress. Take your use of Google. There’s a certain amount of advertising revenue that is generated from your use of Google or my use of Google, but that’s very different from the value that it is creating for you and me from having this ability to search for anything and access the world’s information. GDP is measuring the first thing. It’s measuring the dollars that are flowing. It’s not measuring the value that is being created for the people. So that’s fundamentally what the problem with GDP is. You might ask, “Why wasn’t this a problem 100 years ago?” Back then, there was a pretty good mapping between what things were priced at and what they were worth to people and how much value people got from them, because we lived in a world of physical objects and artifacts, and they cost a certain amount, and they were priced a little above it. Now that we have entered this world of the information economy, this gap between the value that’s created and the value that is captured in dollar flows has started to grow. I think that we’re dramatically underestimating the value and impact of progress in digital technologies because of our focus on GDP, and I think this is a problem that’s only going to get more profound as more and more of the world’s economic activity is organized through the sharing economy, and more and more people are members of the Subscription Economy rather than the ownership economy.

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