The Pitfalls of the Sharing Economy

Coming of age in the wake of the Great Recession, the Millennial
generation has had to accept an uncertain economic landscape as their new
normal. One critical adjustment they’ve made is to enthusiastically embrace the
upsides of the share economy. While their parents helped Craigslist and eBay
become household names, today’s youth rely on crowdsourcing and funding sites
like Kickstarter and Indiegogo. Their collaborative ethos promotes a peer-to-peer
approach that can cut out the broker and benefit both provider and consumer in
the process.

By taking advantage of their collective connectivity, this
generation shares information openly and at scale to (among other things) make
best use of the excess capacity of goods and services. Examples of this
approach are everywhere. Why buy a car—and pay money for a parking space— if
you live in a pedestrian city where the vehicle will sit idle most days anyway?
Instead, you can join Zipcar when you
need wheels or use the Uber or Lyft app on your phone to get a ride across
town. With so many shared resources, it makes sense to cooperate with others,
especially if it means having access to assets that one wouldn’t be able to
afford independently.

But as these economic arrangements gain popularity, there may be
downsides for the rising cohort of young adults. Journalist Monica Potts offers a critical assessment of the “sharing economy” in the
latest issue of the Washington Monthly
that features a set of in-depth articles that focus on the relationship of Millennials
and money (additional contributions are made by Phil Longman, Matt Connolly,
and Jordan Fraade). Potts shows how Millennials have been creating virtues of
necessity as a means of coping with an economy that is not delivering
high-quality jobs.

Instead of following in the
footsteps of their parents who married, bought homes, and had kids, Millennials
are renting everything from homes to bikes, phones, and software, signifying a
cultural shift that is radically altering their relationship to ownership. Instead
of opting for the suburbs, Millennials are remaking the urban core of cities
across the country, demanding improved transportation, more walkability, and
better integration of technology into public services in order to benefit the
collective rather than the individual. Some of these arrangements make sense
over the long term, especially when the underlying assets are depreciating, but
it also means that Millennials are missing out on recouping the gains from
owning appreciating assets.

If we look at the balance sheet
of young Millennials, and even Gen-Xers, we see declining incomes and lower
levels of wealth, not merely vis a vis the rich, but compared to previous
generations of Americans. In his piece, Phil Longman presents this as an emerging and
consequential expression of inequality, arguing that perceptions of growing
disparities might be best understood in generational terms. Rather than
focusing on how exceedingly well the 1% is doing, it’s more instructive to
recognize the decline of every generation of young adults born after the Boomers.
In so much as the rise of the share economy is delaying a generational wealth-accumulating process, it is contributing to the pervasive downward mobility experienced by the Millennial generation. If
people feel as though it is harder to get ahead than it used to be, it’s
because it’s true.

One way that young
people have traditionally been able to build up the assets side of their balance
sheets is through entrepreneurship. However, Matt Connolly describes how Millennials are starting fewer
businesses in recent years even as a seemingly endless wave of aspiring young
Mark Zuckerbergs report in surveys and in the media that they want to do so. Without
steady jobs, many of these young entrepreneurs take on temporary work, in
effect creating a “Gig Economy,” characterized by a small, and less powerful, form
of entrepreneurship that ends up
supporting one job at a time and fails to spark the benefits we traditionally associate with
small business creation.

Another impact of the Great Recession has been the delayed entry of young
families into the economy as homeowners. Without savings to cover a down
payment or the ability to qualify for a mortgage, Millennials are lagging
behind previous cohorts in their rate of homeownership. Jordan Fraade sheds light on an innovative
response, shared equity homeownership, which is gaining momentum in communities
across the country. In shared-equity housing, the buyer gets a one-time subsidy
that allows them to purchase a home that they would not be able to afford
otherwise and in exchange, they are required to share the accumulated equity upon resale. This approach still
offers the potential for wealth building but also provides access and stability
for a generation desperately in need of both.

Shared-equity
homeownership is just one example of the innovative policy solutions that we
will need more of if we are to help the current crop of young families make the
move up the economic ladder. Reversing
their growing generational inequality is the new Millennial challenge and it will
require a broad set of policies that can deal effectively with the numerous
ways that inequality has expanded and grown more entrenched. Certainly, one set
of policies should focus on limiting debt and bringing down the costs of
accessing education and health care so liabilities don’t overwhelm the family
balance sheet. But another set of policies is needed to assist young adults in
building up their asset base over their life course and connecting them to
productive ownership opportunities. It is our collective responsibility to make
sure the emerging “share economy” doesn’t leave Millennials completely devoid
of wealth.