The Sharing Middleman Economy: Vision and Disruption

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In a world characterized by increasing urbanization, immense wastefulness, and environmental degradation, it seems that humans are inevitably on pace to overdevelop the earth and its resources. But what if this trend could be reversed?

Duke University professor Michael Munger argues this trend can – and will – be reversed within the coming decades. Munger, director of the Politics, Philosophy & Economics (PPE) program, began teaching at Duke in 1997. “Until now, we have focused on making money by producing more things, which we use for a little while and then throw away. That’s actually pretty inefficient and damaging to the environment,” Munger says. He argues that renting, rather than buying, is becoming the optimal form of transaction. “It would be better if we could make more efficient use of the stuff that we already have.”

Munger calls this world characterized by a sharing-middleman economy Tomorrow 3.0. He writes that in this emerging economy, “much of the value being created will be captured not by producing things, but by selling reductions in transactions costs.” By reducing transaction costs, Munger means companies will be lowering the costs of transferring goods from producers to consumers.

Uber is one company that already sells reductions in transaction costs. Through the Uber app, Uber quickly and easily connects people who demand rides with people who supply them. Resulting from the fast-paced and large volume of transactions created by the sharing-middleman economy, Munger argues those companies who can successfully and efficiently decrease the cost of such transactions will come to dominate Tomorrow 3.0.

In Munger’s view, this economic revolution will be the third major revolution of its kind: the first was the Neolithic Revolution, the transition from a hunter-gatherer society to one based on fixed agriculture; the second was the Industrial Revolution, characterized by a boom in productivity that allowed for the ownership of a variety of commodities. Munger believes this third revolution will be as disruptive as the previous two. Much of the value in the imminent sharing-middleman economy will be generated by industries that focus on lowering transaction costs, by means such as renting goods.

What does Tomorrow 3.0 mean for the goods and services we own and consume today?

Consider the case of the power drill. An estimated 80 million power drills sit in garages, toolkits, and sheds across the US. Many of these power drills have only been used for a few minutes in their lifetimes. In the sharing-middleman economy, the fundamental use for such a good would change. Munger notes that “what we seek from a transaction involving a tool is not ownership of the tool but access to the services that the tool can provide.”

Essentially, instead of power drills collecting dust on the top shelves of garages for years, Munger argues it would be much more productive for them to be rented out to potential consumers by their owners. He states “it is not the drill that we want, but rather access to the short stream of services (the hole in the wall, the assembled Ikea table) that we want.”

But what if the same logic applied to power drills was applied to transportation or everyday living?

The results would be comprehensive and disrupting. Parking garages would no longer be needed, because driverless Ubers could quickly and cheaply transport a passenger to his or her destination without requiring a place to park. The cost of living would drop: instead of letting clothes sit unused for months, a person could rent them out, or even rent clothes for themselves. Everyday items like kitchen appliances, often used only sparingly, could be rented out and shared.

In this fashion, Munger posits that “all sorts of things that we pay to own and store, instead can be thought of as income-producing assets.”

Such a fundamental shift in the basic processes of our economy holds great potential. Munger attributes this rise of the sharing-middleman economy to the “convergence of the internet, smartphones, and software applications.”

Recent software booms have allowed companies such as Uber and Airbnb to better connect with consumers through mobile applications, meaning that a ride or a place to stay is now just a tap away. By way of its unique ability to connect producer to consumer, developing software is poised to play a major role in the sharing-middleman economy.

As Munger puts it, “software will eat the world. Prices will fall dramatically as we are better able to rent rather than own and as transaction costs decrease due to software apps.”

However, in the new economy, not all will benefit from the productivity gains; in fact, many people stand to lose their jobs.

Munger argues that “software will replace many low-level service jobs.” For instance, automated kiosks could replace many workers in fast food restaurants, as it can be more cost- and time-efficient to own a kiosk than to employ a worker.

Additionally, consumers will demand a lower quantity of goods because cars, power drills, and blenders will be shared. This decrease in demand will mean producers will employ fewer people to manufacture these items; many people will lose their jobs .

Just as the Industrial Revolution disrupted traditional ways of living, Tomorrow 3.0’s reduced good production, as well as software’s growing capacity to replace low-level jobs, will put countless people out of work. This loss of jobs in the sharing-middleman economy holds significant political implications.

In the U.S., Munger states, “the Democrats are already seeing the results because their core constituency in some ways was organized labor and unions. Those will just cease to exist.” On the other hand, Munger notes that “the Republicans; they blame foreigners, immigrants and imports as the source of America’s dying manufacturing sector.”

Despite cheaper goods and a more efficient economy, the loss of jobs would prompt mass social unrest. Munger argues that the shock to the economy could bring about convulsive riots bordering on revolution in many cities around the world, as widespread joblessness would mean that the unemployed could never take advantage of decreasing prices, no matter how cheap goods became.

While the consequences for wage-earners could be dire, Munger argues that an effective solution may lie in the power of universal basic income.

Universal basic income is a form of social security in which all citizens or residents receive a regular, unconditional transfer of money from the government, independent of any other income they may receive. This would substantially reduce the burden of unemployment on laid-off workers, as they would have some form of income to cope with the shifting economy.

According to Munger, universal basic income is a more effective solution to the fallout of Tomorrow 3.0 than other existing solutions, such as expanding social welfare programs.

Under our current social welfare system, Munger explains that “we spend more than $18,000 per person. We just don’t give it to them. Instead, we spend it on administration and bureaucracy.”

“If you look at the amount the US spends on poverty programs and divide by the number of low-income people, there theoretically should not be any poverty,” he says.

Because it applies to everyone, Munger argues universal basic income would allow recipients to focus more on adapting to the changes of Tomorrow 3.0 and less on meeting certain qualifications that characterize the current social welfare system.

While the changes brought about by the sharing-middleman economy and Tomorrow 3.0 stand to be revolutionary, Munger notes that the third major economic revolution – like the previous two – will follow the “time-tested, irresistible economic logic of efficiency.”

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Dr. Michael Munger’s book, Tomorrow 3.0: The Sharing-Middleman Economy, will be published in 2018.




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