Monday, August 12, 2013

The Sharing Economy

The venerable and erudite Financial Times of London wrote a opinion piece entitled, "the new model sharing economy" in today's paper.  I am a big believer in this movement, and wish to share a few historical observations on its development.

We probably should begin with a quick definition.  As James Gardner wrote for Forbes, "The Sharing Economy (sounds) like the spiritual home of new age digital hippies, or maybe a step up from a barter system."  This is the risk for those businesses and consumers driving this movement.  It can been seen as "hip or trendy" but the true motivations are more profound and sustainable.  Let me explain.

First, the sharing economy is a pure capitalistic and self-interested endeavor.  The "feel good" element of the shared and sharing economy is that we are "sharing." It seems like we are doing something for others rather than doing for ourselves.  It seems anti-materialistic, and anti-individual.  It seems more communal.  All these things are partially true, but they are bi-product benefits, not primary motivators.  The key to understanding what is driving the sharing economy is to review the economic principle of under-utilized assets; or said differently under-utilized capacity.  There is an economic opportunity to monetize under-utilized assets which individuals, households and companies recognize, and technology is allowing them to be presented for sale and rent.  It is the development of the ability to rent these various assets which has led to the use of the term "Sharing."

But let's review the manner in which selling under-utilized assets has evolved.  I remember when I first learned about eBay.  I was fascinated by the simple idea -- you can now have a permanent and persistent garage sale.  I LOVED the re-cycling of family assets:  clothing, electronics, toys, video games, CDs, DVDs.  This was the first step -- technology allowing the efficient use of society's resources.  Individuals who have assets which have ended their useful life for THEM, could now be offered for sale to people who may find the items useful AGAIN.  While eBay lost its way for awhile trying to compete with Amazon, it seems to have returned to its roots.  It again is helping to re-circulate assets (new and used) and therefore providing greater utility and productivity for the original investments in those assets.  By unleashing cash back into an individual, household or company, eBay allows for future investment and consumption by these same economic entities.  Brilliant!

The other two leaders in this space are Craigslist and Amazon.  Craigslist is indeed the "classified advertisements" from newspapers -- selling all things and services -- with no transaction fee.  It handles the hyper-local market by allowing large items to be posted (items which would be too onerous to ship for households).  Amazon has evolved from book selling to used book selling to now allowing the sale of almost any used merchandise.  They charge a lot of money compared to eBay, but have improved by allow the listings to be permanent rather than time-bound (which is a failing of both eBay and Craigslist, more than likely because of server operating costs).

Second key principle of the sharing economy -- every member of a rational market evaluates how to use their monetary resources.  Every person, household and company chooses whether to rent or own.  This is where new technology moves us from offering under-utilized assets for sale, to allowing them to be shared or rented.  The logical way to begin is with the most valuable and lasting assets -- real estate.  This is why AirBnB makes so much sense.  People can use technology to list their open rooms or houses for anyone to rent.  They are monetizing under-utilized assets by renting them, not selling them.  The next was an evolution of the traditional vehicle rental model through ride-sharing.  The leader in this area is vRide, for whom I have the pleasure of serving.  Vanpooling is a natural way to efficiently share rides to work.  Carpooling is already used by over 20 million U.S. citizens.  More and more software, including vRide's, is making it easier to carpool.  Look for vRide technology to make this a cashless community of drivers and riders in the very near future.

As the FT correctly said, consumers "rely on trust and on supporting institutions for their success."  This is the combination of technology, legislation and regulation.  I hope it can all keep up because the consumer likes this, a lot.

Sunday, January 13, 2013

The Future of the Republican Party -- 10 Policies for Leadership

  1. The Republican party must lead an initiative to completely reform the immigration law and policy for the United States. This new law would make it very clear that if you want to become a citizen, then you apply for a temporary work visa, and upon receipt will pay federal income, social security and medicaid taxes. You will be eligible for Medicaid. If after 5 years of employment, without any convictions, the person passes language and citizenship tests, they will be granted full citizenship. I would allow all persons in the USA who entered illegally to immediately be enrolled in this program with two years eliminated from the 5 year element.
  2. The Republican Party must champion a comprehensive Household Tax Reform. The goal is that every citizen pay , excluding only the very old and the very poor, and that those who can pay more should do so without compulsion nor punishment, but rather obligation. This policy must borrow from the simplicity of the Flat Tax and the pro-consumption of the Fair Tax. It must eliminate over 10-15 years all personal deductions, including dependent credits and mortgage deduction.
  3. The Republican Party must propose a radical restructuring of the Corporate Tax Regime. The phasing out of deductions and loopholes and subsidies will match the gradual reduction of the tax rate over 10-15 years. (Say 1-2 ppts per year matched by 5-7% of $ value deductions). There should be an immediate tax reduction to 15% for all repatriated overseas cash/profits for 2013 only. There should be incentives for domestic investment and job creation.
  4. The Republican Party position on national defense and security must change. With a political history biased towards isolationism, the policy must include withdrawal from Iraq and Afghanistan, with reinvestment of military expenditures in the private sector. R&D must be de-classified for commercialization. The new policy must articulate a doctrine for containing terrorism and punishing states which harbor and train terrorists, including regime change and occupation. The military must focus upon technology and de-emphasize enlisted personnel. Finally, a lasting global military alliance with India and China must be created, which will avoid the US role as an hegemony, and will de-emphasize Europe, but serve as a policing force for peace.  Overall, military expenditures should decrease to $400-500 billion per year form over 800 billion today.
  5. The Republican Party must address our national energy policy in a decisive and balanced way. We must develop our coal, natural gas and oil resources aggressively but safely, and at the same time reduce carbon dioxide from power plants. We must develop carbon fuels in the Arctic and Atlantic seaboards, and also take corn out of the tank and put it back on the table. There can be research support for solar and wind and batteries, but scale back the consumer subsidies as the market must form, not be created.
  6. The Republican Party must address the monetary and banking system in a new way. An egregious and unintended consequence of the great re-regulation post crisis was that in its haste to make banks safer, regulators removed any incentive for them to lend to the real economy. The GOP must support Basel III, but press for greater mortgage and commercial lending. Monetary policy has been too lax, and it will not improve employment. On present course, we will have inflation without jobs nor lending. QE must end, and the reversal must begin because each time the Federal Reserve buys long-term Treasuries, the rate goes up, not down as the market sees that the government believes the future will have no growth (eg real inflation).
  7. The Republican Party should propose an elimination of the so-called "debt ceiling." If the GOP is pro-free markets, then the global bond market will determine how much and at what price US Treasury and debt instruments should be issued. The market is the determinant of size and interest rate. The rest is arrogant politics.
  8. The Republican party must return to its libertarian roots for social policy.    The GOP should acknowledge that sexual orientation, preference, gender, or gender identity should have no impact on the government's treatment of individuals, such as in current marriage, child custody, adoption, immigration or military service laws. Government does not have the authority to define, license or restrict personal relationships. Consenting adults should be free to choose their own sexual practices and personal relationships. In addition, the GOP must recognize that abortion is a sensitive issue and that people can hold good-faith views on all sides, and that abortion is de facto and de jure for nearly four decades.
  9. The Republican Party must affirm the 2nd Amendment, and support restrictions on weapons not related to sport nor personal protection.  Specifically, the right to keep and bear hand guns, hunting rifles and shotguns must be supported, while the ownership of automatic, semi-automatic weapons which discharge more than 9 rounds in a clip should be severely restricted.  The concept that the people must bear arms to defend ourselves against tyranny is vacuous because our military has artillery, drones, ships and planes.  We do not live in 1791 when this Amendment was passed, but we do live in world where personal weapons of mass destruction kill innocent civilians.  Restricting certain types of weapons was right when Reagan and Brady supported it, and it is right today.
  10. The final policy change has to do with our nation's approach to drugs, and specifically marijuana.  Marijuana and alcohol should be treated as recreational substances.  Education about the negative consequences of both should be mandatory in all public schools.  Both should be highly regulated, and marijuana should be legalized and sold in state stores.  As to more serious drugs like crystal meth, cocaine, heroin, we must fight aggressively against the organized crime elements which promote them, here and abroad.  Finally, the prison system is over-flowing with non-violent criminals who were sentenced under the "three strike" rule and other mandatory-jail sentencing guidelines for drug offenses. These must change for economic and moral reasons.