BFC Bulletins Monthly News Digest
Tags Sharing Economy
While many celebrate the emergence of the sharing economy, James Pennington, consultant on economic issues to the British Foreign Office, warns that the sharing economy, although beneficial, is not good for GDP. He outlines four main reasons why this is the case:
- Unrecognized value – the sharing economy brings with it a rise in unrecorded value. Because it is unrecorded, it is not reflected in GDP.
- Better use of resources – because the sharing economy allows for existing resources to be taken advantage of without providing/constructing new ones, it has a negative impact on GDP. For example, why build a new hotel if there are available rooms available via Airbnb.
- Improved personal well-being – when someone rents out their dwelling or is paid to teach another a new skill, this is reflected in GDP. But the sharing economy threatens this by not converting all resources to a monetary equivalent, thereby reducing GDP.
- Increased costs of alternatives – a person is willing to use an alternative (e.g. public good or service) if it is more profitable for them than acquiring the exclusive right to use it. For example, someone refuses to buy a car and uses public transport or calls for an Uber. This means a rise in the cost of the alternatives, but no new purchases, thereby reducing GDP.
The sharing economy has a beneficial effect on the economy, even if it does not affect GDP growth. As the sharing economy continues to blur the traditional boundaries between the economy and everyday life, governments must take care to develop policies that ensure stable economic growth and also help people live and earn as they want.
