Politics, Business & Culture in the Americas

Can digital sharing economy platforms pull Latin America’s informal sector into the mainstream? Yes

Reading Time: 4 minutesIf regulators are willing to adapt, everyone will benefit.
Reading Time: 4 minutes

Illustration by Wesley Bedrosian

Reading Time: 4 minutes

The struggle between old and new forms of economic development, and efforts to strike a balance between them, will be a defining feature of society and business in the future.

The sharing economy is still a poorly understood concept.1 It has been defined as “an economic system in which assets or services are shared between private individuals, either for free or for a fee, typically by means of the Internet.”2 But at OuiShare, a global “think-and-do tank,” we prefer to talk about the “collaborative economy,” which encompasses not only collaborative consumption (i.e., the sharing) but also the maker movement, collaborative finance and open-knowledge initiatives. What unites these various spheres is a reliance on what Jeremy Heimans and Henry Timms, writing in the Harvard Business Review, called new power: “the deployment of mass participation and peer coordination to create change and shift outcomes.”3

The spread of the collaborative model affects a broad swath of industries across the globe, from accommodation (Airbnb) to finance (Lending Club).4 These rapidly growing enterprises­­­—based on platform business models—have proven far more efficient than their traditional, linear business-model counterparts.

Critics worry that sharing-economy platforms may seduce underemployed and economically weak actors into jobs with no benefits and few protections, and may even undermine existing protections. Others say sharing-economy jobs provide workers with two things they value more than benefits: flexibility and autonomy.

By focusing on the regulatory gap opened by sharing-economy enterprises in heavily regulated sectors, such as transportation, banking or lodging, critics ignore the role played by these sectors’ impressive industrial lobbies in delaying the legalization, regulation and taxation of sharing-economy activity. Framed this way, the debate unfortunately becomes about what kind of cooperative behavior the government should make illegal.

We have seen this type of logic before, most notably in the music industry. Digital media analyst Clay Shirky has shown that there are five stages for disruptive innovations: technical possibility, social adoption, regulatory reaction, civil disobedience, and negotiated settlement.5 In the sharing economy as a whole, we are currently transitioning between stage two and stage three.

Due to its massive scale and growth, the sharing economy will reach the negotiated settlement stage sooner rather than later.6 This scenario—in which the “rogue,” unregulated phase of sharing-economy activity is just a temporary first step in its development—allows us to see how, in the case of Latin America and other regions, the sharing economy will increasingly help formalize the informal sector. The largely digital nature of sharing-economy initiatives, especially the use of digital payments that are easy to trace, offers an opportunity for governments to easily tax these activities.

The potential of sharing-economy platforms to bring informal economic activity in Latin America into the mainstream depends on the ability of this sector to grow on an enormous scale.

It’s important to acknowledge that there are several key factors limiting the growth of the sharing economy in Latin America.7

The economic boom: a number of countries in the region are seeing the middle class grow.8 Consumers aspire to express their freedom and individuality through owning certain goods.9 In this context, sharing might be perceived as a second-class option.

Internet access: Internet usage is growing rapidly in the region, but with a penetration rate of just over 50 percent in 2014, it still lags significantly behind North America and Europe,10 in addition to varying drastically across the region.11

Lack of trust: reported levels of trust in Latin America among strangers are lower than in other regions. Chileans, for example, report some of the lowest levels of trust in the world.12

The unbanked: access to banking and digital payment mechanisms is far from universal. Seventy percent of the region’s population is unbanked.13

Despite these challenges, the evidence suggests that if the service being offered is useful enough, the adoption rate for new platforms will be massive.14 This dynamic is evident in the growing popularity of “taxi” applications and crowdfunding platforms across the region, as well as in the agreement that Airbnb developed with Rio de Janeiro ahead of the 2016 Olympics.15 These services are major drivers of change in both promoting acceptance of new technologies and their uses—digital payments, for example—and building a culture of trust among strangers.

Another reason to believe that the sharing economy will bloom in Latin America is that those who stand to benefit the most from new peer-to-peer rental marketplaces for everything from cars to gadgets are low-income consumers.16 When you create a rental alternative for goods that previously had to be owned, it benefits people who couldn’t afford to buy those goods before. Lower-income consumers also stand to gain the most from renting out their goods on these platforms.17

Of course, it isn’t enough to simply point out that as this sector grows in Latin America it will reach a point of negotiated settlement. We must begin to think about the forms that new governance regimes—both public and private—will take. It’s safe to assume that, at first, the focus of regulatory experimentation will be on users. However, apart from better terms and conditions in existing platforms, we can expect a new generation of startups to implement new forms of governance and ownership. Equity crowdfunding is the low hanging fruit that several startups are already reaching for.

In terms of public regulation, we need to rethink our regulatory toolkit. For example, Buzzcar CEO Robin Chase suggests that “we should consider a Peers Bill of Rights that ensures economic fairness and protection when individuals work on platforms.”

We are in the middle of a new, networked renaissance. Our lexicon, regulations and expectations are not keeping pace with the change that our societies are experiencing. What’s called for is a spirit of collaborative experimentation, the dawn of a new “Social Operating System.”


Tags: digital sharing economy
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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
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