Cooperative Capitalism

Capitalism, Meet Cooperative Capitalism

This week, thousands of striking taxi drivers in major European cities brought downtown traffic to a standstill as they protested the rapid rise of Uber, a smartphone app that enables the unorganized black car, taxi, and private car owner to gives rides while not abiding by existing livery regulations. At the same time, Airbnb, a company that lets people rent out their own spare bedrooms and apartments to very short-term guests, has been battling cease-and-desists and threatened lawsuits by another set of mayors who see them as side-stepping hotel taxes and rental obligations.

Despite the regulatory threats and animosity is some quarters, Uber and Airbnb have just completed rounds of financing valuing them at $17 billion and $10 billion respectively. What is going on?

Neelie Kroes, Vice President of the European Commission, got it exactly right when she wrote in her blog: “It’s time for people at local and national levels to sit around a table and come up with reasonable accommodations of innovation. We cannot criminalise a whole class of citizens, or drive tourists away from places that need money, in order to protect a few industries that think they can be exempt from the digital revolution. It’s not fair on everyone else, and it’s not realistic.”

Capitalism, meet cooperative capitalism. The Internet, smart phones, electronic payments, GPS, online ratings, and social media have transformed the way we can build businesses, the way we can use assets, and who we can collaborate with. Uber and Airbnb, along with Skype, oDesk, elance, TaskRabbit, Blablacar, GetAround, Lyft, Skype, WhatsApp, MeetUp, Etsy, YouTube, Facebook, DuoLingo, Quirky, TopCoder, Enigma.io -— this list could go on for paragraphs — are building companies very efficiently, and differently, than in the past.

These companies only execute one part of the task at hand, the part that requires a large institution. And they collaborate with small independent peers to do the local, customized and specialized parts of the work. Together, they are sharing assets and processes to provide goods and services in a dramatically more efficient and often lower cost way. Each part, the corporate/institutional side, and the peer side, rely on the participation of the other to complete the service. I think of this new organizational paradigm as Peers Inc. It is ushering in a new economic model that will replace the old one because of very compelling characteristics — thus the valuations we are seeing.

Peers Inc companies grow quickly because they are leveraging each others existing assets. Just five years old, Uber operates in 128 cities worldwide. Airbnb had amassed the same number of rooms for rent in just four years that took 65 years for the Intercontinental Hotels Group, the largest hotel chain in the world. Peers Inc companies innovate quickly, and cost effectively, thanks to the diversity of the thousands of people iterating on their platforms. Peers Inc companies are enormously resource efficient in terms of physical assets, human resources, as well as financial resources because of the sharing that goes on between the parties.

What these cities, workers, and industries are feeling are the tremors of a cracking economic model. The existing regulations, taxation, insurance, social safety net, zoning regimes are all based on a status quo understanding that is crumbling. Assets, labor, data, land, buildings are no longer easily divided into the old clear-cut commercial use versus residential use, personal versus public versus private assets, work time versus leisure time, paid efforts versus free efforts. Everything is mixing up. The grey areas are getting larger.

The taxi drivers are angry, and they have a right to be. They are losing work, losing income, losing the advantage of their education, and potentially losing their jobs. Uber’s drivers aren’t playing by the same rules, aren’t using the regulatory playbook that is the result of decades (centuries?) of negotiation between drivers, company owners, and the public sector. Many of these established rules don’t make any sense. In fact, many are now nonsense. London cabbies no longer should be required to memorize the names and locations of every street given the ubiquity of wirelessly available maps and routing systems. No fare-distance metering should preclude the use of GPS simply because the applicable rule was written before GPS was invented. Obtuse rules around waiting times and the ability to flag vehicles were written specifically to exclude competition and aren’t to the public’s benefit. That all said, there are rules that absolutely do make sense: rules around vehicle and personal safety, insurance requirements, and privacy rights. Taxi drivers shouldn’t be picking a fight with Uber. Instead, their animus should be on the regulators and regulations that bind them so that they can’t compete more effectively.

Lawmakers, academics, unions, business people, the employed and unemployed alike, all need to start looking closely at the old ways of doing things, and deciding what rules we want to keep, what rights we want to protect, what futures and opportunities and innovations we’d like to see. The status quo is far from perfect, thus the ability for new ideas and new ways of doing things to take hold. The tools and the incentives to break the system are at hand and will be used.

This new way of sourcing, by using assets efficiently, is more sustainable. The new way of working provides greater agency to individuals, values their creativity, has the potential to offer the protection of diversified income streams. Based on the ingenuity of hundreds, thousands, and millions of collaborating peers, companies and governments can experiment, adapt, iterate and evolve more quickly to meet both local and global challenges. Aren’t we in fact looking for new ways of doing things given the breakdown of the old approaches? Let’s get ahead of this curve thoughtfully. Let’s figure out how we can move to a more cooperative, sustainable, and equitable form of capitalism.