I’ve been thinking about a talk Mike Munger gave yesterday at KCL on the emergence of the sharing economy. He claims that the Sharing Economy will be a revolution as transformative as the Neolithic and Industrial Revolutions. 

I think this claim is bold; he calls it grandiose. But the Sharing Economy is definitely going to be a huge deal: software applications may eventually allow us to dispense with having to actually own pretty much everything other than the mini-computer you carry around in your pocket (quaintly still referred to as “phones”). Why own a car when a taxi (soon to be driverless) can be cheaply called up in seconds? Why own a drill you may use once a year when it might arrive by drone in a matter of seconds?

We’ve already seen the beginning of this with companies like Uber for taxis, AirBnB for hotels, BlaBlaCar for hitch-hiking. What I found most interesting was Munger’s emphasis on this software’s ability to reduce transaction costs, rather than actually selling anything. Uber isn’t a taxi company; it is a market. It provides a trust-based platform made up of assurances and ratings in order to let anyone ask “Can I have a ride? / Want a ride?” without sounding creepy.

But I have a problem with Munger’s comparison with the Industrial Revolution. The Industrial Revolution was the invention of invention. It placed first the British and then other economies on a sustained ~1-2% annual growth rate. Things had been invented before, but the rate at which they were invented increased markedly, and has never stopped since.

The Sharing Economy, on the other hand, at most provides us with a one-off jump in economic growth. There is only so much stuff that you can transfer from owning to renting. There are only so many spare rooms you can list on AirBnB before you need to build more. 

Now, this “level effect” could be HUGE; on par with the other major social and organisational innovations like specialisation in villages, towns, cities and between cities (associated with the Neolithic Revolution and the growth of commerce); and increased division of labour in factories (associated with the Industrial Revolution).

All of these were enabled chiefly by new inventions: agriculture for the Neolithic, and mechanisation for the Industrial. This strengthens Munger’s case for analysing the changes as causing reductions in transaction costs. After all, there had already been division of labour under the pre-Industrial putting-out system of cotton spinning: the man of the family worked the lomb, his wife span the thread, and the kids carded the raw cotton. But new technology allowed it to be exploited to an unprecedented degree.

The Sharing Revolution is just the same. As Marc Andreessen puts it, “software is eating the world”. The social, transaction costs-reducing innovations are as a result of prior technological advances to computing and telecommunications. Renting and sharing, after all, are hardly new, but can now be used to an extraordinary and increasing degree. They will be enabled still further by robotisation: humans can be transported more cheaply by self-driving cars, and things may end up being delivered more efficiently by drone.  The Sharing Economy is thus the culmination of various General-Purpose Technologies, and the magnitude to which it will be exploited will place it on par with specialisation and the division of labour. 

But unless you can show that it will substantially increase the underlying, trend rate at which technology is developed, it is not on par with the sustained acceleration of innovation across all industries, the invention of modern economic growth, the economic historian’s Great Fact: the Industrial Revolution.