Collaborative economy — Demand

 Collaborative economy brings many novelties to the understandings of economic processes, but the most captivating one is the way it addresses demand. Its implementation of demand is called collaborative consumption and it’s backed up by the idea that people need the function not the item, the service not the product. This makes collaborative consumption very close to the concept of product as a service, which can be found in almost every platform that constitute the collaborative economy’s context. This new concept seriously diverge from the current mainstream views of demand.Demand by definition is “an economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service”. The divergence that was introduced by collaborative economy on how demand operates in practice will surely have to question certain parts of the demand definition as well. And what would those parts be?

The supply end of the lever is called mass production and is fueled by capital and innovations and its demand counterpart part is called consumerism and is fueled by social psychology. The shift away from consumerism is what makes collaborative consumption compelling.

Today’s economy resides heavily on demand maybe even more than it is dependent on supply. The supply end of the lever is called mass production and is fueled by capital and innovations and the corresponding demand counterpart part is called consumerism and is fueled mostly by social psychology. The equilibrium needed to match these two segments is the challenge that economist try to solve. Going back through history we can find the reason behind this constellation and we can detect how the demand definition was established and what brought us here, as an economy and as a society.

Consumerism was the cure for the Great Depression. The industrial boost of supply needed a match in demand.

Consumerism.

If we go back through history looking for the roots of consumerism, we’ll find it in an age which is defined and shaped by the second industrial revolution in the early 20th century and like any industrial revolution or technological uplift the second one brought improvement in production, innovating new ways and improving the old ones. Capital and labor got redefined, economic inequality increased while mass production was made possible and became a standard.

“Consumerism as a social and economic order and ideology encourages the acquisition of goods and services in ever-increasing amounts.”

What needs to follow this trend of increasing supply in order to be justified and profitable? Obviously an increased demand. 
So the logical thing to expect is for the industry to encourage consuming in order to feed itself and demand being the only segment of the economic process that is strictly tight to human behavior, this encouragement had to influence individuals and their decision making.So how can one be encouraged or even be enforced to consume? 
How can humans be influenced and persuaded to behave in a certain way, but at the same time making these encouragements, enforcement, influences and persuasions subtle and looked upon as normal and as a free choice?
According to the social psychologists, social interactions and societies can very much influence people’s behavior. Societies define what’s normal and what is expected from people, societies influence individuals by setting up the norms of behavior, the ways of measuring and defining success, what is acceptable and what is not and can even influence and channelize people’s urges and desires.How can societies be influenced and by whom? The logical answer to this question would be, by the same institutions that constitute the current socio-economic establishment: governments, corporations, banks and educational institutions.
Governments influence societies by enforcing politics, industry by shaping the products, advertisers by setting the trends and educational institutions by scientifically confirming the trends and their benefits. So the question is, is consumerism normal, natural, authentic and genuine for humans or is it shaped by laws, economy, industry and advertising? In that early 20th century the supply was there and demand had to follow up. Its hard to believe it followed up unconsciously and instinctively.

Planned obsolescence, obsolescence of functionality and obsolescence of desirability as ways of boosting demand.

The phrase planned obsolescence first occurred in Bernard London’s pamphlet “Ending the Depression through Planned Obsolescence” (1932). The concept behind this idea was putting tax on the items that exceed the duration time in which the items were planned to be functional. The sole purpose of this taxation was to make people consume more (tax would enforce people to throw old items and buy new) which would boost production, employment and the whole economy, as a solution for the Great Depression (1929–1939). The concept of planned obsolesce was implemented by the US auto industry by tweaking the durability of their products. It lastedtill the 70’s (some of the authors point to the auto industry as the first ever to coin the term planned obsolescence in the 20’s) when Japanese auto companies started producing durable cars and took over the market from the American’s “planned obsolescence” driven car industry. 
In his book “The waste makers”, Vance Packard(1960) distincts two types of obsolescence: obsolescence of functionality and obsolescence of desirability. We saw the implementation of the former by the US auto industry. The latter is what the advertisers are using to support the industries in increasing their selling and profit. Obsolescence of desirability is what Apple uses for selling their new iPhones, convincing people that they are in need of new phones even though the old ones are still functional. Apple steers up people’s desire by making the old phones obsolete i.e not desired any more.

Human and crowd psychology used as means boosting demand.

All the steering up of desirability has its origins at about the same time as the idea of functional obsolescence, at the eve of the second industrial revolution, somewhere around the Great Depression. It was introduced by Edward Bernays, the father of modern PR and marketing who spent his whole life studying and implementing mass control using his uncle’s (Sigmund Freud) knowledge of human psychology and the Wilfred Trotter’s researches on crowd psychology. He worked for politicians and corporations as a campaign manager in charge of public relations and is considered to be one of the most influential people of the 20th century. After all, he found a way to save the world’s economy by boosting desire and demand, as a way of keeping up with the industrial mass production. All these people and events point to the fact that desire driven-crowd controlled behaviors can be and are manipulated directly and implicitly by the industry and corporations, using different channels to reach the society and people.

If desire has been shaped and influenced in order for consumerism to prevail then it can be shaped back, or even pushed in the other direction if certain incentives and circumstances are met.

If we go back to the definition of demand we will find desire as a cornerstone of the definition-“economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service”. The question is, is it a stone found in the nature or was it manipulated, inflated, amplified and shaped to be a cornerstone by the industry and the mainstream entities such as governments, corporations, banks and educational institution . If it is shaped and influenced it means it can be influenced back if logical and useful reasons are put on the table.

Collaborative consumption.

Collaborative consumption came as a people’s reaction to the economic crisisin 2007–2009. It emerged as a way of optimizing expenses and amortizing the consequences of the crisis. Meanwhile it got the support from the ICT sector, got wider audience and shaped itself by it. It was no longer a way of amortizing the consequences, but a way of reallocating resources and get more value out of it in the everyday life. Having its roots as a necessity, made the collaborative consumption more tightly connected with people’s needs than it did with people’s desires. This is the fundamental difference between collaborative consumption and consumerism. This is the divergence that collaborative consumption brought to the demand and to the definition of demand which emphasized the desire of the consumers.

The 5R’s — Reduce, Reuse, Recycle, Redistribute and Repair.

Being different at its core,consumerism and collaborative consumption have completely different paths in which they grow and touch societies. While consumerism propagate ownership and possession, collaborative consumption implements product as service and focus on the 5R’s- reduce, reuse, recycle, redistribute and repair(Botsman). All of these five stages require considerably different conduct than going to the mall and buy а substitute, it states 5 stages in which the life of products is extended. The trajectory of people and items have unlike paths than the ones before.“Product as a service”(also known as function-oriented business mode) is a concept that supplements the 5R’s. Looking at the division Tacker (Eight types of product–service system: eight ways to sustainability? Experiences from SusProNet, 2004) made on “product as a service” concept we can find implementation in the collaborative economy for all of them: Product lease, Product renting or sharing, Product pooling and Pay-per-service unit. These all read access over possession, functionality over product, need over desire, the total opposite of the obsolescence and desire driven consumerism.

 

 Sharing assets and experiences might look marginal and unimportant put in a context of mass production, globalization, consumer driven economies and profit, but it goes hand in hand with peoples needs, concerns and well being. It works on individual level and its impact on the societies is conditioned by the awareness of the masses and its mainstream breakthrough.

Social psychology.

Many of the services that are part of the collaborative economy have socializing as a collateral in their functioning. Sharing a ride, sharing an apartment, sharing a meal, involvement in micro financing and P2P lending, involvement in bartering etc. all of these have inter-human relations, real physical communication and a sense of belonging as part of the process. The social capital these interactions generate has positive impact on building communities and raising the awareness for the common good. Consumerism, individualism, selfishness and competition promoted by capitalism and by the mainstream theory through the concept of homo economicus have totally different effect on human interactions. It puts socialization and belonging aside leaving people estranged and asocial. If we look at the Maslow hierarchy of needs we’ll see that consumerism and human nature actually have very little in common. 

 Capitalism plays the card of deficiency in acquiring these needs and by dictating the social standards by which these needs are measured it succeeds in inflating selfishness, desire and competition. These values are opposite from trust, sharing, social involvement, cooperation etc., the values that collaborative economy and collaborative consumption advocate and which can be found in the pyramid.

Sharing effects comfort.

Maybe the most impressive part of the collaborative economy and collaborative consumption is people willingness to give away part of their comfort, the one that raises from routines, and can be lost in the unknown and in the socially unacceptable. At first it was due to survival instinct and necessity, but it became normal and found wider implementation. The trend is denouncing comfort for experience. Luxury and comfort became substituted by accessibility and affordability. The money/comfort ratio has been put on the table and more and more people reconsidered the immunity of possession, ownership and comfort on behalf of sharing, experience and social interactions. This trend could redefine numerous social norms and perceptions and would be propagated from the individuals and groups toward the mainstream and not other way around as it was the case before.

More consumers which consume less and consume differently.

Economy.

When Airbnb first came to San Francisco, the hotel industry demanded from the mayor to intervene on this new emergence as their business got threatened by it. The mayor’s answer was that maybe the hotel industry will suffer a bit, but the overall SF economy will thrive, more tourists will come and they’ll spend more money in the city. This example pretty much depicts the consumer aspect of the collaborative economy. It allows people to optimize their spending and get more value, more experience and more diversity out of it. And not only did people reallocate their money, but also new type of consumers emerged out of it, the ones that didn’t have a chance to involve themselves in economic activities because of the monopolized supply which lead to higher prices. The legendary battle between the music industry and file sharing is also an interesting example of how industries were forced to move forward by people’s habits and the new types of consuming. And not only that, lots of researches that were made on this subject showed that piracy introduced new consumers to the industry( Oberholzer, F. & Strumpf, K. (2004), “The Effect of File Sharing on Record Sales An Empirical Analysis”). The prices fell, but the tail of consumers got longer. For old consumers it meant cheaper products and for the new ones, new experiences. 
Social capital gained from these occurrences is another benefit for the individuals which eventually can lead to future monetization not only as a money value but as an opportunities which can arise from networking.
Maybe the general economy did lose on money turnover but it gained more consumers, more open knowledge and more distinctive ways of value that can be implicitly harvested throughout future developments and utilization. This is observed from the individual’s, society’s and the social well being perspective and not from the perspective of the industry which are two separate things.

Environment.

5R’s are an extension of the 3R’s used by the environmentalist in the waste management(see below) process which includes reduce, reuse and recycle. 

 Collaborative consumption has added 2 more — redistribute and repair. The common convergence that collaborative consumption and environment have is totally opposite of effect of the consumerism on the environment. The emerging problems that humanity has with pollution, scarce resources, finite options and sustainability makes the collaborative consumption more preferable concept over consumerism. 

 This trend of collaborative and sustainable consumption has been adopted by some industries and governments. The industrial counterpart of the collaborative consumption is called circular economy. Circular economy is a production process which produces zero waste and pollution, almost like a symbioticself sufficient organism. The process itself consumes and recycles its own waste. This environmental trend has also been supported by many governments which propagate recycling and encourage production and use of reusable energy among their citizens. Households recycling is the perfect example of the money/comfort ratio which has a great impact on the environment (it takes just 1 minute per day to be environmental friendly and earn by responsible consuming). The 5R’s are widely accepted not only as part of individual behavior but as a general tendency to which more and more socio-economic entities incline.Gainers.
If equilibrium can be reached between lower demand and social well being,then the fact that old industries lose profit and individuals got access to assets will affect the inequality issue that persists in the western world . Societieswill also gain through less polluted environment and from more educated and socially aware citizens. The governments should help the transitions that will inevitably occur. Individuals will have access to more assets and experiences have their living costs shrunk. New jobs can be created in the process of repairing and recycling.Disrupted.
Disrupted are the old industries that make profit by mass producing and go by the economy of scale. The old western markets that have adopted the collaborative economy will certainly demand less which is why the emerging economies are viewed as their substitutes and as an alternative and in the more recent future even as a primary markets. Having in mind that the production is commonly outsourced and company headquarters are in tax heavens its questionable if employment or general economic parameters in the western countries will be negatively impacted by the trend. If so, it’s governments duty to address this outcome by educating and re-qualifying the people concerned. Its more possible that the emerging countries where the production capacities are, to be more exposed to this concerns. Making the emerging countries both main consumers and main labor affected entities will put pressure on their economies.

1. the evolution of collaborative economy;
2. supply, trade and demand aspects of the collaborative economy;
3. the future effects collaborative economy will have on world economic processes;
4. philosophical and economical concepts that can be perfectly mapped to the settings of collaborative economy;