Sharing or Stagnating?

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Sci-Hub continues to make waves, but it really represents a trend that’s hidden in the modern economy — some call it the “sharing economy.” Sci-Hub merely represents an extreme — sharing for no payment.

A recent article in BusinessWeek about Larry Summers’ economic alarms shined a spotlight on a deeper problem within the sharing economy, even that part generating revenues for its participants. In this case, we’re talking about familiar entities such as Airbnb, Uber, and Spotify. These and other of their ilk are weak economic participants for two reasons — they use existing infrastructure (homes and apartments, cars, and wi-fi/music/devices), and they mainly work through software. As Peter Coy writes in BusinessWeek:

. . . the new economy is asset-lite: Companies such as Uber and Airbnb prosper by exploiting assets (cars and houses) that already exist. Software, which is pure information and doesn’t require the construction of factories, accounts for a bigger share of the economy.

The snowball effect is that executives see little upside for big capital-spending projects (new factories, for instance), and keep their money in financial instruments and out of the working economy, further slowing growth. 

In music, the slowdown is made clear with studies showing that artists make more from vinyl sales than from digital sales. Software also allows for a lot of content leakage, and companies like Google/YouTube aren’t motivated to stop this, as another story illustrates

In scholarly publishing, the value contribution in the UK alone is worth £4.4 billion. This includes jobs for parents, careers for professionals, and payments to academic institutions. Sci-Hub puts these contributions at risk, but on a scale which goes far beyond the UK alone. 

Making new things is vital to economic growth. By siphoning off revenues from artists, from publishers, from industries, from hotels, and so forth, we are taking the “low price” economy another notch down on our 40-year-long race to the bottom, a race that has left wages flat for 30 years in the US and led to the painful (and continuing) saga of 2007/08. As Summers argues compellingly, the only way out of this trap is to make major investments in new infrastructure — roads, bridges, buildings, transportation systems — while changing laws to counteract the consolidation of wealth among relatively few firms and individuals.

The recent news that one-third of cash in the US is held by five tech companies (Apple, Alphabet, Microsoft, Oracle, and Cisco) underscores the stagnation of technology — there is not enough to make for these companies to reinvest at high levels, so they sit on their cash. This is confirmed by their desire to stash nearly $1.2 trillion in earnings overseas, to avoid paying taxes — if there were investments in research and development that would generate profits sufficient to justify repatriating the money, they’d do it.

That’s the ultimate irony of the sharing economy — we’re sharing what our forebears put in place (homes, infrastructure, the auto industry, the music industry) using software from companies who take our money, then hide it away. No wonder we’re stagnating — the sharing stops there.

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