key: cord-0060171-kebjvxle
authors: Gussen, Benjamen
title: Sharing in the Time of Pneumonia
date: 2020-08-19
journal: Sharing Cities 2020
DOI: 10.1007/978-981-15-8037-6_34
sha: e19a39c20f30b3258134f75d2da69fd57817d55a
doc_id: 60171
cord_uid: kebjvxle

The title of this chapter was inspired by El amor en los tiempos del cólera (Love in the Time of Cholera), a 1985 novel by Gabriel García Márquez. In the novel, even as the scythe of the Angel of Death is falling, the city rebels. I see it too in my city, Melbourne, in how it refuses to surrender to the COVID-19 pandemic. The similitude crystalizes in a common denominator between the novel, the pandemic, and the sharing economy, even beyond the city: a scale correction from sharing an economic meme and sharing a viral gene. The kernel of the sharing economy is a scale correction. In a nutshell, technology is allowing for a redistribution of wealth in society. But will that actually materialize? And if it does materialize, will such redistribution be sustainable?

Outside the city, however, there is more that is in common between the pandemic and the sharing economy. This I realized lethargically. The city is only a canvas. A town is as much of a canvas as the city, if only at a smaller scale. Rather, it is this last word, "scale," that is the common denominator, the essence of both, sharing an economic meme and sharing a viral gene. Even Michelangelo would have struggled capturing the calculus of scale that is driving sharing as an optimal modality for economic organization and the scale correction the coronavirus is tirelessly foisting on every corner of the globe. In fact, it is the last two words: "smaller scale." The pandemic has imposed a smaller scale, both on the magnitude of world population and in the physical interaction between individuals. The death rate in the United States continues to rise, at least in some states, while in some countries, God himself, figuratively speaking, would be imprisoned for a stunt like that captured in the Creazione di Adamo (The Creation of Adam). The sharing economy, its most central characteristic, is a scale correction. I should know. I've been studying the problem of scale for over a decade, and still, sometimes, I chivalrously miss how ubiquitous it is. 2 There is a characteristic scale for everything-everything that has weight. 3 Scale comes from the Hebrew word for weight, the same root for Israel's currency today. Everything that has weight is able to organize optimally only at a certain scale. The human body falls ill if it diverges from its optimal scale. So too will firms, the basic unit of organization in any given economy. During the Great Depression (1929) (1930) (1931) (1932) (1933) (1934) (1935) (1936) (1937) (1938) (1939) , using transaction costs and an assumption of constant returns to scale, Ronald Coase helped us see how the scalar calculus works in firms. 4 The size of firms is explained by the level of the transaction costs of using the price mechanism. As the level of these transaction costs goes down, so too will the size of firms.

Technology reduces characteristic scales. We saw this before with every industrial revolution. For example, the Second Industrial Revolution (1870-1914) helped advance manufacturing technology, allowing for a huge increase in the production of Henry Ford's T-Models. Put differently, firms that would be able to sustain these production levels became smaller, especially in terms of their number of employees. Today, the Third (Fourth) Industrial Revolution, 5 the Internet of Things, is brining another downward adjustment. It is this dynamic that captures the essence of the sharing economy. It is now possible to organize economic activity, almost entirely, using networks, a hybrid between markets and hierarchies that can allow for economic activity at the characteristic scale. 6 The sharing economy is a portmanteau that helps capture this scale reduction. As an entrepreneur, whether in a top-down or bottom-up environment, instead of having to put a huge outlay to start a firm, or having to hire employees to perform the economic activity you're after, technology allows you to rely directly on networks and markets, and by doing so, reduce the risk you have to bear in return for profit, or for that matter, a wider goal such as equity. 7 The classical vehicle for economic organization, the firm, is now dedicated to matching supply and demand directly, without having to internalize contracts or to have as a result additional uncertainty. 8 The downward adjustment in the characteristic scale is possible because transaction costs are reduced, as is well documented. 9 As a consequence, as argued by Coase, property rights also become irrelevant. The bedrock foundation of Western Civilization, the concept of exclusive ownership, is being discarded. Individuals relinquishing exclusive rights of possession, the general understanding of the sharing economy, follows from the reduction in transaction costs. In a nutshell, technology is reducing the optimal scale for economic organization. What follows is a redistribution of wealth in society.

The scale correction is cyclical, because we find two competing forces, two opposing sides that hold the balance of power in society. Someone like Thomas Hobbes wants to prevent the redistribution. 10 Statecraft uses legislative instruments to prevent wealth distribution in society. Scale has to be kept static, even if at a critical scale that can lead only to collapse, as, for example, was in the case of the Western Roman Empire. 11 We can already see this inertia in the context of the sharing economy. For example, we see complete bar on certain sector, like rideshare. It is a race to ensure the wealth distribution is not disturbed by scale reduction. However, there are also those who will welcome the scale reduction, because it 6 Benjamen Franklen Gussen, 'Sharing City Seoul and the Future of City Governance' in M Corrales Compagnucci et al. (eds), Legal Tech and the New Sharing Economy (Springer Nature, 2020) 21. 7 What also goes to explain why crowdsourcing is sometimes used as a synonym for the sharing economy. 8 At least in theory. You will note that companies like Airbnb have over 10,000 employees, which does not make any sense, regardless of their revenue to employee ratio. Other constraints are binding. Welfare policies and corporate responsibility are more useful in understanding this "push back" on scale reduction. 9 enhances their wealth; changes in wealth distribution plays out to their advantage. We see venture capital firms investing in sharing economy startups. The resultant, the net effect, is somewhere in between, no cancelling out of the redistribution, but to put breaks on its spread, similar to a Great Confinement approach, 12 a form of "flattening the curve." 13 History tells us, however, that there will be more technological revolutions.

I want now to look at the comeuppance imposed by the sharing economy on statecraft. 14 Because of the scale correction brought about by the sharing economy, and the increasing irrelevance of property rights, 15 the equilibrium scale for political organization is also undergoing a scale correction, both in terms of decentralization and meso-scale organization. The former manifests itself as the principle of subsidiarity while the latter in the form of city dominance as a body politic. The principle of subsidiarity allows for decentralization based on ethical and economic grounds. While each city acts in its best self-interest, ignoring the actions of other cities, there is an ethical limit, a characteristic scale, for this efficiency. Subsidiarity explains that efficiency and self-governance are not mutually exclusive and that different levels of government have fiduciary obligations toward each other, through rules of assistance, through non-interferences, and through continuously transferring competencies to lower scales of political organization. 16 The predicted dominance of cities as body politics in the world system of the twenty-first century can already be seen through the role of cities, rather than nation states, in the success of the sharing economy. The quintessential example being the Sharing City Seoul project, where the metropolitan government role was critical in revitalizing the city economy through reducing barriers to communication and cooperation between its citizens, the public sector, and the private sector. 17 As the role of cities becomes more pronounced in the current economic environment, it is inevitable that political organization will follow. The city will demand larger constitutional roles in their states, including the ability to participate in the world system directly, without the need of going through their national governments.

The sharing economy is best described as an Edgeworth economy, named after Francis Ysidro Edgeworth (1845-1926). 18 It is an economy that does not have production; goods exist; we don't care where they came from. Each consumer is endowed with a number of goods, including knowledge and skill. 19 Agents in this economy may consume their endowments or choose to engage in voluntary exchange. A pure Edgeworth economy would not have a price mechanism; there is only barter exchange. However, in the case of the sharing economy, at this juncture in its development, we will relax this assumption and allow for a price mechanism to exist. 20 As a result, there will be some transaction costs. However, relative to the classical model of economic organization, the formation of firms (platforms) and the acquisition of information are lower. The economy allows for direct contact with the vast majority of other customers to enable voluntary exchange. Gazing into the crystal ball of the twenty-first century, I would predict that the sharing economy, and a large part of the economy in general, will evolve closer and closer toward a pure Edgeworth economy. Adding production to this economy will be through exchange platforms similar to the ones that exist today, operating over networks more than over markets. It does not matter whether the consumer is an individual agent or a production firm. They will both access the economy the same way. This means that at some point we will achieve a Pareto efficient distribution that, at least asymptotically, will render gains from trade de minimis. The sharing economy is eroding the globalization tenet that dominated over the last five centuries. Autarky will emerge, especially on the scale of metropolitan cities. 21 I conclude by reiterating that the sharing economy is a microcosmos of the social, economic, and political changes that will define this century. We will see the disappearance of the too-big-to-fail firms that dominated economic organization in the last century. The average size of firms, in terms of number of employees, will continue to decrease; so too will transaction costs. Statutory intervention will focus on enabling this decrease rather than assigning liability. Cities will be the building block for a new world system that facilitates self-sufficiency and coordination between these cities without the need for nation states.

Folie et Déraison: Histoire de la folie à l'âge Classique [Madness and Unreason: History of Madness in the Classical Age

Are Countries Flattening the Curve for the Coronavirus?

Axial Shift: City Subsidiarity and the World System in the 21 st Century

Legal Tech and the New Sharing Economy (Springer Nature, 2020) 21. The Internet of Things is shifting the focus of legal intervention from assigning liability to facilitating the emergence of an Edgeworth economy

Australian Constitutionalism between Subsidiarity and Federalism

An economic model for constitutional designs: from nation-states to an 'Olympic world system

On the Problem of Scale: A General Theory of Morphogenesis and Normative Policy Signals for Economic Evolution

if not all, of the case studies in Part II of this monograph attest to the essential role of cities in organizing economic activity

The Growth of Economic Thought

Knowledge as an economic good: Exhaustibility versus appropriability

As the reader will see in this monograph, the sharing economy helps in the creation of alternative currencies. See, for example, the ZeroZero recycling project from Taiwan

The Economy of Cities (Random House

Cities and the Wealth of Nations (Random House