Uberization- GDP Accretive or Destructive?
Does sharing economy like Uber negatively impact GDP and job creation? I had discussed the issue with my friend Aditya over a year back, but it slipped my mind until recently when Nirmala Sitharaman blamed Uber for the decline in the sales of cars. I am not an economics expert and my only knowledge of economics is through casual reading and courses during MBA. So I will be happy to get the thoughts of the experts and any other perspectives.
So in my opinion, the sharing economy would have an adverse impact on GDP. Now if the impact is detrimental to society is a moot question, because I don’t think GDP is the only measure to gauge the success of society. Uberization (the fancy word for sharing economy) impacts the GDP because capitalist society is based on consumerism and wastage and Uberization makes it efficient. Let me explain how.
Let’s continue with the example of cars. In a developed society, everyone is expected to have a car. So everyone will ‘own’ the car, but will use it only for say 2 hours of day assuming 1 hour of a daily commute. So for the remaining time, it is not being used and the utilization of car is only 2/24 of the day or 8%. But since everyone is buying cars, car sales are high and hence, there is a knock-on effect with the creation of jobs and increasing the GDP. In an economy like India, there are additional jobs created as drivers, who also effectively drive only during commute and get paid for the full day.
Now Uber is making this whole process efficient in a number of ways. First of all, there is a carpooling element so we no longer need 100 cars owned by 100 people. Secondly, the same car is being ‘re-used’ for multiple commutes. The car being used by a person commuting from A to B from 8 am to 9 am will also be used by the person commuting from B to A at 9 am. So effectively the number of cars required by 100 people will no longer be 100, but much lower. So this will impact car sales and also the GDP with knock-on effects. Even the jobs could be impacted as we no longer need 100 drivers (in societies like India). There will be new jobs as Uber drivers, but it will be much lower than the 100 drivers which car economy required earlier. Similarly, there will be an addition in GDP due to Uber ride charges (which did not exist earlier). But will it compensate for the loss in GDP due to the purchase of the low utilized cars?
One can argue that with Uber, the overall ridership increases because of convenience and the pie will expand. But the commuting and traveling are unlikely to increase to compensate for the loss of rides in my opinion as time is the ultimate constraint.
We have seen similar examples earlier. One of the recent ones is digital music. Remember, we used to buy CDs and cassettes of our favourite songs. Though we liked only 2–3 tracks from the album, we were forced to buy the entire album as there was no other option. We were effectively wasting the rest of the tracks. With Apple Music individual track purchase became possible and this ‘wastage’ was reduced. Then came the streaming services. Since we do not play the song ‘all the time’, we are effectively using the song inefficiently. With streaming services, we could ‘rent’ the song only when we want (just like renting Uber) and hence the efficiency is further improved. So we are listening to music efficiently and it has enormously impacted the revenues of the industry as can be seen in the chart below.
Will the car industry face similar issues due to Uberization? Are there any other industries that will face similar threats due to sharing? With millennials’ propensity to low ownership, there could be more such industries, which are poised for disruption. How will it impact job creation? Something to ponder about.
PS: I think it is important to distinguish ‘sharing’ from ‘renting’. By sharing we are making the process efficient requiring fewer resources to be consumed. Renting, on the other hand, shows only the nature of the financial transactions. So everyone renting a car instead of buying will not have such a negative impact on GDP; only the nature of GDP may change. PS
PS2: Thanks Hrisheekesh Sabnis for suggesting the title!