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Conference Collections features content developed from CFA Institute conference sessions and is a replacement for our Conference Proceedings Quarterly series, which has been retired.

This edition of Conference Collections features a presentation by Arun Sundararajan, "The Sharing Economy and Crowd-Based Capitalism: How Digital Technologies Transform Business, Government, and Society" from the 2017 CFA Institute Annual Conference.

Content from this session includes a blog post, a webcast of the presentation, key takeaways from this session, and a transcript of the presentation. This collection of products is eligible for 1 continuing education (CE) credit.

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The Sharing Economy and Crowd-Based Capitalism: How Digital Technologies Transform Business, Government, and Society

ARUN SUNDARARAJAN: I’ve been a professor at NYU for many years. Throughout that time my interest has been in how digital technologies change things. About six years ago I started to notice a particular kind of change that digital technology was engendering that was different from what I had observed in the past. And at the turn of the century, we saw the digitization of music, of news, of books, of video, and there was an association between digital disruption and the digital industries.

We knew that digital technology was going to change or was changing the business models of products that could be removed from a physical artifact and converted into pure digital goods. But what I started seeing in 2011 was a digital disruption of industries that were very decidedly physical, very decidedly real world. A couple of years later, the term “sharing economy” started to get popular as a label for these changes or these new business models that were emerging.

I wrote a book about this a couple of years ago. I’m happy to see people around the world reading the book. Well, I don’t actually know if they’re reading the book; I’m happy to see people around the world buying the book. You know, they’re buying it in physical form, so we can’t even monitor it with reading it.

I think that there’s a huge opportunity for platforms to start to peel off some of the best talent by returning them a much larger fraction of the value that they create, while maintaining large corporate relationships so that you’re not sort of stymied in the same way that you are if you’re running your own tiny business and doing your own individual, small business marketing. So, you get the best of both worlds while retaining a large enough fraction of the earnings that you get relative to if you’re a full-time employee. So, professional services platforms, health care, energy. And, if you have an appetite for risk, on-demand transportation is going to keep going.

ALISON GRISWOLD: All right, well that is our time. So thank you to our live audience for joining us this session.

ARUN SUNDARARAJAN: Thank you.

ALISON GRISWOLD: Please tune in to the rest of the Virtual Link.

[APPLAUSE]

The Sharing Economy and the Evolution of Crowd-Based Capitalism

Key Takeaways

  1. Unlike 19th and early 20th century evolutions, today’s technological shifts are steering us away from managerial capitalism and towards a more crowd-based iteration.
  2. Trust is the common denominator in crowdsourcing platforms, such as Funding Circle, Lyft, and Airbnb. Though the sharing economy evolved out of the digital revolution, trust lies at the heart of the model. And our concept of trust is evolving with the technology.
  3. Sundararajan says that today trust now develops from “digital cues” — online information about individuals and organizations that we process and interpret to determine with whom to associate. Sundararajan identifies a number of digital cues that include government, third-party, or brand certification; reviews of Facebook and LinkedIn profiles; and digital peer feedback through sites like Yelp, among others.

Technological advances are reshaping our jobs and the nature of work. How will the global economic system evolve? What will the future of work look like?

Arun Sundararajan addressed these questions at the 70th CFA Institute Annual Conference, highlighting his findings on how technology is transforming the labor force and business organizations. His talk, “The Sharing Economy and Crowd-Based Capitalism: How Digital Technologies Transform Business, Government, and Society,” was based on his book The Sharing Economy.

As an observer of digital disruption, Sundararajan noticed in 2011 “a particular kind of change that technology was engendering.” Unlike 19th and early 20th century evolutions, today’s technological shifts are steering us away from managerial capitalism and towards what many see as a more crowdbased iteration, Sundararajan said. Traditional hierarchical organizations and large, well-staffed companies that create goods and services are in decline. An alternative model is ascendant, one in which products are distributed not by a firm, but by a heterogeneous crowd. This economic structure blurs the lines between the personal and professional and between casual labor and full-time work.

Take Funding Circle, for example. Funding Circle provides small business loans. But the capital is crowdsourced. Often as many as 200 people fund one loan, with some parties offering as little as £20 in exchange for a return.

Ride sharing further demonstrates this trend. Drivers for companies like Uber and Lyft use their personal cars to chauffeur customers in exchange for fees. The largest ride-sharing company in the world — China-based Didi Chuxing — provides 20 million rides a day. With BlaBlaCar, a French firm that has gone global, drivers sell extra seats in their vehicles when they go on trips. On a single day, five times as many people travel by BlaBlaCar than Eurostar, the European rail system linking France, Belgium, and the United Kingdom, according to Sundararajan. Without any investment in concrete or steel, BlaBlaCar has developed the capacity of a multinational rail network.

Other areas of the economy are being transformed. Through Airbnb, patrons convert their homes into short-stay rental properties. Professionals can hang out their virtual shingles on websites like Of Counsel, where attorneys offer legal services in a consulting type structure. Other crowd-based platforms even lend out clothing. And crowdsourcing may soon transform the energy sector, allowing individuals to purchase — and sell — locally produced solar energy.

The common denominator in all these platforms is trust. Though the sharing economy evolved out of the digital revolution, trust lies at the heart of the model. And our concept of trust is evolving with the technology. How and why, in this new economic structure, do people place their faith in strangers and climb into their cars, even their clothes?

Based on his research into these questions, Sundararajan believes “when we understand the evolution of trust we understand the evolution of business.” Rather than conventional handshakes and signatures, Sundararajan says that today trust now develops from “digital cues” — online information about individuals and organizations that we process and interpret to determine with whom to associate. Sundararajan identifies a number of digital cues that help us gather enough online information to inform our decisions on who to trust. These include government, third-party, or brand certification; reviews of Facebook and LinkedIn profiles; and digital peer feedback through sites like Yelp, among others.

How will crowd-based capitalism transform business economics? Sundararajan believes these models lead to higher economic growth and more variety in products and services, which in turn spur greater consumption. They constitute a new way of organizing economic activity, he says, and the model has expanded over the last five years and will continue to do so.

But Sundararajan emphasized that we are creating and funding a new social contract and will need new government regulatory frameworks. How insurance and other issues of stability will be worked into this new model has to be considered. Sundararajan expects more regulation rather than less and says that new regulatory entities will need to be created. He recommends that governments partner with the new sharing companies when possible. In fact, governments have delegated some responsibilities to the platforms. For example, Airbnb has been working with authorities in the United States to gather and provide data for th+H5e government.

Given the changes wrought by the sharing economy, people need to rethink their work arrangements, Sundararajan asserts. Why? Because the concept of work as labor in exchange for salary is on the wane. The sharing economy is on the ascent, and those who do not adapt to the new reality may pay the price. Or not be paid at all.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Speaker(s)

Arun Sundararajan

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Alison Griswold

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About the Author(s)

Cheryl L. Evans

Cheryl L. Evans, J.D., LL.M., is a director in Educational Events and Programs at CFA Institute. She has also served on the Future of Finance team and was a senior investigator in the Professional Conduct Program at CFA Institute. Prior to joining CFA Institute, she held various legal positions, including: Senior Counsel at the U.S. Securities and Exchange Commission; Trial Attorney at the U.S. Department of Justice; and Special Assistant U.S. Attorney in the Eastern District of Virginia, handling criminal matters, among others positions. She holds Bachelor of Arts, Juris Doctor, and Master of Laws degrees.