THE BLOG
04/16/2014 09:05 am ET | Updated Apr 16, 2014

The Zero Marginal Cost Society: Unlocking Wealth & Cities Too, But Beware the Regulatory Wrinkles

The possibility of an economy based on "nearly free and shareable" goods and services is closer to reality than many, if not most, people can fathom. The concept of a zero marginal cost society is not only plausible, but in some cases already well underway. The collaborative economy is revealing new examples of how this is possible every day.

Unlocking Wealth in the Collaborative Economy

Historically, Big Corporations and intermediaries added layer upon layer to the marginal cost equation. The cost of the product itself was a fraction of the purchase price. Financial profit margins could soar, and it was difficult for an individual to protest or find alternatives (other than forego the purchase altogether).

Today, the collaborative economy has arrived, and it is allowing (if not forcing) us to rethink almost everything we do. It's redefining consumption, production, finance and learning through "access over ownership" and decentralized models which enable networks of individuals to transform how we create and exchange value. From Airbnb to Kickstarter and TechShop to TaskRabbit, it's disrupting sector after sector. And yet, we see only the tip of the iceberg is visible.

Business models in the collaborative economy promote more efficient utilization of resources. A key concept is idling capacity: untapped value in underutilized assets. (This means anything in a home, city, business or supply chain that's sitting idle or empty. As you may have guessed, there's a lot of it, and it's everywhere.) When we share rather than own assets, and increase their productive utility, in effect we are unlocking wealth that was there all along -- but was invisible to us before. Assets with both high cost and low frequency of use have particularly high "shareable value" in the Collaborative Commons.

When we unlock wealth by sharing, we reap layers of benefits. At the most basic level, we save money: it costs less to share rather than own. We can either do more with the extra money in our pocketbook, or we need less money to live an equally "rich" life. Whichever scenario one prefers, the results are the same: we edge closer to zero marginal cost and boost our own resilience. We can also generate income, reduce our environmental impact, and build more collaborative lifestyles. However, traditional measures of growth like GDP miss a lot of this value -- which poses a very real challenge to framing new economic policies.

The Next Frontier: Shareable Cities

Companies, entrepreneurs, investors and others in the private sector are leading efforts to grow the collaborative economy. By and large the public sector has played a minor, often reactive (and at times contentious) role. This is a tragedy, because not only can the public sector benefit from the collaborative economy -- indeed, cities may be the single largest beneficiary of platforms that enable sustainable consumption -- but also policy makers are key links to creating an effective regulatory environment for these platforms to thrive.

Imagine a world of Shareable Cities: places where sharing assets is encouraged and easy. Cities where residents can efficiently share all kinds of assets -- from spaces to cars, skills, time, and even utilities -- and local government works to make these exchanges as safe and frictionless as possible. For city leaders, this is a fresh way to boost the local economy, build social fabric and create a more efficient use of resources. A civic trifecta.

Hyper-Local Solutions, Global Relevance

Although the terms Collaborative Economy, Collaborative Commons and shareability aren't yet in everyday use in local governments, many cities are actively diving in. They are attracted by the possibilities of new technologies for sustainable urban planning, enhanced quality of life and civic innovation.

For example, the city of Seoul, South Korea has launched a comprehensive Sharing City initiative including legislation, investment, company incubation, and support of a range of neighborhood-led sharing initiatives such as lending libraries and skills exchanges. Through this process, the municipal government is lowering the marginal cost of a range of activities (consumption, production, finance, learning) at both household and community levels.

Recently Airbnb announced its Shared City initiative and inaugural partnership with the city of Portland, Oregon. This shows the potential for innovative companies -- many of whom are driving the zero-cost revolution -- to amplify the public benefits of their efforts. Other cities, from Amsterdam to Austin to Adelaide, are also trying to better understand the collaborative economy and taking steps to integrate it into their planning strategy.

But Beware the Regulatory Wrinkles

Cities that understand the forces behind the collaborative economy and can boldly embrace new models of value creation (at little of no cost) will be global role models in the years to come. However, it's far from clear that policy makers are keen to make that happen, and this may be the single most serious challenge to the zero marginal cost thesis.

Today's policy and regulatory environment for the collaborative economy is outdated. Most of the rules in place were drafted before these new platforms and companies existed, and in many cases before the Internet. This is not a surprise: policy is typically a lagging indicator. However, the pace of technological innovation today means that the gap between market reality and legality has become increasingly distorted.

One example from a recent trip to Greece highlights this bottleneck. Tourism is an essential pillar of the Greek economy. It is responsible for nearly 20 percent of the country's GDP. Moreover, 82 percent of Greece's 3.3 million households own their homes. Many of these homeowners would like to earn income by offering short-term accommodation through platforms such as Airbnb. If even a fraction of these households did this occasionally, it would bring tens of millions of euros to the Greek economy -- at a time when it's direly needed.

However, the regulatory hurdles to doing this legally are mind-boggling. There are no fewer than eleven different 'certifications' required simply to get the permit to pay tax. Without the permit, it is impossible to pay tax (ironic, given widespread formal tax evasion). And the penalty for non-compliance is among the highest anywhere: 50,000 euros, which is more than triple the average annual income of a Greek family ($20,440 or 14,820 euros). Instead of boosting local economic investment, local policies and regulations may bankrupt the very same people upon whom economic recovery depends.

Although the Greek example may be extreme, it is reflective of the same anachronistic policy regimes found around the world. It also underscores the urgency of building the capacity of policy makers to understand the power of these new models -- and inviting them into the Collaborative Commons as peers. Charting a more sustainable future can't wait.

April Rinne is Chief Strategy Officer of Collaborative Lab.

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