Collaborative Consumption Is Causing Creative Destruction!

Back in 1942, economist Joseph Schumpeter said creative destruction is the way of the free market. It’s messy but as an entry in The Concise Encyclopedia of Economics explained:

“Lost jobs, ruined companies, and vanishing industries are inherent parts of the growth system. The saving grace comes from recognising the good that comes from the turmoil. Over time, societies that allow creative destruction to operate grow more productive and richer; their citizens see the benefits of new and better products, shorter work weeks, better jobs, and higher living standards. Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever.”

At first, the collaborative or sharing economy was thought to be a response to the Great Recession. Some people needed to reduce costs and others needed to make money, so they found ways to use resources more efficiently by making the most of available time and assets. This is affecting companies in a variety of industries:

  • Transportation: Ride-sharing apps connect people who want rides with people who are willing to use their personal cars to provide rides. These apps are taking money out of the pockets of cab companies.
  • Hotels: You can reduce travel costs by renting someone’s spare bedroom, castle, or villa through an online community marketplace. The downside, according to one study in Texas, is traditional hotels have lost revenue as these communities have gained popularity.
  • Finance: When banks and traditional lenders made borrowing a challenge, peer-to-peer lending and crowdfunding platforms provided individuals and entrepreneurs with a new way to source capital. A report from the Cleveland Fed found, “Since the second quarter of 2007, the total amount of money lent through bank-originated consumer-finance loans has been declining on average 2 percent per quarter… Meanwhile peer-to-peer lending has been growing rapidly at an average pace of 84 percent a quarter.”

Whether you want to provide or consume goods or services – cooking meals or eating them, running errands or having them run, hosting a pet or leaving one behind while you’re on holiday – there is probably someone out there who is willing to share their resources.

 
 
 

Lexington Wealth Management