Operating primarily in urban environments, firms in the sharing economy have been undergoing a bumpy ride as the sector begins to move out of the infancy phase. One of the big areas of learning is around trust and how to create it in a cost effective manner. Wired magazine gives a nice historical summary of how the public and private sector have collaborated to establish trust since the beginning of the Industrial Revolution, a time of significant migration to cities.
Before that time, Americans tended to cluster in small towns and farming communities, where citizens built tight-knit relationships over the course of many years. In an economic system like that, where everybody knows everybody else, there’s a natural incentive to treat people well: Get a bad reputation and the whole town will know about it. On a broader level, the members of these small, homogeneous communities knew that their neighbors probably saw the world in the same way they did, holding the same morals and belief systems, which made it easier to conduct business with them.
That all started to change around the mid–19th century. As Americans moved from small towns to big cities, small merchants were replaced by large corporations, and local markets gave way to national distributors. Suddenly people couldn’t rely on interpersonal relationships or cultural norms to safeguard their transactions; they didn’t know, and often never even met, the people they were doing business with. The result, UCLA sociologist Lynne Zucker has argued, was the destruction of the trust that had sustained the US economy up until that point.
In the ensuing years, formal systems sprang up as proxies for the trust that citizens had lost in one another. The decades between 1870 and 1920 saw the explosion of the “social overhead capital sector”—industries like banking, insurance, and legal services that established rules and backstops for the new business environment. Meanwhile, a slate of government regulations helped establish the rules that this new breed of corporations had to follow. “Through institutionalizing socially created mechanisms for producing trust,” Zucker writes, “the economic order was gradually reconstructed.” The casual, intimate, interpersonal form of trust was replaced by a centralized system of codified safeguards.
But the problem with institutionalized trust is that it can be, in tech industry parlance, a high-friction affair.
Today, the efforts of firms in the sharing economy to eliminate bad actors have been aided by technologies that pour through collected marketplace data. Other trends include outsourcing insurance through trust and safety surcharges; however, that doesn't go far enough. Many of these firms have found that face-to-face interactions (real or virtual) are also very important for successful outcomes. In a sense, trust by way of traditional social norms is once again gaining ground on institutionalized forms of trust:
Introducing people to one another may encourage them to behave better—it may reduce insurance payouts and help a company’s bottom line. But it also makes for a radically different experience than we’ve come to expect from our service economy. In my conversations with Lyft riders and drivers, practically everyone said some version of the following: “I like dealing with real people.” Of course, the licensed cabbie is a real person. So is the bellhop, the line cook, the kennel owner. But when we interact with them, they are operating as agents of a commercial enterprise. In the sharing economy, the commerce feels almost secondary, an afterthought to the human connection that undergirds the entire experience. (This is due in part to the fact that the payment itself so often happens electronically and invisibly.) In this way, it suggests a return to pre-industrial society, when our relationships and identities—social capital, to use the lingo—mattered just as much as the financial capital we had to spend.
...Just like residents of pre-industrial America, sharing-economy participants know that every transaction contributes to a reputation that will follow them, potentially for the rest of their lives.
Tile image courtesy of Spiros Vathis.