Introduction
In today's digital age, we've grown accustomed to the convenience of services like Airbnb and Uber. With just a few taps on our smartphones, we can book a room for our vacation or hail a ride home after a night out. These companies, along with many others, are part of what's known as the "sharing economy" - a system where businesses connect buyers directly with sellers, seemingly cutting out the middleman.
At first glance, this new economic model appears ideal and egalitarian. It promises freedom, flexibility, and opportunities for both consumers and service providers. However, as Steven Hill argues in his book "Raw Deal," there's a dangerous underbelly to this sharing economy that, if left unchecked, could lead to economic disaster.
Hill's book serves as a wake-up call, shedding light on the hidden costs and long-term consequences of this new economic paradigm. He challenges the rosy picture painted by tech companies and their supporters, revealing how the sharing economy is reshaping the labor market, eroding workers' rights, and potentially undermining the entire US economy.
The False Promise of the Sharing Economy
The sharing economy has been hailed as a revolutionary force, promising to create a kinder, gentler form of capitalism. Supporters argue that by removing middlemen and cutting through government red tape, it offers greater freedom in the marketplace. However, Hill contends that this promise is largely illusory.
Take Airbnb, for example. Initially seen as an exciting alternative to overpriced hotels, it garnered praise from both liberals and conservatives. Liberals saw it as an example of self-sufficiency and sustainable practices, while conservatives applauded its decentralized business model.
However, the reality has turned out to be quite different. What started as a way for people to make extra money by sharing a spare room has morphed into something far more problematic. Professional renters have flooded the platform, and landlords are evicting long-term tenants to cash in on more lucrative short-term rentals. Airbnb, aware of these issues, continues to project a wholesome image of sharing while disregarding laws designed to protect tenants.
Similarly, Uber, another poster child of the sharing economy, has been ruthless in exploiting legal loopholes to maximize profits. By classifying its drivers as "contractors" rather than employees, Uber avoids paying social security contributions and other benefits. The company also skirts responsibility for passenger safety by positioning itself as a tech firm that merely connects customers with drivers, rather than a transportation company.
These practices allow companies like Uber to undercut traditional businesses while depriving states and cities of significant tax revenue. The result is a raw form of capitalism that prioritizes profits over the well-being of workers and communities.
The Rise of the 1099 Economy
One of the most significant shifts brought about by the sharing economy is the growing reliance on independent contractors. This trend, known as the "1099 economy" (named after the tax form these workers use), is rapidly reshaping the American workforce.
Unlike traditional employees, these contractors are paid by the hour and receive no health benefits, retirement plans, or social security contributions from their employers. This arrangement allows businesses to save money by outsourcing work to freelancers, often at the expense of job security and worker protections.
Some companies have gone as far as firing their employees only to rehire them as contractors with reduced wages and no benefits. Others, like Google, maintain a workforce split between a small number of well-paid employees with benefits and a larger pool of less-protected contractors.
While this practice is becoming common worldwide, it's particularly pronounced in the United States due to the lack of legal protections for contractors and temp workers. Unlike countries such as Germany or Brazil, which have laws safeguarding the rights of these workers, the US allows companies to keep "perma-temps" in a state of perpetual insecurity.
This shift towards a contractor-based workforce has far-reaching implications. It undermines the middle class, which relies on secure, well-paid jobs to drive consumer spending and maintain a strong economy. As more workers find themselves in precarious employment situations, the very foundation of the American economic model is at risk.
The Share-the-Crumbs Economy
The sharing economy often creates a race to the bottom, where workers compete against each other for increasingly meager compensation. Platforms like TaskRabbit, which allow users to auction off various jobs to the lowest bidder, exemplify this troubling trend.
While proponents argue that these platforms provide work opportunities for the unemployed, Hill contends that they're actually exploiting those in desperate situations. He describes this as a "share-the-crumbs economy," where workers fight over whatever scraps they can get.
This system thrives in a depressed labor market where people are willing to do almost anything for a little money. When workers are forced to auction off their labor and compete globally for jobs, the result is inevitably lower wages and poorer working conditions.
Even for local jobs like window cleaning, workers end up underbidding each other to secure work. And when expenses like commuting and job searching are factored in, these gigs often pay far less than advertised.
This race to the bottom contributes to the growth of the "informal economy" - a sector that operates outside of government regulation and taxation. This underground economy, which includes everything from under-the-table domestic work to outright illegal activities, has been expanding rapidly in the United States. In 2012, it accounted for about $2 trillion, or 13 percent of the country's GDP, double what it was just three years earlier.
The growth of this informal sector poses significant challenges. Workers in this space lack legal protections, making them vulnerable to exploitation. Moreover, the expansion of untaxed economic activity deprives the government of revenue needed to fund essential services and social programs.
The Real Threat to Jobs: Deregulation, Not Automation
Contrary to popular belief, Hill argues that the primary threat to blue-collar jobs isn't automation but rather the erosion of labor regulations. While it's true that technological advancements are changing the job market, the impact is more nuanced than many realize.
Automation tends to target high-skilled, expensive jobs rather than low-wage positions. This is because the cost of implementing automated systems is substantial, making it more economical to replace higher-paid workers. As a result, we're seeing robotic algorithms taking on tasks in fields like law, pharmacy, and even creative industries like music composition.
Ironically, this trend may actually bring some jobs back to the United States that were previously outsourced. For instance, the interpretation of medical imaging results, once commonly outsourced to countries like India, may soon be performed by local automated services.
The more immediate and severe threat to blue-collar workers, according to Hill, is the ongoing deterioration of labor regulations. As traditional labor unions have lost power, new organizations have emerged that paradoxically threaten rather than strengthen workers' rights.
One example is the Freelancers Union, which, despite providing some benefits like health clinics, advocates for a return to pre-1930s labor conditions. The organization's vision involves dismantling government regulations that protect employee rights, allowing the private sector to set the rules instead.
However, history has shown that without government oversight, labor rights are rarely secure, and wages and benefits tend to plummet. For freelancers who are already struggling with underemployment and low pay, such a shift would likely exacerbate their challenges rather than alleviate them.
The Looming Economic Crisis
Hill warns that the current trajectory of the US economy, driven by declining wages and job insecurity, is pushing the nation towards a potential economic collapse. He emphasizes that the American economy performs best when its workers are prosperous and secure.
The traditional model of the US economy relies on a virtuous cycle: well-paid workers can afford to buy the products and services produced by others in society, creating demand that keeps the economy humming. This principle was understood by industrialists like Henry Ford, who famously ensured his employees were paid enough to afford the cars they were manufacturing.
It was this well-functioning consumer society that propelled the United States to economic dominance throughout much of the 20th century. Even during the Great Depression of the 1930s, the government took steps to support this model by increasing employee benefits and creating jobs for the unemployed.
However, the sharing economy and the broader trend towards precarious employment are endangering this economic fabric. While the United States continues to produce goods and services worth trillions of dollars, lower pay and job insecurity mean that fewer people can afford to buy them.
This creates a dangerous imbalance: a surplus of production on one side and a severe lack of demand on the other. If this imbalance becomes too extreme, Hill warns, the economy could implode in what he terms an "economic singularity."
To illustrate the potential consequences, Hill points to Japan's prolonged economic stagnation over the past few decades. However, he argues that this fate is not inevitable for the United States. By implementing policies similar to those in countries like Germany, which protect both employees and freelancers, the US could maintain consumer demand and preserve economic health.
The Need for a New Social Contract
As the United States stands at a crossroads, Hill argues for the urgent need to establish a new social contract that protects both workers and businesses. He presents two potential paths forward: the "new New Deal," which values employees and safeguards their prosperity, and the "Raw Deal," which follows the current trajectory of the sharing economy towards economic decline.
To prevent another economic depression, Hill suggests several fundamental changes:
End the system of quasi-independent contractors: Companies should be required to pay social security for all workers, including contractors. Hill argues that the cost of this (less than $2 per hour per worker with current subsidies) is a small price to pay compared to the long-term economic consequences of not doing so.
Address corporate underpayment: Companies like Walmart that underpay their staff, relying on government assistance to supplement their workers' incomes, are effectively shifting their labor costs onto taxpayers. This practice costs US taxpayers billions annually and is unsustainable in the long term.
Learn from European models: Countries like Germany, the Netherlands, and Sweden have implemented policies that benefit both employers and employees. For instance, instead of layoffs during tough times, these countries encourage businesses to reduce hours and wages across the board until conditions improve. This approach maintains job security and helps preserve consumer confidence.
Recognize the importance of job security: For people to feel secure enough to spend money and keep the economy afloat, they need to trust that their jobs won't disappear at the first sign of trouble. Businesses need to prioritize job security and living wages to maintain a healthy economic ecosystem.
Hill emphasizes that it's not too late to change course. By implementing these and other reforms, the US can create a more stable and prosperous economy that benefits everyone, not just a select few at the top.
Final Thoughts
"Raw Deal" serves as a crucial wake-up call, challenging the narrative that the sharing economy is an unalloyed good. Steven Hill's analysis reveals the hidden costs and potential dangers of this new economic model, from the erosion of workers' rights to the threat of economic collapse.
The book underscores the need for a balanced approach to technological innovation and economic policy. While the convenience and efficiency offered by companies like Uber and Airbnb are undeniable, we must also consider the broader implications of these business models on society and the economy as a whole.
Hill's call for a new social contract is particularly timely. As we navigate the challenges of the 21st-century economy, it's clear that we need policies that protect workers' rights, ensure fair compensation, and maintain the consumer spending power necessary for a healthy economy.
Ultimately, "Raw Deal" reminds us that economic systems should serve the needs of society as a whole, not just the interests of a few powerful corporations. By understanding the risks and challenges posed by the sharing economy, we can work towards creating a more equitable and sustainable economic future for all.
As we move forward, it's crucial to heed Hill's warnings and consider alternative models that prioritize worker protections and economic stability. Only by addressing these challenges head-on can we hope to harness the benefits of technological innovation while avoiding the pitfalls of unchecked capitalism.
The future of work and the economy is in our hands. It's up to us – as citizens, consumers, and policymakers – to shape it in a way that benefits everyone, not just a select few. "Raw Deal" provides a valuable roadmap for this journey, offering both a critique of our current path and hope for a better way forward.