You Don't Have To Be Desperate To Believe That Trust Is A Good Thing

from the overreacting dept

Wired Magazine recently had an interesting cover story entitled How Airbnb and Lyft Finally Got Americans to Trust Each Other. It's a basic discussion of how much of the so-called "sharing economy" is built around trust, and how that's a sort of surprising thing, considering how little people tend to trust each other. Over at New York Magazine, writer Kevin Roose played the grumpy contrarian, arguing that the success of the sharing company has nothing to do with trust, but is all about desperation. And thus a big debate has kicked off. I'm going to argue that the debate is meaningless because it's not an either/or situation and neither point really matters much anyway.

First, the whole "desperation" argument is really somewhat nonsensical. You could make the same argument about any major cultural or economic shift in history if you wanted to. Did mass production and the industrial age come about because of desperation? Why, yes, you could show how that's the case as well. But it still created tremendous benefits around the globe and created tremendous progress (even for those who were desperate). I mean, you could equally argue that nearly all work is the result of desperation. If you don't have a job and aren't independently wealthy, you're pretty desperate for a job. But we don't automatically argue that all economic productivity is because of desperation.

Second, the whole "trust" issue is overstated in the Wired article. Even the article itself notes that studies show that Americans actually trust each other a lot less today than in the past (potentially for good reason). And that's because people seem to be confusing general trust with specific trust. What these services enable are ways to have a better sense of who you can trust. In fact, you could argue that what these services have done is help show who you can trust within an inherently untrustworthy population.

But my major takeaway from this argument is that both sides are missing the larger point of why this is so important. Just recently, we were discussing Jeremy Rifkin's new book, in which he argued that this is actually the beginning of an entirely new economic paradigm that eclipses capitalism. But, as I argued in the piece, I think it's just a much more true form of capitalism that allows for much more efficient uses of resources for everyone -- and that's regardless of whether or not there's more trust or desperation in the system.

Prior to industrialization, trust was more prevalent, in part because you would have many, many interactions with the same small group of people. You didn't deal much with outsiders, and tended to know the people you dealt with on a regular basis. That engendered trust, because relationships were built, and you knew that abusing trust would come back to bite you in future interactions. With industrialization and urbanization, some of that trust broke down, because you no longer only dealt with a close-knit community of folks over and over again. You had many more transactions where you likely would never deal with the counterparty ever again -- opening up a lot of opportunity for fraud and scams. Like in the classic Prisoner's Dilemma experiment -- when it's run only once, people tend to cheat. When you know it'll be run many times over, people learn to "trust" each other, because it leads to much better long term outcomes.

So, without those regular interactions with the same kinds of people, government often stepped in with regulations to try to effectively force a more trustworthy framework on the world. You had health inspectors for food, safety regulations for work, general regulations on hotels and taxis and a variety of similar laws -- all designed to make sure that these kinds of transactions, which are generally one-offs, can be trustworthy and safe. Given the overall world they existed in, those regulations made perfect sense.

However, as is often the case in a regulatory environment, they also introduced certain inefficiencies in the process, making running those business more expensive, locking in certain (perhaps less-than-efficient) business practices, and often keeping out new upstarts and innovators. As we've seen, overtime, incumbents (despite claiming to hate regulations) will often embrace such regulations because they keep out competitors.

So here's where the interesting shift has come into play. Things like Lyft and AirBnB are using a combination of transparency and information to create systems that allow for both the more efficient use of resources and making transactions more trustworthy even without making use of those regulations. This freaks some people out and it clearly does not always work perfectly. But, on the whole, it has created some really amazing new opportunities on both sides of the markets, in which greater information transparency steps in and provides a better solution to legacy regulations, with significantly less overhead. That's freeing up economic resources by increasing efficiency in a really compelling way.

And this is why the traditional players, who had embraced the regulations wholeheartedly, are so pissed off. It does seem unfair that AirBnB can effectively compete with hotels without complying with hotel regulations. But part of the reason it does so is that the system that AirBnB has created doesn't need those kinds of regulations. While it's just anecdotal, my own experience using AirBnB has consistently resulted in a much better experience than at hotels, and one where that kind of trust that is built up matches much more with the pre-industrial version. As an example, I'm actually Facebook friends with one AirBnB host whose apartment I used once, and I will likely stay at his place again in the future. He didn't join AirBnB out of desperation, but because to him it's a great way for him to run his own business, which he's always wanted to do.

Thus, I think arguing over whether or not these services have increased trust or are a result of desperation is sort of a meaningless argument. It's happening one way or the other. What's much more interesting about this is how it's actually opening up all sorts of new efficiencies and economic opportunities for everyone -- and doing so by using information to show why old regulations, no matter how much they made sense at the time, may be inefficient and obstructionist today.
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Filed Under: desperation, economics, efficiency, innovation, regulations, sharing, sharing economy, trust
Companies: airbnb, uber

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  1. icon
    JWW (profile), 29 Apr 2014 @ 11:17am

    Re: Trust

    We regular people trust each other a lot.

    Politicians we trust … not as much.

    I guess politicians see this and think they need to protect us from unscrupulous people who we shouldn't trust. The irony is that they're the unscrupulous ones we really need protection from.

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