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Setting Ground Rules For A Shared Economy

Posted in Finance Articles, Total Reads: 1741 , Published on February 23, 2014

Limited resource & population growth

We live in a world with a limited resource to fee the growing population year after year. Today the world population is growing at a fast rate, but the resource available to us has remained more of less constant since the inception of earth. Apart from this gap between the supply and demand, whatever supplies we have on the earth is not equally distributed amongst the inhabitants of this planet. And this disparity of unequal division of resources has led to numerous conflicts across the world as we have seen in the past and also observing in the present world. And we do not expect these conflicts stop until we as human beings of this mother earth take some necessary and immediate steps towards coming up with a solution for this innate problem we have been facing

Why don’t we share?

Every individual coming on this earth is endowed with some special power and none of them are equal. Someone one owns one thing doesn’t necessarily owns the other thing which he might need for some time being. This rule applies for corporate and company level. E.g.: a country rich in Uranium not necessarily be rich in petroleum products.

Also, there have been instances of people owning excess of something which they don’t need and would rather share the excess in return of some money might be useful for them. A simple case of “Car Pooling” comes into the picture, wherein the Car owner owns the car but he has extra seats available in his car, which he/she will not mind sharing if he gets some money in return to buy the fuel for the car.

If we look logically into this problem, one of the most sensitive solution emerges is why don’t we share the resources wherever we are faced with such problems. Why don’t individuals, corporate or for that matter countries share resources for the betterment of the human kind. Kindly note, when I say sharing between countries, I am not only talking about the imports and exports that goes on between countries. Also, the sovereign countries would not like to share resources directly, so different guidelines have to drawn at each level be it individual, corporate and countries so that it leads to common growth rather than conflict

Setting the ground rules

We try to define the sharing between two entities in two major parameters. These are ease of implementation and effectiveness.

Ease of implementation can be defined as how simple is it of putting the theory into practice. I.e. is it simple for the two or more entities to share or is it too difficult.

Effectiveness is comparatively a tricky parameter as this is function of the risk involved in the sharing. It is a common belief that when we try to distribute an activity amongst multiple actors, it should lead to lessening of the risk. But, from my point of view, it is not always the case. A case in point is the sharing of EURO currency by multiple European countries. Although the idea had a good objective, the effectiveness was not there as one of the country partners went under crisis and one of the reasons was the common currency shared amongst more than 25 countries. And situation also called as EURO crisis led to lots of dishevel in the affected as well the other countries.

We can see that one shoe will not fit all. Hence, it is important to set ground rules at different level for “sharing” be used in the best possible manner

Sharing at Individual level

If we look at two or more individuals sharing a resource, it can be easily implemented for the simple reason that number of stakeholders are few and also all the stakeholders are fully aware of the situation.

But when we come to effectiveness of sharing, an important factor to note here is the individuals who are sharing should be at equivalent economic level and also the vision of all the group members should be same. When I say equivalent economic level, I mean to say that the individuals should be more or less equally well off financially. The reason I say this can be explained with the same Car pool example explained before. If in a Car-pooling we have 3 well off member but one not so financially stable individual then in case the group wants to add any betterment to the car eg: add a stereo system to the car, all the individuals but the one who is comparatively poorer will not be so keen to pool in money as adding a stereo is a luxury which he doesn’t really want. As a result of which the betterment which was planned by rest 3 will never happen. This will lead to stunted growth at best. Also, the individuals should have common vision, their approaches might differ but the goal should remain the same. These two important criterion should be kept in mind whenever we want to make resource sharing amongst individuals to be most effective.

Sharing at Corporate level

Kindly note, when I say corporate level, what I essentially mean is sharing where in number of stakeholders involved are higher. So, it can sharing at community level of between two big group of people. Again putting the sharing at corporate level in perspective, I would mention here is the ease of implementation is considerably tougher for the simple reason that more number of people are involved. Hence for this sharing to work of even initiated the “incentive” to share should be very strong. Corporate are profit driven hence the “incentive” if put in terms of monetary should be most effective way of bringing two groups together. The recent advent of “Cloud” computing is the best example of this kind of sharing as now with “Cloud” companies (mostly start-ups) or even bigger companies will need not buy the infrastructure for a new plan or project. They can borrow it from cloud service providers such as Amazon and hence safe the extra money they would have to spend in case they have to buy the infrastructure by themselves.

Coming to the next parameter that is “effectiveness”, the ground rules remain more or less the same as defined for individuals. That is namely the “vision” and “goal” should remain same.

This article has been authored by Dishant Nagwanshi from IIM Calcutta

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