So, we’ve a little smartphone app that allows you to find a parking space in Dhaka, Bangladesh. Or, to rent out your parking space to someone in Dhaka, Bangladesh. True, the value of parking spaces in Dhaka is not high. They’re in short supply and difficult to find but we’re in a poor country so we’re not talking about vast gobbets of value being added to the global economy.
And yet there is a significant issue here. Firstly, we’re looking at why and how mobile phones themselves add so much value to the economy. They allow markets to complete. People who have something to offer can find it difficult to discover those people who desire that thing. And vice versa of course. That completing of markets is why the mobile might be the greatest poverty reducing mechanism we’ve ever devised. Before smartphones, before the mobile internet, we found that just 10% of the population having a basic mobile added 0.5% to the GDP in a poor country. An additional 0.5 percentage points in economic activity per 10% of the population per year.
It’s even possible to argue – be difficult to prove and probably wouldn’t quite work but – that the leap in third world growth has been driven near entirely by this technology plus leaving it with the space to work in through basic free marketry.
It’s also true that this is the right sort of growth, it’s an addition to the Solow Residual:
So, to our parking app or being able to rent out the apartment for a night or two. Or become a taxi using our own car for some hours a week. What we’ve got is that same amount of capital we had before. The parking space, the car, the room in the flat, these all existed anyway. We may or may not be adding, as with driving, a bit of labour. But what these new platforms allow us to do is make use of those already extant economic assets. That is, we’re gaining output without having to use more capital or labour. We’re becoming more efficient, we are raising productivity. We’re actually in the nirvana dreamed of by economists where we get richer just by being cleverer about how we do things. Yes, of course, a parking app in Dhaka is trivial in the global scale of things. But it’s excellent as an example of the manner in which the digital platforms are making us richer. At the moment some extant parking spaces go unfilled because the search costs to find them are too high. So too finding someone who wants to rent your driveway is difficult and expensive. Make that dual-sided search cheap and convenient, and more economic activity will take place. We’re richer, without having had to build more parking spaces.
No wonder the statists hate the sharing economy. For it shows that we can gain that most desirable form of economic growth, an increase in productivity, without their intervention or ministrations. An anathema to be banned, obviously.