Dr Jim Minifie directs the productivity growth program at the Grattan Institute. His research focuses on developing policies to raise Australians living standards by improving productivity and accelerating the spread of innovations. Among his reports is the Peer to Peer Pressure Policy for the sharing economy. He has also produced reports on cloud computing, the mining boom, investment in Australia and superannuation policy among others. Prior to joining Grattan in 2012, Jim spent 12 years at the Boston Consulting Group working with corporate and public sector leaders, including 7 years as BCGs Chief Economist for Australia and New Zealand.
This is an audio recording and transcription of a conversation between Dr Jim Minifie, Director of the Productivity and Growth Program at the Grattan Institute and Ludwina Dautovic, CEO and Founder of The Room Xchange. To listen to all episodes of the show, either click the ‘Podcast Show’ category link on the right or subscribe to The Room Xchange Podcast Show on iTunes. You can connect with Dr Jim Minifie of Linkedin, download the research paper at the Grattan Institute or connect with Ludwina Dautovic on Linkedin. To find out how to become a Host or a Guest on The Room Xchange and start changing the way you live, subscribe here. Connect with The Room Xchange on social media using @TheRoomXchange
Ludwina Dautovic: Now that’s quite a background Jim…
Jim Minifie: Well, it’s great to join you Ludwina and that’s certainly my background. I worked in the corporate world and for the last five years I’ve been at the Grattan Institute which is an independent, non-political, public, policy, think tank.
Ludwina Dautovic: There’s a lot of ‘P’s in that! So independent, non-political, public, policy, think tank. Tell us more about the Grattan Institute, What does it do?
Jim Minifie: Yea that’s right. So Grattan was set up in 2009 with some foundational money from the Victorian State Government and from the Commonwealth Government, as well as some corporate supporters. The objective of the Founders was to try and introduce a fact-based independent voice into public policy discourse that wasn’t beholden to funders or interest groups and that took the broader Australian Community interest as it’s objective and we’ve got a number of programs across health, education, energy, transport, budget policy and so forth and I run productivity growth, which looks at reforms to improve living standards through raising productivity across the economy.
Ludwina Dautovic: Now what I’m really interested in discussing today is the report that you did on peer to peer pressure, policy on the sharing economy and obviously with The Room Xchange the context of that being primarily around real estate and people’s living standards, there’s a lot of talk at the moment with housing affordability, housing crisis etc. So let’s start with that report that you did and then let’s lead into how it is helping in making a difference in those spaces.
Jim Minifie: The rationale for us to get involved in trying to understand the rise of the sharing or collaborative, on-demand, trusting, peer-to-peer economy, whatever you want to call it, is that you can see in the old economy if you like, that a lot of resources are tied up, not able to be deployed efficiently because it’s difficult for people to find a partner and by the same token there’s a lot of resources devoted to the process of bringing together potential partners – buyers and sellers, in the world of platforms whether you call them anyone of those names radically reduces the transaction costs and permits new markets, but also new collaborations to spring up in a way that really would’ve been prohibitive, costly to do in the past.
So the question that we asked ourselves is what do Australian policymakers need to do to facilitate appropriately the rise of the sharing economy, that was our over-arching question.
Ludwina Dautovic: So you mentioned just a moment ago, I just kind of want to break that down a little bit, so you that in the traditional economy, there are resources that are tied up, simplify that for me in the process of how the sharing economy all these peer to peer platforms are actually changing or transforming the economy so to speak.
Jim Minifie: Yea that’s right. So if you go back in history people have always tried to develop mechanisms to ensure that they can put things to use, so you know whether it’s a Sunday Market Day where the rules around that were trying not to bring your products on other days because we all benefit when we know that everybody is going to be trading on that particular day.
Even cities you could think about as a mechanism for bringing together people with widely diverse things that they want to buy and sell. But that process has taken a huge leap up with the rise of the connected internet and now mobile platforms that we can all operate on and so what you find is whereas in the past it was difficult for somebody with a few spare hours to find a way to monetise that time, so there’s a lot of under employment in the economy or it was difficult for somebody who had a spare room or an apartment that they weren’t using for a period of time to be confident that they could find a trustworthy partner to rent that space out or otherwise provide a vehicle for exchange or collaboration using that space.
You can tell the same story obviously about vehicles, right?
There’s a huge underutilisation of peoples privately owned vehicles and you can go across finance and other domains as well and repeatedly what new platforms have risen up to exploit and facilitate is to really bring together participants on either side of these potential markets and to bring these markets to fruition.
Ludwina Dautovic: Yeah I like how you painted that picture because you know what I’m saying there it is the online of peer to peer platforms, really giving power to the individual, as opposed to needing to be driven on maths, and so where one person can be sitting behind their desk at home at home could come up with an idea develop it and then can collectively gather people together through that online space, I guess in some ways it’s also admitting the need for the middle man or the wholesaler because you can actually get the customer or the client directly to the source.
Jim Minifie: Yes that’s right and so you’re seeing if you like the incumbent intermediaries, whether it’s employers or it’s taxi companies or what have you coming under intense pressure as their model, which is one way to solve the problem. It’s not the only way to solve the problem or maybe not the best way now that we’ve got better technology.
Ludwina Dautovic: What I’m experiencing is a bit of tension towards letting go of the old economy, the traditional way of doing things, I guess that’s a usual thing and it’s not the first time it’s ever happened since economies began, but it’s changing things a lot like we were just talking about employment, about housing, you know about major corporations that have been around for years and have developed their wealth their resources base on this old economy, how do you think this is going to change things, what is it that we’re about to hit into that we’re not aware of.
Jim Minifie: Yea, so it’s a progressive process, the things that we’re really well aware of is the rise of the current round of platforms and I think that evolution isn’t over yet. You mentioned at the start that we also did some work on cloud computing and when you put together the rise of Artificial Intelligence implemented through the cloud you begin to see the prospects for really material disruptions and those are already operating in the background of the large and successful platforms, but if you take labour for example – now it’s possible for somebody in country x to provide services through an exchange, whether it’s Freelancer a 99designs to people that they’ve never met in another part of the world and be comfortable that they’re going to be paid and that they’re going to be able to develop a brand in a way that in the past would never have been possible.
There’s a whole range of other potential changes to labour as well, so it suddenly becomes possible for people to develop their own personal brand and build their own client base, that in a way, in the past prohibitively expensive for single operators and all of those things look like upside.
You’re increasingly seeing for example again in work people being able to dip onto a platform like Uber and significantly reduce the volatility of their income because if they’re working shift work or a zero hours contract or for other reasons they’ve got volatile work opportunities for the rest of their working life they’re now able to offset that volatility and all of those things are shifting the balance between traditional employment if you like and this new world of work and of course that raises anxieties for people who feel that their subject to competitive pressure from these new models and also for some of the participants although I’ve got to say we didn’t find a lot of reports coming in from people who are earning a living whether fully or partly in this world as being themselves feeling the insecurity. It’s much more as you said the incumbent operators whether it’s a business or a worker, an employee who is feeling threatened by the rise of these new models.
Now what I’ve spoken about is just work but there’s something similar going on in the world of accommodation and to a lesser extent also you see it in finance as well although that has been a slower burn than many people expected.
Ludwina Dautovic: That’s interesting because we hear a lot about crowd sourcing, crowd funding, so that’s one way to get finance in, I guess there is a number of ways it will affect finance, I could actually even talk to you about employment for ages, but we don’t have the time, but with the sharing economy changing things, and as you said I don’t even think we have reached the tipping point yet, how do you foresee things being in the future, what do you see, how do you see the economy, what is economy going to be like, i don’t even think I know the words I’m trying to say here, what is life going to look like based on the way the things are shifting now?
Jim Minifie: Yes, so I see two phases or two independent forces driving, let’s just take work over the next couple of decades. The first one is the rise of platforms and the second one is the intersection between those platforms and trade and the rise of machine production essentially automation, artificial intelligence.
Now one thing that surprised us in doing this work is that the report that you mentioned Ludwina is that the transformation of work gets a ton of press and the impression that is often left in that press is that you know everybody’s job is at risk. But the reality is that as a fraction of the workforce you’re still talking less than 1% of Australians and I believe this is still true in the US, it certainly was a year ago, less than 1% of the workforce is earning any income on a platform doing work in any given month.
So a larger fraction of people have done it once or twice or they did it awhile ago, but in terms of an ongoing fraction of the workforce this is still a very small part of the overall scene and so the question that arises is well is that going to change in future and what limits might be put on that? And my ascertain would be, that there’s a lot of work that’s done in a particular work site, requires site specific knowledge or it’s relational with the rest of your workers or you’ve got ongoing client relationships, so even if you’re an independent contractor, you don’t really have much of a need for a platform because you’ve got ongoing relationships and all of those things put something of a ceiling on how big platforms work can be.
However, the borderline between platform work and non-platform work is shifting. I think once you start to introduce the rise of international trade in services then you potentially get a much bigger impact because customers in Australia whether they’re consumers or firms will be increasingly able to access services produced in other countries whether it’s through an explicit peer-to-peer platform or not and then increasingly as artificial intelligence becomes more sophisticated and more jobs get essentially encoded in one way or another and roles and tasks at least are executed by machines you potentially see quite a significant shift in employment. Now again that’s going to be slower I think than a lot of the hype would suggest. But over time it could progressively be quite important and so ultimately what we’ve got in society is a race between technology and education and human capability and you want to keep up as a high functioning society rather than fall behind and potentially a race some of those technology changes and how we manage our social welfare and social security arrangements as well, although I think that’s further down the track, the idea of a universal basic income and so on are things that come into play if you can’t keep up in that race between crudely education and technology.
So that’s sort of the world of work and then there’s a much bigger story around how businesses organise that I think is going to play out and let me just give you one example, you see for Australia at least you’ve got Amazon entering soon and Amazon just like department stores before it is a kind of platform, about half of the transaction volumes that go through Amazon now are what people perhaps would’ve thought eBay was going to do but hasn’t really realised the dream, which is its third party transactions a form of peer-to-peer and again those really work when the consumers really know what they’re looking for so they don’t need to go through a long discovery process and where the very low transaction cost of ordering things online become important and so you can see that kind of shift towards in general across the economy a platform that’s implemented in software rather than a platform that you see in real estate as a retail proposition potentially you see something similar in banking although as I said that’s potentially a slower burn for various reasons, regulatory reasons, the fundings sides been more conservative and so forth, so I think that this is progressive, the really huge shocks that we saw with the rise of Uber and Airbnb are difficult to predict.
We would attribute those largely to the rise of smartphones, there are other dimensions but fundamentally if you ask yourself why didn’t we have those businesses in 1998, while we had the rise of eBay and Amazon and so forth and I think that’s a mobile phenomenon so it’s difficult to see what the tipping point for the rise of really giant peer-to-peer platforms in future is going to be, but I think there’s no question the broader transition that we’re on is a shift to online platforms where you’re either buying services from other human beings or you’re consuming services produced by machines
Ludwina Dautovic: One of the things you brought up in terms of Technology in education and this is just a point I’d like to make and then move on, is there’s the Gap now, this is only a few handful of people left that didn’t grow up with technology, as much as the people who are now, so, for example, I didn’t, I was nearly 30 before I first touched a computer and my kids i think were 18 when they had their first mobile phone, so the gap is getting smaller and smaller, which means the Technology aspect of it will just be a natural step for all human beings to step into, so i think the fear might become less, with the peer to peer platform growth, as technology becomes more familiar with the everyday person, would you agree with that?
Jim Minifie: Yea look, I think that’s clearly correct for the consumer side. I think the question really in the underlying worry is that there’s nothing in capitalism that gives you a particular income distribution and it’s conceivable that the returns to this next round of technology might not be distributed in a way that society or that we as individuals think is fair and that’s sort of an underlying concern and it’s been exacerbated in the US by the experience of the last ten years being that the labour market’s performed very badly after the financial crisis and as a result a lot of people have resorted to platform based work, so there’s a perception that the platform is what has caused the crisis in the labour market.
Now I don’t think that’s true, so I think the evidence that technology is pushing income distribution to get broader is a longer term issue than just the rise of platforms, it’s I think a significant concern but it’s a long term concern and the right response is not to fight the technology, the right response is to work with the technology to ensure that people can make productive livings using the technology.
Ludwina Dautovic: I agree on that one, Now just one more point I’d like to discuss before you wrap up today, one of the things that I’ve experienced with The Room Xchange is the challenge of dealing with traditional suppliers or service providers that are required to actually established and peer to peer sharing economy platform, insurance would be a prime example, how is it that the Grattan Institute can help support peer to peer platforms, in terms of perhaps even educating the traditional service providers and suppliers?
Jim Minifie: Yea so there has been ultimately it’s a push and the pioneers like you Ludwina and others have had to make those early, you know, put those propositions to those traditional service providers, who do ultimately recognise a commercial opportunity when they see it even when if they can be slow to get onboard. I think the bigger concern is that policymakers will be influenced by incumbent competitors to resist the rise of the platforms and so you see for example the taxi lobby seeking to resist the rise of peer-to-peer transport or the hotel lobby seeking to resist the rise of peer-to-peer accommodation and you know they clearly see commercial opportunity in trying to shape regulation to their advantage and so the main way that Grattan seeks to influence policy is to help policymakers see correctly what the real trade offs are and there are some policy trade offs and to set policy on that basis rather than on a basis of some often over-hyped risks and that’s where we’ve been particularly active and I know we won’t have time to go into all of these issues but there’s a set of competition law issues and tax issues and so forth that policymakers are working through.
We think it’s all manageable and at the upside for ordinary workers and ordinary consumers is really quite material and so that’s why we’ve taken the time to try and set out for policymakers what they can do to help people make the most of the platform economy.
Ludwina Dautovic: Fantastic, well thank you very much for that, if people would like to get a copy of the actual report that you did peer to peer pressure policy for the sharing economy, how can they do that Jim?
Ludwina Dautovic: Fantastic well thank you very much for joining us today, now to find out more about The Room Xchange, how to become a host or a guest and start changing the way that you live, you can go to www.theroomxchange.com or you can also connect with us on Twitter, Facebook @theroomxchange, if you would like to connect with me directly send me a message on Linkedin. Jim thank you so much for joining us today it’s been an absolute pleasure, I think that we could talk for hours so I’ve definitely got to get you back at another time.
Jim Minifie: And a coffee in-between times. Ludwina – great to talk to you and thanks for having me on.
Ludwina Dautovic: My pleasure.
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