Aug 26, 2016 | 14:37 GMT

3 mins read

What Happens When Economies Start Sharing

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What Happens When Economies Start Sharing

One of the most profound — and potentially disruptive — developments in the world's economy over past five years has been the rapid growth of the so-called "sharing economy." The technologically driven networks underpinning the concept, also known as the peer-to-peer (P2P) economy, have grown so much that many countries are trying to add P2P to their official gross domestic product data to better monitor the sector's development.

P2P's effect on the developing world will perhaps be the most visible. Because these regions are (by definition) still developing and urbanizing, their economies are more sensitive to new inputs. Small changes in volume can cause great changes in aggregate, leading to a leapfrog effect with new technologies. At the same time, in places that lack a given established industry, these kinds of disruptive technologies can start with a blank canvas. Changing a pattern of use can be much more difficult than adopting a new technology. Mobile phone use, for instance, caught on quickly in regions where landline phone service had not yet been established. Perhaps the most important development will be the increasing demand for these services as the developing world urbanizes. Urbanization continues apace in China, which will soon become the world's largest economy, and in India, which will likely become the second-largest over the next two decades. The demands of consumers and regulating entities in those countries, therefore, will shape the way many of these platforms evolve. Already, China has been forced to react to the growth of P2P lending platforms. The growth of P2P lending platforms has filled a niche for small and medium-sized companies that China's heavily regulated state banking system has struggled to serve.

Peer-to-peer and distributed networks will also continue to shape the movement of information — whether money, labor or even patents or manufacturing designs. As cross-border information and data flows increasingly form the basis for integration into the modern economy, countries that have built data networks designed to keep information out will have a tougher time controlling the movement of information. The United Arab Emirates, for example, cracked down on virtual private networks in July, but stopped short of outlawing their use by banks because of the harm it would do to its banking sector.

The P2P economy is just one part of a much broader and more important long-term evolution that will shift influence and power away from the nation-state and toward other actors, or networks of actors, within the economic system. Even though P2P platforms are often public or open by nature, many P2P platforms in heavily regulated sectors will likely become closed, under the control of an organization, rather than open-sourced.

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