A Venture Capitalist view of the Peer Economy

From an interview of Brad Burnham, partner at Union Square Ventures by John Geraci:

“* Readers at Shareable are interested in developing a sharing economy that can benefit everyone equally — the end users in the economy every bit as much as the corporate players, and enrich the communities they act in rather than extracting everything. Is that possible with the peer economy? It’d be hard to argue that Uber does that. Uber is extracting the money — the equity — for their shareholders.

I disagree. I believe that free market capitalism has created enormous amount of wealth for a very large number of people, and that the alternative systems have not succeeded in creating that amount of wealth. I think that the peer economy is a logical evolution of free market capitalism. The large incumbent bureaucratic hierarchies that dominate sectors of the existing economy actually constrain free market capitalism, because they’ve gotten to a point where they control policy and politicians, and affect the ability for people to compete, and stuff like that. I think the peer economy is an extension of that free market capitalism.

* This economy has created an inordinate amount of wealth for a few individuals, but the greater good, the community, has not seen that same rise, that same lift.

Yeah, and I think that is true. It’s probably been always true. If you look at the Robber Barons in the 19th century, the original infrastructure of the industrial revolution created a huge concentration of wealth that wasn’t well-distributed, and then, as that infrastructure matured, you know, we got into a period where we had the broadest distribution of wealth in the late ’50s and ’60s, and now we’re actually moving the wrong way, in my opinion, to a much higher concentration of wealth for a variety of reasons. I think it’s not the peer economy’s fault that that’s happened. I think it’s a kind of intermediate step — a kind of adolescent step, and I do think that it is largely happening as a result of not having the right conception of what rights and data are.

They’re extracting too much value, and I think another generation that will compete with them will be thinner, and it’d take less out of that. It’s natural creative destruction of capitalism. As we move to the next generation, my hope would be that we see a broader distribution of wealth, and a greater level of agency and empowerment for the people who are participating in the economy.

* Okay, so you see (the current set of Peer economy startups) as sort of an intermediary first step in what’s a very nascent industry, and there will naturally be follow-on players that, just by virtue of competing with these big players, they’re going to go thinner and there’s going to be more distribution of wealth. Less extraction…

Yeah, and I think it should be all of our goals to accelerate that process. You know? If it took seventy years for that to happen during the Industrial Revolution, I would hope that we could do it in 20, or maybe 10.

* How does that square with your job as a venture capitalist? Of trying to … You know, your job, first and foremost, is to provide a big return on your fund for your partners.

Our job is to invest in ways that, as you said, we can deliver the highest possible return. The answer to the question is that we invest in disruption and disruption creates the highest possible returns. I think there is an open question about what the future … You know, I mean, broadly speaking, what the future of capital is. Meaning, I think one of the reasons we have the disparity that we have today in wealth, and it is that we’re seeing returns to capital that are significantly outpacing returns to labor.

I think that’s not sustainable over the long term, and I think, if you think about the next generation of the peer economy being a thinner network where the returns to capital are lower, the returns to the labor are higher, then that’s a … The nice thing about it is it’s the creative destruction of capitalism. We want to participate in that. We think we can generate a return participating in that, and we think that’s what we should be doing.

* So you feel like what we’re seeing right now is sort of a blip where capital is returning a lot more than labor. Is this the early phase, to bring it back to the peer economy? This is very early days of peer economy, and we’re going to see a much different peer landscape evolve in the next, say, ten years or twenty years that will look very different from the current way it is?

First of all, I think “blip” is…

* Too short a word?

Little too short of a word. I think it’s a transition. It’s a period of time, and I think that our goal as a society should be to shorten that period of time, but I think that we’re talking about a fundamental transformation of the global economy, and that there is enormous amount of vested interest in not only in the new peer economy but the traditional bureaucratic hierarchies. There are a lot of things that could disrupt or disrail this natural evolution. I think they would be corrupting of the free and open market, but they would be … Protection is for various incumbents, and either the old incumbents or the new incumbents, and that I can’t begin to predict what the implications of those policy moves might be.”