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The sharing economy: The regulator’s dilemma

Nayeem Syed  Assistant General Counsel at Thomson Reuters

Nayeem Syed  Assistant General Counsel at Thomson Reuters

The sharing economy or crowdsourcing presents many upsides but can also have very serious short term risks to labor markets and regulatory objectives.

The initial question for regulators is whether they even have jurisdiction over a crowdsourcing business. For example, is it providing paying customers with an app or the underlying service? And the answer to this, together with the interpretation of the local laws and regulations for the underlying service, will determine whether it is operated legally in a particular jurisdiction.

In the second article in our series, we examine how government agencies could regulate technology-driven disruption that doesn’t neatly fit existing regulatory frameworks.

Regulators

It is important always to keep in mind during a discussion about crowdsourcing that high search costs and current entry and operating conditions were often partly an outcome of regulator-imposed:

(a)   Supply levels

(b)   Entry costs and ongoing taxes, which forces higher prices in cases when they are not already high and often

(c)   Prices directly or indirectly set by the regulator itself. The latter were likely introduced to protect users and prevent market failure because it is often difficult to be transparent about prices. While a great technology solution may have indeed arrived, the original regulatory objectives remain.

Factors (a) to (c) must still be appropriately reconciled at a regulatory-objective level.  Analysis does need to shift however from an exclusively legalistic discussion to what are the opportunities it offers to better fulfill regulatory objectives and improve local citizens’ lives.

Are we simply a technology company?

Disruptors generally contend that they are a technology company that merely generates connections through its software, so is not subject to traditional rules. This self-categorisation is critical to its low-cost business model. However, are users are likely to think that they are buying a search service rather than the underlying service?

Then there are the employment considerations. A critical feature of a crowd sourced business model which enables it to operate and expand at relatively low cost is the designation of workers as independent contractors and not employees. It means these firms avoid a range of costs for which employers are typically responsible, such as job-related expenses. In addition, contract workers often do not have the protection of minimum-wage and anti-discrimination statutes, workers’ compensation, and union organising rights. This creates important structural changes to local labour markets.

Re-examining the rules

Rules don’t have to be perfect or future proof for decades. But rule makers should accept that re-examining them is healthy and a proper part of their role. Successful new service models usually indicate consumers felt there was previously a “gap” in the market. Users can already source existing sellers online but crowd-sourcing presents a step-change in that it links to a multitude of private citizen suppliers, and organizes them so they can offer a homogenous and reliable service and price through a trusted platform.

Existing national regulatory frameworks try to balance a range of broadly similar objectives but do have different measures of success. Regulators have an opportunity to re-examine if their markets need more diversity and supply. By choosing to regulate rather than reject out of hand crowdsourcing and its rivals, regulators can arguably manage markets more efficiently and delegate oversight over large numbers of individual sellers. They can also decide if entry conditions can be relaxed, rules made less prescriptive and exactly how much diversity would better serve the communities.

The solution is to consult widely and deeply, be open to revising the local rules so that they don’t serve to simply preserve the status quo, embrace the crowdsourcing challenge, and find a new way to accommodate this new model within their overall local policies. When legislatures fully review then there is a better chance an acceptable balance will be reached where workers can avail themselves of part time employment, be reasonably reimbursed but protected from unscrupulous practices, and businesses get the certainty they need to invest and readily scale their operations.

Learn more

Read Part 1 of our series – The sharing economy: The mature company’s dilemma

Anticipate and navigate global regulatory compliance confidently with the most comprehensive and trusted intelligence available. Check out Thomson Reuters regulatory intelligence.

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