Understanding disruption and policy options
The Jakarta Post
Road blockades made up of convoys of licensed taxis clogged Jakarta's main thoroughfares on March 22. The taxi drivers demanded the government ban app-based transportation service providers and the use of non-licensed private cars as taxis.
Just a week earlier Jakarta saw a similar event, albeit on a more modest scale.
Why the recurring events, and why is the government not taking a more decisive position on the matter? The simple answer is, it is complicated and I am not saying this disparagingly, I earnestly mean it.
Cities around the world have been struggling with the likes of Uber, Grab and other app-based transportation services and how best to deal with them ' how best to deal with the 'disruptions' that have been introduced into an existing business model.
Before arriving at a certain policy prescription, perhaps it is worthwhile for the line ministry or city administration to take a closer look at how the disruption is taking place and, more importantly, how it is actually benefitting the users of the new services.
This is the crux of the debate ' if the new service offers actual quantifiable benefits to the public, should the government or the city ignore them and simply give in to the demands of, in the case today, the disrupted taxi industry under the guise of existing regulations regulating the transportation sector? I would argue no.
Taking a step back in understanding disruption, or disruptive technology ' fully mindful that this concept has been frequently discussed, but still ' let me quote from its originator: 'A disruptive technology is one that displaces an established technology and shakes up the industry, or a ground-breaking product that creates a completely new industry.' (Harvard Business School professor Clayton M. Christensen, 'The Innovator's Dilemma', 1997).
The quotation suggests that the spectrum of disruption ranges from displacement to the creation of a new industry.
If the creation of a completely new industry is too far of a leap, let us understand disruption as displacement, a new technology has 'shaken up' an established industry.
In the current context, it should be noted that disruptive technology is not only shaking the taxi industry, but shaking other industries as well and affecting all aspects of our lives.
If the pundits are correct, the next big wave will be in the financial sector and the impact there will be even more substantial.
Going back to the above definition and the protests in Jakarta, what is perhaps missing from the observation of Prof. Christensen is the outcome of the displacement.
The disruption has a positive impact on customers that are using the new services. In the case of Uber, the disruptive technology offers a new option that actually addresses the issue of scarcity of taxi service, resulting in a more efficient and affordable transportation service.
Understanding that disruptive technologies are real and will impact a whole host of our activities and livelihoods, what can the relevant regulator do to address the gap between the prevailing regulations and the new technology? Should it even be regulated? If yes, what exactly should be regulated?
In my view, there are at least two aspects that can be regulated. First, is to regulate the disruption, or regulate against the disruption. And second, to regulate for a level playing field. Both policy prescriptions will have differing consequences.
From media reports, following the demonstration that took place last week, the line ministries are mulling over how to address the issue by regulating the disruption.
Unfortunately, this policy prescription will involve forcing the new business model into an existing box into which the new business cannot fit.
The insistence or the inclination of the regulator to regulate Uber or Grab as if they were running a taxi service (e.g. setting up a cooperative) is a failure of the regulator to understand the disruptive technology that Uber is presenting to the transportation sector.
While we are still debating whether Uber is a taxi or a non-taxi, Uber is pushing forward and crossing more frontiers, such as car-ride sharing (UberPool), carpooling (UberCommute) and even driverless cars.
Surely, it would be incorrect to categorize Uber simply as a taxi service given the breadth of services that it offers or will offer. In this regard, I would be skeptical of the effectiveness of the regulation if the regulator opts to regulate 'the disruption'.
The option of regulating for a level playing field in my view is more constructive. This approach is also more accommodative and has the interests of consumers in mind.
The regulator ultimately has to consider the interest of the public first, as opposed to the industry players, both the newcomers and the incumbents. I am under no illusion that this will be a simple task as it will mean accommodating two competing interests, that of the status quo and the new players.
Nevertheless, I would argue that it would be based on the right incentive: the impetus to provide better, more efficient and more affordable transportation services.
Among the ways to level the playing field, as often voiced by the licensed taxi services, are in the requirements to be registered and secure road-worthiness certificates.
Again, without oversimplifying, these requirements do not appear to be overly onerous for app-based transportation service providers. Bear in mind that what should be complied with are the standards that make a vehicle road-worthy.
From personal observation, most of the vehicles utilizing the Uber and Grab applications are new and well maintained. They must be, otherwise it would not win over customers. Conversely, licensed taxis, such as the Blue Bird Group, have also joined the app-based trend.
In fact as early as 2011 they introduced their applications on BlackBerry and Android-based ones are in the works. Hence, there is already a natural convergence of the playing field.
The 'disruptions' will continue and, upon closer inspection, they are actually addressing needs that existing industries cannot or have not addressed. So there are actual needs, and technologies and innovations are simply the enablers.
Technology is neutral and should not fall victim to new uncertainties. Technology has been the driver of change, ever since the era of the steam engine, the advent of electricity, the computer and, now, the internet.
Understanding that such change is inevitable will be a crucial first step. The second step is in choosing the right policy prescription based on the correct understanding.
The writer is TMT partner, Assegaf Hamzah & Partners. The views expressed are his own.
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