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Jakarta Post

Conventional regulations won't work for 'sharing' economies

Jakarta   /   Fri, April 15, 2016   /  09:28 am
Conventional regulations won't work for 'sharing' economies A driver of uberMotor prepares to pick up a customer in this screen captured photo from Uber's video on YouTube. The US-based ride-hailing application Uber Indonesia offers motorcycle taxi service popularly known as ojek on Wednesday called uberMotor. ( screengrab/Taken from Uber Indonesia's Youtube channel)

The current debate on regulating sharing economies is too focused on the legality or illegality of certain platforms, especially the “ride-sharing” services. Debating whether sharing economies fit within a certain definition of existing regulations (e.i. public transportation) is of no use. This is because platform businesses are “neither-nor”. 

Uber is neither a public transportation company per se, nor an IT company as such. AirBnB is neither a hotel/hospitality company per se, nor an IT company. Paypal is neither a bank, nor an IT company per se. So, it is useless to try to match them with existing legal definitions for the purpose of regulation. 

Legislation will always lag behind revolutionary changes. Our founding father Soekarno once said: “A revolution throws away existing laws and marches onward ignoring such laws. So, it is difficult to plan a revolution with a lawyer!” Well, he may not have been entirely correct, since lawyers have taken part in so many revolutions and have written post-revolutionary laws, but what he said about existing laws was correct. Trying to regulate disruptive innovations with existing laws is like arguing for Indonesian Independence using Dutch colonial laws.

I use quotation marks around the word “sharing” because the term is currently highly contested. The original idea of a sharing economy was to allow temporary access to goods and services in exchange for something else (not always money), but lately sharing is not always caring. In some cases it is just another transition of capitalism into a “new” economy. So the whole idea of disownership, where people own less and share more — also called “collaborative consumption” — is no longer true in many cases. 

For example, drivers may not own their own cars, but instead they rent them from someone else. On the other hand, people purchase more cars to be rented to these “sharing” economy platforms. And then there are cases where big players enter AirBnB to leverage their property. So instead of reducing ownership, it contributes to what political geographers called “accumulation by dispossession”.

What is certain is that the old economy is being redefined. Even jobs are being redefined. Information technology is slowly but surely shifting “employee” into “workforce-as-service”. There will be fewer employees and more part-time work-from-home consultants. There will be fewer people going to offices and more people teleconferencing through virtual reality gadgets. 

For lawyers, this means that the traditional elements of labor law, wages, authority (e.i. from a boss) and “a defined job”, are no longer fulfilled. The new workforce has more independence and outcome-rather-than-process orientation. So authority is rather irrelevant. They also receive commissions instead of wages. They also may not have a set of “defined jobs” — they may be working here and there on several projects.

For that reason, the existing Manpower Law may not be necessarily relevant for the sharing economy. Thus the government shouldn’t force manpower laws on Uber and Go-Jek. This is not to suggest that the new workforce should be deprived of their traditional protections — in terms of health insurance and pension funds and other benefits — that are traditionally provided by offices. It simply means that the government needs to think of new ways so that these protections remain available when the workforce has shifted from employment to services.

The same reason goes for transportation platforms. Taxis, for example, must comply with minimum service standards, such as being equipped with taximeters, assurance of driver’s physical condition, maximum working hours, vehicle maximum age and general safety standards such as functional seatbelts, functional brakes and regular checking to ensure that the vehicle is roadworthy. All these standards must be available to Uber’s or GrabTaxi’s customers too.

The real problem is how to apply these standards to a sharing economies platform. The government should not confuse regulatory goals with regulatory formalities. Subjecting vehicles to yellow license plates or registering them with specific licenses are regulatory formalities (means) to regulatory goals (ends), which is, among others, safety. 

Now how do we get them to obey these standards? The current academic proposal from experts worldwide is through self-regulation. Some called them “shared regulations”, which denotes shared regulatory competence among several regulatory authorities and the companies themselves. Unfortunately this idea has not caught the attention of Indonesian policymakers and they are preoccupied with applying existing legal definitions to Uber, Grab or Go-Jek. As I previously mentioned, it won’t work because they can’t be categorized as per se IT or transportation companies. 

The concept of shared regulation has actually been implemented in several sectors in Indonesia as well. The idea is quite simple: rather than the government trying to regulate and monitor drivers’ compliance with service standards directly, let the companies enforce them. So companies here act as self-regulatory agencies. 

The reasons for self-regulation are lower enforcement costs, a company’s intrinsic interest to comply, flexibility and that it allows room for innovation and experimentation. The enforcement cost of self-regulation is low because companies can easily ban drivers from taking part. The cost for doing this is almost negligible for companies but would be extremely high if carried out manually by government. This also denotes savings of taxpayers’ money.

A company’s intrinsic interest to comply is also quite high because it needs to ensure reliability of services. One prominent example is when Go-Jek provides helmets and masks to passengers. In these cases they acted in compliance with traffic regulations, but with much lower cost compared to real traffic police. 

Self-regulation also provides room for plenty of negotiations and less rigidity and formalities compared to traditional command-and-control regulation. What is most important is that self-regulation provides “space” for innovation and experimentation. The sharing economy is here to stay and it will continue to flourish in various other sectors. 

There are negative externalities associated with it that justify regulation but also there is tons of potential. Traditional command and control regulation may unintentionally kill it. This is something that President Joko “Jokowi” Widodo, with his “creative industry” slogans, tries to avoid.

So what is the key to these regulatory proposals? The key is data or, I should say, “big data”. This is the part where platform companies get irritated for various reasons. There are three characteristics of regulation: Standard-setting, behavior modification and, the most important thing, information gathering. 

Companies have access to tons of user and customer data: Their locations, their working hours, their ratings, etc. Data on working hours is necessary to enforce maximum working hours for drivers. GPS data is required to control the maximum number of vehicles allowed in a given location. Like it or not, we may have to use command-and-control methods for this one because when we have no information we will have no regulation. Internet blocking may need to be utilized if companies refuse to share data.

But can existing regulations accommodate such a regulatory proposal? The answer in no, we need new regulations. How? The President as the highest executive authority has power directly under Article 4 of the Constitution to enact a presidential regulation. The presidential regulation could regulate a self-regulatory model for sharing economies and the sharing of regulatory competence between sectoral ministries with the Ministry of Communication and Information. 

Anything less than that isn’t likely to work. Platforms need new, specific regulations and existing laws aren’t enough. But we must regulate quickly because there are negative (as well as positive) externalities already associated with the sharing economy. 



The writer is director of the Center for Regulation, Policy and Governance. He obtained his PhD in law from the University of Dundee, UK.


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Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.