Home / Opinion / Regulating the sharing economy

Last week, the ministry of road transport came out with a set of recommendations to govern the taxi trade in the country. The recommendations are meant to provide a sensible and realistic environment for the new class of app-based taxi service providers like Ola and Uber, whose growth has too often been treated in isolation and criticized.

With individual states free to adopt or reject them, the ministry’s eminently sensible move to identify them as on-demand information technology-based transportation aggregators and not taxi companies may not find immediate acceptance. Already, Maharashtra has queered the pitch by issuing a City Taxi Scheme 2015, encompassing taxi service providers as well as aggregators, which requires licensees to maintain a fleet of a minimum 1,000 and a maximum of 4,000 taxis. Artificial impositions like these could place hurdles in the growth of such services, which are facing similar regulatory strictures from under-pressure administrators across the world.

Uber, Ola, Lyft and similar services have been a threat to the taxi industry ever since they hit the roads five years ago. In the US, the on-demand economy, of which Uber is a poster boy, received a rap on its knuckles from Democratic presidential candidate Hillary Clinton some months ago when she accused it of “wage theft". Indeed, despite her Republican challenger Jeb Bush endorsing Uber for “disrupting the old order" of business, acceptability outside of a growing mass of satisfied consumers is low. Among regulators, policymakers and, of course, existing taxi drivers, it is still the ungoverned upstart hurtling along the road without adhering to rules and without any economic considerations.

There is some truth to that. Uber and Ola are no tiny start-ups, in need of hand-holding and mollycoddling by regulators. They are giant businesses with massive valuations and the backing of venture capitalists and funds with cash to burn. As compared to old-economy taxi firms, they can afford to subsidize customers to grab market share. But seeing them as isolated start-ups, out to disrupt an existing business by the sheer weight of funding, is a mistake.

The sharing economy is driven by a perfect storm of several intersecting trends incorporating advances in technology. Its growth has come in tandem with increasing sophistication and security in payment systems. In addition, there is the rise of mobile phones, which is really what makes hiring a cab on the go possible. These new services combine mobile technology with cloud infrastructure, sophisticated customer relationship management systems, geographical location data and other innovations and use data analytics to reach customers at the point they need them most.

The other, more subtle trend driving car-sharing is the changing attitudes to car ownership. With rising parking problems and high charges, besides the hassles of maintenance, occasional car users are now figuring that a reliable sharing service is a much better alternative to buying a car. Peer-to-peer car-sharing services in the US as much as in India continue to generate momentum. These allow multiple users to drive the same car based on their needs.

Opposition to the sharing services comes from an existing industry that is ancient and has seen little or no innovation for decades now. From the time that the first public hackney coach service for hire started in London over 400 years ago, through the end of the 19th century when electric battery-powered metered taxis became available in cities like London, New York, Paris and Stuttgart, till date, the business proposition for customers has been by and large the same. In the late 1940s, two-way radios enabled taxicabs and their offices to communicate with customers, but beyond that it has really been a case of harried and frustrated customers, dependent on taxi companies which in India have been small, localized and in most cases decrepit. Something clearly had to give and technology provided the perfect platform for the new wave.

Recent investments in maps and logistics and an interest in autonomous cars points to the fact that these start-ups are not going to restrict themselves to be taxi equivalents but are on their way to building comprehensive logistics firms. Instead of worrying about how these services are taking business away from traditional firms, regulators should be working to see how old businesses can match the speed, efficiency and economy of these new players. As open source guru and publisher Tim O’Reilly said: “Regulation is not a good in itself. It is a means of achieving public goods. Regulators should be using the opportunity to revisit the old way of doing things rather than trying to make the new conform to outdated rules that no longer serve their purpose."

Should the government exhibit a more open mindset while regulating disruptive start-ups? Tell us at views@livemint.com

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout